Johnstown yogurt plant set to get bigger
$100M expansion to begin in 2013, but finances still an issue
JOHNSTOWN Fage said Monday it will break ground next year on the long-planned $100 million, 180,000-square-foot addition to its Greek yogurt plant in Johnstown and expects the newly constructed portion to be in production in the first quarter of 2014.
When fully operational, the expanded plant will produce 160,000 tons of yogurt annually, double the plant’s current capacity. The expansion would also add 150 workers to the 240 now there. Fage opened the 220,000-square-foot facility in the Johnstown Industrial Park in 2008.
Fage is relying on the expanded plant — its only production facility in the United States — to provide the profits it needs to create financial stability through the economic crisis in its homeland. It is offering $250 million in unsecured bonds to pay down debt and finance the Johnstown expansion, but will have to seek permission from the holders of its current bonds to do so. And a rating agency is warning there’s a limited chance of bondholders recovering their investment in the event of a default.
Fage said it will finance the project through bonds due in 2020. It already has issued $150 million in such notes, and has $80 million more in other debt outstanding, according to an analysis by Standard & Poor’s, an investment analysis company. Fage is launching a solicitation to obtain the consent to the bond amendments by more than 50 percent of people holding the existing $150 million 2020 note.
S&P expects an average recovery rate of only 30 percent to 50 percent recovery for note holders in an event of a payment default. S&P said Fage may default on the notes because Greece is experiencing a severe economic crisis and that is where a majority of its assets are located. Overseas sales account for 68 percent of its sales, and Fage is counting on increased overseas sales for its future.
Fage remains exposed to multiple jurisdictions with its production assets located in the United States and Greece, and its intangible assets in Luxembourg. “We therefore believe that recovery prospects could be somewhat impaired,” according to the S&P analysis.
In October, Fage — which for years operated under the name Fage Dairy Industry S.A. — relocated its corporate headquarters to Luxembourg from Greece and renamed itself Fage International S.A. The corporate restructuring will limit Fage’s exposure to Greece’ crumbling economy, give it a better tax environment and allow it to access bank funding, according to S&P.
Fulton County officials have remained optimistic Fage would break ground on the expansion, despite the company’s precarious financial situation in its native country. The company has moved ahead with these plans by obtaining agreements with various municipalities and the Gloversville-Johnstown Joint Sewer Board to purchase water and process yogurt-production waste.
Fage is also planning to build a $15 million whey pretreatment facility near the Gloversville-Johnstown Wastewater Treatment Facility. The treatment plant itself needs additional changes to handle Fage’s full production, local officials said.
The cost of the upgrade will be established by an engineering study that is under way, and will be paid for by the Glove Cities through municipal bonds.
Once Fage’s addition is up and running, it is expected to generate 1 million gallons a day of wastewater and washwater, approximately double its current output. The sewer plant as presently configured cannot handle more than 2 percent of this amount without a comprehensive upgrade.
The upgrade would include the addition of another treatment tank as well as refinements and modifications to the current plant. The plant is owned by Gloversville and Johnstown, which jointly pay for its maintenance and operations.
The sewer board is requiring Fage to “pursue and complete expansion of its yogurt production by Dec. 31, 2014.” Otherwise it may terminate the agreement and not be obligated to undertake the capital improvements.