Marion surrendered loan collateral for bankrupt Earthbound RV

A Syracuse house owned by Earthbound management, and listed as collateral in a loan agreement, was sold in April 2011 with the city administration’s blessing.

The administration did not inform the Marion City Council, which approved the agreement in 2010 to help Earthbound secure the $2 million loan from STAR Financial Bank.

The city did not directly put up money, but did pledge to use economic development income tax (EDIT) money to repay the loan should the company fail.

After three years, Earthbound did not meet its obligations and now its assets — equipment and inventory that remained in its 1001 E. 38th St. facility — have been auctioned off to help pay the loan. The city has already made one loan payment of $155,000 on Earthbound’s behalf.

The agreement also lists the Syracuse house and another one in Middlebury, both owned by Earthbound management, as collateral.

The city is looking to sell the Middlebury house, but cannot use the Syracuse house to protect against its losses. According to Kosciusko County records, the house was sold for $700,000.

Councilwoman Madonna French, R-2nd District, who was council president in 2010, said she was unaware that the Syracuse house was sold.

“I’m shocked that if that was a condition of their loan (then) that should have stayed a condition for their loan,” she said Monday. “I wasn’t made aware that had happened.”

City Development Director Darren Reese said the agreement allowed the city administration to release collateral without council approval.

Angela Wessler, a partner at Barnes and Thornburg, drew up the mortgage release. She said the original loan agreement gave the city administration the power to release the collateral without council approval.

Reese said the council was not informed because it would send a negative signal to potential customers or vendors of Eathbound. He said that the city had reason at the time to believe the company was still viable.

“It seemed reasonable at the time that this was a seasonal issue within the business model that would be overcome,” he said. “Ultimately, the administration believed it was the better choice to continue the operation with Earthbound rather than stop it.”

Reese said an existing mortgage on the house took $105,000 off the sale price, leaving about $600,000 for the company to continue.

“The balance was used for business operations. … (It) was in a trust/escrow fund and they submitted requests (and) expenses before it was released,” he said in an email. “The city authorized any expenditure from that fund.”

Earthbound ended up stopping production in July 2011 and spent more than a year retooling its business strategy.

As Earthbound announced plans to shift production toward high-end, customizable, towable travel trailers, it received two default judgments after it failed to make payments to roofing and truck companies.

Eventually, this extended to its lease. In a November complaint filed by Winterfield Realty LLC, which owns the facility that also houses Huhtamaki, Advanced Cabinet Systems and Avionic Structures, Earthbound was reported to have failed to make any of its lease payments since April 2010, totaling $255,000.

Reese said the city took on all the company’s assets, but this did not extend to a default. Earthbound still exists as a company.

The city made the decision to enforce the agreement and sell the company’s assets in November. Earthbound had only paid $100,000 off on the loan, leaving about $2 million to be repaid.

Earthbound President and CEO Charles Hoefer could not be reached for comment.

Key Auctioneers out of Indianapolis was contacted to run the auction. Seth Seaton, director of operations, said he would inform the city of preliminary sales figures today.

City Corporate Counsel Don Gallaway said Monday that the city was getting in touch with “real estate experts” to sell the Middlebury house.

Elkhart County listed the assessed value of the Middlebury house as $317,000.