PEDP Granting Note Extensions to Dead Companies
Wednesday, May 21, 2014
A recent decision by the Providence Economic Development Program (PEDP) to extend the notes on eleven failing -- or soon to be defunct -- companies in its Innovation Investment Program (IIP) has been called into question by a longtime PEDP critic.
"These aren't typical loans, they're convertible notes," said former Providence resident Judith Reilly. "The PEDP is playing venture capitalists with someone else's money."
In an email to Providence officials dated May 19 titled "PEDP granting note extensions to dead companies", Reilly noted IIP startups (see below) listed as "dormant" or "winding down." Reilly questioned why the PEDP was allowing a two year extension on their note. "What proof has the board received that the companies....are deserving of extensions of their expired two-year notes?" asked Reilly.
GET THE LATEST BREAKING NEWS HERE -- SIGN UP FOR GOLOCAL FREE DAILY EBLASTPEDP counsel John Garrahy addressed the board's decision to extend the terms of the loans.
"At the PEDP Board meeting held on April 2, 2014 , the PEDP Board voted to accept the staff recommendation to extend the term of any IIP loan, except those that have wound down, for another year to April 30, 2015," said Garrahy. "In addition to the foregoing , it is an event of default under the IIP loan documents for a Company not to continue to maintain and operate the Company’s business as originally presented.
"PEDP staff will be presenting a report to the Board in the near future about what action should be taken against those companies that are no longer operating," continued Garrahy.
PEDP's Innovation Program
Based off of data requested, Reilly identified the defunct -- or soon to be defunct -- PEDP funded startups that could be eligible for a note extension.
"First, it is important to note that this is not a traditional loan program," said Siciliano. "This program has been reviewed by HUD in both the Boston field office and Washington D.C. The approval is based on assistance to low income microenterprises/business startups, they have met the national objectives as required by HUD."
"PEDP extended the period for the company to convert ( equity stake if the company buys back shares is sold or goes public), not the payback period. If the company succeeds and converts then PEDP retains an equity interest in the business," continued Siciliano. "Instead of approving an extension of the conversion period for each IIP recipient, the board voted to approve all of the first round IIP recipients at the same time. This included some businesses that had wound down. PEDP staff are reviewing the procedure."
PEDP Executive Director and Director of Economic Development for the City of Providence Jim Bennett spoke to the risks inherent in the start up community, and what he saw as its critical role in the Providence economy.
"This program was approved by HUD, and we're meeting our objectives," said Bennett. "This fits in the fabric of what the start up community has going on here."
Bennett continued, "We know that there's risk, that 1 in 10 companies will work. These are federal dollars that we're deploying. We don't want the loan back, want to see it converted into equity."
"Out of the original 34 IIP companies, two have converted to equity, and 25 of those are still in play," said Bennett. "If you've extended [the note] to all the original companies, it's blanket to cover all of them. We know a majority are going to fail, but HUD still shows that we've met our objectives...16 of the companies are high growth."
Questioning Payback
Reilly, however, questioned the status of the failed -- or failing companies -- is it pertained to the PEDP.
"The way the terms are structured, if they default on what they owe, if they don't do what they're supposed to do -- if they go legally bankrupt, it gets assigned to creditors, which commences insolvency, then the note can be called in," said Reilly.
"I'm not a lawyer, but it sounds like if just go out of business, without formal bankruptcy, then the PEDP can just let it sit forever. In the real world, they would have these assets off the books. But if there's no expectation that they'll get the money back, this is part a long history of the PEDP writing off loans until absolutely forced to."
"The premise of this all is that in that time, a "wizbang" new company might take off, and- upon merger, sale, liquidation, or joint venture -- the note will converted be into stock, and the PEDP will be an owner at a discounted stock price, bring jobs," said Reilly. "But the reality is, that's not been happening."
"So HUD said, "Instead of approving an extension of the conversion period for each IIP recipient, the board voted to approve all of the first round IIP recipients at the same time. This included some businesses that had wound down. PEDP staff are reviewing the procedure," continued Reilly. "Translation: "Instead of telling the board some of the companies had failed and asking them to write off PEDP positions in those companies, PEDP staff implied that all was well and the companies all just needed two more years before they became Googles and Apples."
Related Slideshow: PEDP Timeline
The Providence Economic Development Partnership (PEDP) came under fire -- and a federal investigation -- after more than a dozen GoLocalProv stories uncovered millions of dollars in delinquent loans, unauthorized agency spending and questionable deals
Below is a timeline of GoLocal PEDP stories going back to October 2011 when GoLocal first reported that more than a quarter of the taxpayer-funded loans issued through the program were at least 90 days past due.
Related Articles
- 7 PEDP Loan Recipients Never Repaid a Dime to City
- NEW: Mayor Taveras Proposes Sweeping Changes to PEDP Board
- NEW: PEDP Confirms - Former Cicilline Volunteer Did Not Repay Loan
- NEW: Smiley Calls for Reform to PEDP Loan Process
- PEDP Granting Note Extensions to Dead Companies
- PEDP Loan Recipients Also Stiffed State for Nearly $1 Million
- Providence Still on the Hook for $1.2 Million in Bad PEDP Loans
- Investigation: $2.8 Million Still Past Due on PEDP Loans
- LISTEN: $2.8 Million Still Past Due on PEDP Loans
- NEW: HUD Hires $375,000 Consulting Team for PEDP
- Troubled PEDP Hires New Lawyers
- Top Democratic Social Club Received Low-Interest Loan from PEDP
- Controversial South Side Bar Stiffed City for $330k on PEDP Loan
- Deported Man Stiffed City on $70,000 PEDP Loan
- Former Cicilline Campaign Volunteer Never Repaid $103,000 PEDP Loan
- Former Cicilline Campaign Volunteer Received $103,000 PEDP Loan
- Former Director: PEDP Used ‘Smoke & Mirrors’ When Reporting to HUD
- GoLocal Investigation PEDP Tapped by the 2012 Waste Book
- More Violence Erupts Outside PEDP-Connected Nightclub
- NEW: Fox Fined $1500 by Ethics Commission for PEDP Non-Disclosure
- Providence on the Hook for Over a Million in PEDP Loans
- LISTEN: PEDP Loan Recipients Also Stiffed State for Nearly $1 Million
