Marion foots bill for Earthbound Recreational Vehicles' loan

In 2010, the city helped Earthbound secure a $2 million loan from STAR Financial Bank by pledging economic development income tax (EDIT) money to repay the debt if the company should fail.

So far, the company has paid down $100,000 of the balance. Production at its 1001 E. 38 St. factory has remained inactive since it stopped to retool its business strategy last year.

President and CEO Charles Hoefer said in an email that the company was in “open communication” with the city and was committed to working together to “continue to move things forward.”

“Our vision for Marion is long-term,” he said.

City Development Director Darren Reese said the city had paid the $155,000 using EDIT money, and was working with Earthbound to recoup it. He said under the terms of the development deal this meant a liquidation of assets.

“We’re discussing how to fix it,” he said.

The loan agreement includes collateral, such as equipment, inventory, personal possessions and an “unconditional guaranty” on two homes in Middlebury and Syracuse owned by company founder David Hoefer Sr. and Vice President Mary Hoefer.

Reese said the agreement effectively puts the city in “first position” on everything the Hoefers and Earthbound own.

The city’s decision to use tax money to secure the STAR loan was criticized when it was initially proposed. Greg Kitts, a CPA and local businessman who has worked in the banking industry, said he was “uncomfortable” with the arrangement, and spoke out during a public hearing.

“At the time, I felt like all the sudden the city turned into a bank,” Kitts said.

Kitts said there are reasons banks don’t make loans. He noted that David Hoefer Sr. had been involved in a personal bankruptcy before the Earthbound deal was made in Marion.

“You can’t loan to someone in bankruptcy,” he said.

Mayor Wayne Seybold could not be reached for comment on why the city chose to secure the Earthbound deal with public money.

Reese said the city handles economic development prospects on a case-by-case basis and Earthbound has value as a unique manufacturing facility in Marion. He said banks were less likely to loan money in 2010 because of the shaky economy.

“Things are generally trending better, and I look forward to the day that no government involvement is needed,” he said. “But, unless we want to cease our aggressive economic development attitude, we need to be in the game.”

Earthbound manufactures high-end, towable travel trailers with eco-friendly materials and lightweight designs, which is a unique niche in the recreational vehicle market.

It had initially projected that at full production it would hire about 180 workers to produce 400 or more coaches per year at its factory. From July 2010 until layoffs in July 2011, it produced about 150 coaches and hired about 50 employees.

Around this time, the city and bank revised Earthbound’s payment schedule on the loan. Originally, it was to have paid it off by 2016 with biannual installments of about $460,000 or more, including interest.

Now, the company is on a schedule to pay off the loan by 2020.

The company has scaled back expectations and has sought to restart production with a new line of vehicles aimed at a higher-end market. It is offering three models, including an entirely custom model that starts at $133,000.

Hoefer said in the email that the company had made “substantial progress” with a new investment that will be “staged into the company in the coming months to bring us back to self-sufficient operations.”

“We are just a few weeks away from starting back into production,” he said.

He went on to write that Earthbound is “highly committed” to the forward effort.

“Lessons from 2010 and 2011 have made us smarter with composite manufacturing,” he said. “Our products are better than they have ever been, our features are completely unrivaled in the global marketplace, and we have orders in the pipeline with a huge volume of inquiry that should sustain us with the low-volume production approach we will be taking for the foreseeable future.”