LDC

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Food Processor Expanding with Bonds arranged by LDC

Michael Banner

As one of the leading community development financial intermediaries in Los Angeles, the Los Angeles Local Development Corporation (LDC) specializes in arranging public/private partnerships that create mutually beneficial business and economic development opportunities. The LDC provides advisory services that link growing businesses with debt and equity-like capital by structuring layered financing. This layered financing consist of both traditional and non-traditional lenders. Using its expertise with economic development lending programs, the LDC has recently added tax exempt Industrial Development Bonds (IDBs) to its array of financial services. The manufacturing emphasis of IDBs has enabled the LDC to offer low cost debt to growing manufacturing businesses.

The LDC maintains relationships with several non-traditional loan pools that are eager to finance business expansion and create new jobs in the many low income communities throughout Los Angeles county. These loan pools, like many of the commercial banks with multi-million dollar community reinvestment act commitments, are very interested providing capital to businesses operating in the various Empowerment, Enterprise and Redevelopment Zones in the county. Los Angeles was designated a supplemental Empowerment Zone (EZ) in 1996 and during the last two years the LDC has completed numerous transactions in the EZ. These transactions have supported the expansion of service, distribution, retail, manufacturing, and food processing businesses. The LDC’s expertise and track record of successfully completing transactions in these zones is unmatched by its competitors and this is particularly true for the food processors.

One such company, Choice One Foods, moved to the EZ and invested more than $6 million for the acquisition and renovation of a 70,000 square foot processing plant. This move allowed the company to triple the size of its processing plant and develop a state of the art facility to support its future growth. Choice One Foods has operated in the EZ since 1996 and represents one of first food processors to move in the EZ and take advantage of its numerous incentives.

FirstClass Foods is another example of a food processor that has outgrown its existing facility. The company has purchased a 14-acre ice cream plant that Good Humor Ice Cream once operated. FirstClass Foods purchased the facilities for a fraction of its replacement value and plans to invest an additional $2.5 million to upgrade the facility to USDA standards.

While both Choice One Foods and FirstClass Foods have chosen to move into the EZ, other food processors have chosen to expand at their existing locations. Costa Macaroni Mfg. Company, for example, is a food processor that has been operating in Los Angeles since 1923. They have a growing business and the opportunity to expand its market share, providing they can increase manufacturing capacity. Costa has reinvested its capital in the East Los Angeles Enterprise Zone by expanding their manufacturing and warehouse facility from 26,291 square feet to 77,260 square feet. Like Choice One Foods and FirstClass Foods, Costa Macaroni Mfg. Company has utilized IDBs to fund the cost of their new capital improvements. Given the capital intensive nature of the food processing industry, access to low cost capital was a major factor in the decision for companies to expand their operations and remaining competitive. Food processing is an eligible activity under the small issue private activity bond development statutes, allowing companies like Choice One Foods, FirstClass Foods, and Costa Macaroni Co. to borrow funds at tax exempt rates. Through tax-exempt IDBs, these companies can lower their interest costs by 3% to 4%, making their expansion financially feasible. Each of these companies is expecting to realize at least $500,000 in reduce interest costs by utilizing IDBs. All recipients of IDBs are required to create new employment opportunities of one job for every $50,000 of bond proceeds and these companies need more employs to sustain their growth. If you are looking to expand and would like for information please call the Los Angeles LDC at (213) 362-9111.

Michael Banner is Executive Director at the Los Angeles LDC, Inc., a community development financial intermediary that provides capital to small and medium sized business that are expanding or moving their operations into communities in need of revitalization. Michael Banner is a specialist in structuring layered financing transactions with tax-exempt industrial development bonds and other economic development lending programs.

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