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The Latest Craze in Yogurt Goes West, with Muni Help

FEB 19, 2013 3:54pm ET
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LOS ANGELES — Yogurt maker Chobani Inc. has expanded its production capacity to the west with support from municipal bonds

Zions Bank expects to close Thursday on a $34.5 million private placement that will fund an expansion to Twin Falls, Idaho's wastewater and water capacity to support Chobani's new $450 million, one million square foot plant there.

The manufacturing plant, only the second for the seven-year-old Norwich, N.Y.-based maker of Greek-style yogurt, opened on Dec. 17. Idaho's ranking as one of the country's largest milk manufacturers was part of the reason Chobani picked Twin Falls for the plant, said city manager Travis Rothweiler.

The southern Idaho city of 78,000 beat out nearby cities of Jerome and Nampa for the plant along with cities in California and Nevada, Rothweiler said.

Chobani officials declined to be interviewed for this article.

The city's urban renewal agency offered cash incentives that included the heavily discounted $760,000 sale to the company of 90-acres of farmland the city had purchased for $4.9 million just prior to striking an agreement with Chobani, according to Rothweiler.

The cost of purchasing the land, above what Chobani paid, along with expansion of the city's wastewater and water capacity, roads, streets and lights will be paid for with the revenue allocation bonds, said Cameron Arial, a vice president in the Boise office of Zions Bank Public Finance.

The city will act as a conduit issuer for the taxable revenue allocation bonds, and will not be on the hook for repayment. The bonds are being repaid using the tax increment, or additional taxes, generated from the development of the site on which Chobani's plant is located, Arial said.

The estimated annual tax increment for the site is $7.2 million, while the annual bond payments are $2.8 million on the bonds that will mature on April 1, 2032, according to Alan Westenskow, a vice president in the Salt Lake City office of Zions Bank.

"This is one of the few types of bonds you can do in Idaho without voter approval," he said.

If the tax increment collected in any given year falls below $2.8 million, Chobani has agreed to make up the difference.

Zions stepped in with its proposal at the city's request, when another bank Twin Falls officials were working with couldn't get comfortable with the concept of revenue allocation bonds backed by one entity, Rothweiler said.

He added that the other bank was concerned about how the bond payments would be made if the company went bust.

Zions had struck a similar agreement in Burley, Idaho, that involved three entities including an ethanol manufacturing plant. As a result, the company knew exactly how to structure the deal to lessen the risk on the bonds.

The bank's public finance group also partnered with its corporate bond group to evaluate the risk of issuing a bond based on Chobani's credit strength.

"It was more like a corporate bond," Westenkow said. "We were able to bring in our corporate financing group to gauge the risk, and then the municipal group structured the financing."

To offer additional protection, local improvement district assessment bonds for $32.5 million are being issued on paper, which allows Twin Falls to levy an assessment if the company isn't paying its taxes. Those bonds would allow the city to foreclose on the property in the event of missed payments without having to wait the five years it could take to foreclose without the additional bonds.

The city's urban renewal agency created the local improvement district and the tax assessment for the local improvement district bonds.

The taxable bonds are being issued at a 5% interest rate, but with an option to be reduced to 4% in five years as the bonds are paid down. The city plans to use any additional money generated by the tax increment to pay the bonds down early — and the agreement will not penalize the city for early payoff.

"This project is one of the largest investments in Idaho in recent history," Arial said. "We are already feeling the economic reverberations statewide."

Privately held Chobani has grown exponentially into a national brand since its founding in 2005

The Twin Falls plant will employ up to 600 people. Officials anticipate every 10 jobs created by the company will result in 66 new ancillary jobs in the region for an annual regional impact of $1.3 billion. "It has decreased unemployment, increased tax receipts and they are seeing residential house sales increase," Arial said.

Rothweiler said he doesn't know if all can be attributed to Chobani, but the city's jobless rate has fallen from 8.1% in February 2012 to 6.2% in February 2013.

"In 2012, we issued almost 70%more single-family building permits than we did in 2011 — and for the first three months of this year, we are outpacing 2012," he added.

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