Brainerd has taken steps to protect itself if Missota Paper Co. is unable to make loan payments to the city.
In a joint session Monday of the Brainerd Economic Development Authority and the Brainerd City Council, the EDA approved, by a 5-1 vote, directing Kennedy and Graven, the law firm representing the city in the Missota project, to prepare a letter of default on a $500,000 loan that the EDA acted as a conduit for between Missota and the Minnesota Department of Employment and Economic Development.
Voting against preparing the letter of default was EDA member Erik Bonde.
Kennedy and Graven recommended the city pursue the letter of default with Missota.
However, because of a forbearance agreement signed at an emergency meeting of the EDA in December, in which the city consented to a $750,000 loan from another financing agency to Missota, the letter of default would be sent only if Missota isn't current on loan payments by Feb. 15.
There also are $4,742 in outstanding legal fees Missota owes the city.
Jim Withers, Missota chief operating officer, said Missota is working on forming partnerships with other paper companies that would allow the mill, which has been shut down since November, to restart. Withers also said Missota plans on paying the legal fees it owes the city this week.
"Hopefully we can get the mill restarted and allow the mill to generate some income," said Withers.
Following the EDA's decision, the city council Monday in 4-3 vote authorized paying Kennedy and Graven to do the work on the letter of default. Voting against the motion were council members Gary Scheeler, Kelly Bevans and council President Jim Dehen.
Dehen and Scheeler both said with a month left on the forbearance agreement they feared sending a wrong message to Missota.
"While it may not change Missota's options ... I'm trying to figure out why we're getting on the train so fast when they're not defaulted yet," said Dehen.
Council member Mary Koep said she too would like to send a message to Missota -- that it's time for Missota to pay its bills or tell the city it can't.
Brainerd has a second position, after Bremer Bank, on real estate and equipment sold if Missota declares bankruptcy.
Though she voted in favor of having Kennedy and Graven prepare the letter of default, city council and EDA member Lucy Nesheim several times reminded the council that no city money was invested in Missota for the purchase of the mill. While the EDA acted as a conduit for $500,000 in loans from the state, repayments by Missota would be made to the city -- up to $400,000 -- into a revolving loan fund.
"We want to do everything possible to help them through this. It's just a matter of time until they make an alliance," said Nesheim. "Maybe this is a legal technicality and if we do file a letter of default one way or another, it's nothing against the plant."
Koep said Brainerd residents have paid for Missota, not only through city taxes for legal fees but in state taxes for the $500,000 loan.
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