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State agency posts $3.5 million profit

CHARLESTON, W.Va. -- The state agency that helps finance businesses posted a $3.54 million profit for the 12-month period that ended June 30, according to an independent auditor's report.

It's important for the state Economic Development Authority to turn a profit so it has money to loan out again. It does not receive regular funding from the Legislature.

The authority and its affiliates ended the most recent financial year with $133 million in net assets, according to an audit by Charleston-based accounting firm Suttle & Stalnaker.

Loan and lease originations for the year totaled $37.9 million.

"That's pretty average for us in terms of new loan and lease volume," said David Warner, the authority's executive director.

More loan money was repaid during the past year than is typical, he said. For example: As previously reported, a company owned by entrepreneur Ray Park repaid a $15 million loan that had been taken out to help pay for renovations to the South Charleston stamping plant.

During the regular monthly meeting of the authority's Board of Directors on Thursday, the accounting firm presented a "clean opinion," meaning that it found the authority's financial statements to fairly present its financial position.

This year's statement contains two important differences from prior years:

n All of the authority's affiliates are accounted for in a combined statement; and

n Under new accounting rules, an effort was made to determine the quality of outstanding loans based on the known creditworthiness of the borrower and the loan's delinquency status.

The quality of loans was listed in four categories, ranging from the highest quality, rated "pass," to "special mention," "substandard," and the lowest-quality, rated "doubtful."

A total of $81.7 million in loans was deemed "pass," while $49.9 million was deemed "special mention," $2.4 million was labeled "substandard" and $3.3 million was deemed "doubtful."

Warner said, "I'm overall pleased with the health of our loan portfolio based on the various risks that exist across the business community or across the economic community in West Virginia."

The "special mention" category is not necessarily a negative connotation, Warner said. "It just means there's some aspect of a loan that might have some deficiency. But it's not a category that means we expect to lose money on any of the loans in that category.

"Thus, if you combine 'pass' and 'special mention,' this represents well over 95 percent of the portfolio," he said. "It is very acceptable."

Back when Stonewall Jackson Resort and Stonewall Jackson Lake State Park were being developed, the authority loaned the state Division of Natural Resources $5.2 million for park improvements.

As previously reported, recent audits have noted that the bonds issued to help finance the resort have been in default since 2006. (Stonewall Jackson Resort continues to operate.)

"Although these bonds do not represent a liability for the authority or the state of West Virginia," the default "does inject uncertainty on the future repayment of the authority's direct loan," the audit said.

Asked what event could occur or what milestone would result in the authority writing off the loan, Warner said, "The authority has voluntarily written down $1 million of the loan each of the last three years. It is reduced by $3 million on our books at this point.

"Our writing off for our financial reporting doesn't mean we couldn't collect it" if the resort's financial situation improves, Warner said.

Another portion of the audit discusses the West Virginia Enterprise Advancement Corp., an affiliate of the authority that was established by the Legislature 10 years ago.

It was created at the request of then-Gov. Bob Wise to take $25 million from state general revenue to invest in venture capital companies.

The venture capital companies, in turn, invested in startups and other enterprises that posed high risks and potential high rates of return.

Last year's audit showed that the venture capital program had lost $20.8 million. This year's report estimates the program's losses at $18.9 million. Some remaining investments still have a chance to make money.

The most recent report estimates that $4 million investments in Anthem Capital, Toucan Capital Fund II and Walker Investment Fund each now have a fair market value of zero.

A $4 million investment in Mountaineer Capital is estimated to be worth $2.1 million. A $4 million investment in Adena Ventures has an estimated fair market value of $1 million.

Also, a $3.5 million investment in Novitas has an estimated fair market value of $1.8 million and a $622,580 investment in Innova is now estimated to be worth $329,000.

Questions about the financial report or requests for additional information should be addressed to the West Virginia Economic Development Authority at NorthGate Business Park, 160 Association Drive, Charleston, WV 25311.

Contact writer George Hohmann at business@dailymail.com or 304-348-4836.


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