MOUNT VERNON — Even though Gov. Mike Pence has withdrawn offers of state assistance for a Posey County project with Pakistani ties, Posey County officials are moving forward with the deal.
The project is a nitrogenous fertilizer plant that Midwest Fertilizer Corp. wants to build in Posey County. The company’s international investors include Pakistani company Fatima Group, and Pence backed away from the project over security concerns.
Now Posey County’s Board of Commissioners and Council have voted to preliminarily approve the project, plus the issuance and sale of $1.3 billion in bonds to help finance it.
County officials voted last week to proceed, and Midwest Fertilizer Corp. disclosed the news Wednesday.
Part of the state’s incentives offer included the issuance of $1.3 billion in bonds to help pay for the project. Now that the state has bowed out, Posey County officials are stepping into the same role that the state of Indiana did when the bonds were originally issued.
In December, the Indiana Finance Authority issued $1.3 billion in federal disaster bonds. Though Midwest Fertilizer Corp. wasn’t ready to start building at that time, the bonds were issued then because the federal disaster bond program expired at the end of 2012.
The bonds had a six-month maturity period, and after they were sold to investors the proceeds were put into an escrow account. The idea was that by the time the bonds matured, the company would be ready to proceed with construction, and so would receive the bond funding from the escrow account.
But things hit a snag when Pence learned about U.S. military concerns with Fatima Group.
In January, Pence learned that U.S. military officials had security concerns about Fatima Group’s fertilizer making its way into explosive devices. Pence suspended the state’s role in the project, saying his office needed to evaluate the situation.
Since then Fatima Group has made several changes to its supply chain, and it is working on a new less-explosive formula for its fertilizer.
Last month, Lt. Gen. Michael Barbero, a U.S. military commander, described Fatima’s efforts as “big steps” toward improving product safety.
But those assurances weren’t enough for Pence, who announced May 17 that he was withdrawing the state’s offer of incentives.
Because Midwest Fertilizer Corp. won’t meet the July 1 deadline for the original bonds’ maturity, Posey County officials have stepped up to reissue the bonds.
“The company’s not prepared to start construction. They’re waiting on air permits and some other things,” said John Taylor, executive director of the Posey County Economic Development Partnership.
The reissued bonds will also have a six-month maturity period, and they will be sold to investors between now and July 1, Taylor said.
As was the case with the state-issued bonds, the Posey County Economic Development Commission will be a conduit issuer of the bonds.
“The county is not on the hook for this money. They are simply a pass-through,” Taylor said. Taylor’s organization is different from the one involved in the bond issue.
As an analogy, Taylor said being a conduit issuer is like being a third party in a loan between two other entities: The third party hands the money over to the borrower, but does not have a direct financial stake in the transaction. The borrower (in this case, Midwest Fertilizer Corp.) is the one responsible for repaying the lender (the investors who purchase the bonds).
“It’s just a way to pass (bond funding) through so there’s someone responsible in the middle to handle it.”
In its public disclosure, Midwest Fertilizer Corp. says it expects to obtain the necessary project contracts and permanent financing by Dec. 5.
The Posey County Economic Development Commission will have a public hearing on the proposed bond issuance later this month.