Creditors hammer Hilo mill
Pacific Business News (Honolulu) - by Kristen Sawada and Prabha Natarajan Pacific Business News
A foreclosure suit on property valued at more than $12 million was filed last week against the principals of a Big Island koa logging operation.
Old Standard Life Insurance Co. and Summit Securities Inc. filed a complaint against Koa Timber Inc., its associate companies and managers in 1st Circuit Court. The two companies allege Hawaii Forest Preservation LLC and its president, Kyle Dong, defaulted on two loans taken out in July 2000, as well as funds owed through a harvesting agreement.
"We're very surprised. We got contrary communication from the lenders that they want to sit down and talk about the issues involved, and work it out," says Elias Beniga, who handles finance for Dong's companies.
The first loan was for $5.85 million, which along with interest, stood at $6.6 million on Aug. 10. The loan is held by Old Standard Life Insurance based in Spokane, Wash. No monthly payments have been made on the loan, according to the complaint. Payments were scheduled to begin in March.
The second loan was for $3.48 million and is held by Summit Securities Inc., also of Spokane. With interest, the total owed amount has accrued to $3.7 million, according to the complaint. With first payments to begin in March, HFP made no payments on this loan as well, the suit alleges.
Old Standard Life and Summit Securities are represented by Honolulu-based Alston Hunt Floyd & Ing.
According to the suit, Hawaii Forest Preservation agreed to pay $18 million through monthly payments for five years for the right to harvest koa timber from designated lands. As part of the financing package to fund the purchase of land, Spokane-based Metropolitan Mortgage & Securities Co. Inc. bought certain timber rights from HFP, and then sold it back to HFP for a total repayment of $18 million.
According to the filing, the original lender, Metropolitan transferred the loan to Summit for $13.2 million in cash.
Except for one payment of $210,000 made for the timber harvesting deal, the defendants defaulted on those payments as well, Summit Securities says. The complaint claims Dong owes $2.24 million of that agreement.
Dong and Michael Nekoba, manager of Hawaii Forest Preservation LLC, also put up their residential properties as collateral for the mortgages on the land. But HFP believes it can keep the project going.
"We won't give up the project to Metropolitan, or let Metropolitan become the de facto owner," Beniga says.
How the plan was supposed to work
Dong, through his company Koa Timber Inc., wanted to log koa trees on the Big Island. Dong had other businesses to support the operation, and as guarantors to the loans: Hawaii Forest Preservation LLC to own the land; K&K Investments Ltd. or Pacific Isle Woods to mill koa wood; and Incentive Design Builders for building construction.
Koa Timber began a pilot logging operation on agricultural land owned by Mauna Kea Agribusiness on the slopes of Mauna Kea, but found that koa trees were less dense in the designated ag land than neighboring conservation lands.
Last year, Dong, through Hawaii Forest Preservation LLC, bought land adjacent to Mauna Kea Agribusiness in three parcels for about $10 million from a family with ties to Chiang Kai-shek.
The land lies mauka of Papaikou, Pepeekeo and Honomu, between 1,600 and 3,800 feet. The company proposed to commercially log koa trees on 13,129 acres owned by Dong and 3,127 acres owned by Ohana Sanctuary LLC.
Initially, the company would harvest dead and dying trees before heading to the mature trees. The environmental assessment by consultant Wade Lee noted there was enough old wood to sustain harvesting of 50,000 to 100,000 board feet of koa per month.
Koa Timber's initial expenses would include $550,000 for a Huey H1H helicopter and $300,000 for fencing property from the Hakalau National Wildlife Refuge.
The initial operation on 1,280 acres used a helicopter rented from Maui to put down 10 workers in boggy areas four days per week. The Huey airlifted the logs to two small portable sawmills, and the wood was transported to Honolulu, where Dong owned a kiln. The same operational plan was to be adopted for the new areas. As the proposed logging area came under designated conservation land, the company had to get approval from the state Board of Land and Natural Resources.
At initial hearings, the project faced opposition. Some said the initial environmental assessment was inadequate and others said logging could harm the native forest.
Koa Timber tried to ease public opinion by proposing to use helicopters to avoid making roads through the forest.
Later, the company withdrew its application for commercial logging on conservation land, and began a process of working with the community to clarify the environmental impact. Now, the Friends of Hamakua, a grassroots organization, sees it as an "acceptable" project.
"It has a good and a bad side, but its making koa available to local woodworkers makes it acceptable," says Ada Lamme of the Friends of Hamakua.
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