Washington City Council members have unanimously approved new agreements with Valent Aerostructures LLC, and the company that purchased it.
The council approved three ordinances related to the agreements at a special meeting Wednesday afternoon.
Valent, which has a new manufacturing plant in Washington, is being purchased by aircraft parts manufacturer and engineering firm LMI Aerospace of St. Charles in a reported $247 million deal. The deal, subject to regulatory approval, is expected to close by year’s end.
The sale, however, resulted in a breach of contract under the original agreements with the city.
In August 2010 the council authorized the issuance of up to $17.5 million in tax-exempt Chapter 100 bonds to build and equip the 85,000-square-foot facility in Heidmann Industrial Park.
There was a provision in that original agreement that any sale of the company would trigger a repeal of the bonds.
That sale breached the lease contract for the bonds, which included 50 percent tax abatements on the building and equipment through 2022. That gave the city the opportunity to propose amendments before approving a new agreement.
The main change in the new agreement adds a provision that allows the city to recover all the abated property taxes if the plant here would be closed.
The proposed amended agreement also requires that the purchaser make a payment of $20,068 to the Washington Civic Industrial Corporation to cover expenses incurred during the process of building the facility and the transfer of ownership.
Both provisions were omitted in the original performance agreement.
City Attorney Mark Piontek noted that LMI representatives “are on board” with the amended agreements. “We got less push back from them than the attorney for Valent,” Piontek said during Monday’s meeting.
“They (LMI representatives) understand our position,” added Mayor Sandy Lucy.
Councilman Josh Brinker asked what would happen if the company would declare bankruptcy.
While bankruptcy would affect all parties, Piontek explained that the city “really is not out anything” regarding the revenue bonds, which are not an obligation on city taxpayers.
The Bank of Washington and UMB Bank purchased the bonds and “they’re OK with us doing this,” Piontek said.
“This creates a disincentive for them to leave,” he added.
The ordinances were presented to council members at a special meeting last Friday morning, but Piontek said he did not feel comfortable with the council passing them until members had a chance to read them and ask questions.
At that meeting, Piontek stressed that the sale was no indication that the Valent plant here is closing.
“This is all precautionary. We learned a lesson with Harman-Becker. We want to prevent that from happening again,” he said.
The city issued Chapter 100 bonds for development of the Harman-Becker facility but omitted a provision on repayment of the tax abatements.
Harman-Becker closed its new plant here after five years of operation. The company still is responsible for paying off the bonds, but the city could not recover the tax abatements.
Valent has 650 employees and several manufacturing, assembly and processing facilities, including the Washington plant which has approximately 163 employees.
LMI will pay $237 million to shareholders of privately held Valent and retain obligations of $9.7 million. Combined, the companies’ annual sales will total more than $480 million in 2013.
Machined parts and sub-assemblies for commercial aerospace companies accounted for 61 percent of Valent’s revenue in fiscal 2012.