USA Springs seeks OK for $55m loan

Monday, January 10, 2011

USA Springs wants permission from the bankruptcy court to borrow $137,500 to secure a $55 million loan from a mysterious company that creditors fear is a scam artist.

The company would use the loan to build USA Springs' stalled, and controversial, water bottling plant in Barrington that residents have spent years fighting tooth and nail.

The plant was half finished when the company filed for Chapter 11 bankruptcy in June 2008, and the firm has been trying to find financing to complete the project ever since.

The proposed five-year loan would come from Lower Falls Funding LLC, a privately held lending group that would acquire a 20 percent equity interest in USA Springs at a 6.5 percent interest rate with 2 points.

When USA Springs first broached the subject of the loan on April 15, it said the company demanded $75,000 for a "commitment/application fee and $200,000 as an expense deposit."

Originally the $275,000 would have come from George Tombarello, a third party who would himself would receive 14 percent interest and a first priority lien on the bankrupt estate, as well as the possibility of a $50,000 success fee if the loan goes through.

USA Springs should be able to take out the loan, the company said, because of its "enormous equity cushion." The real estate parcels and half-finished plant is worth some $22 million, lien holders are owed $10.6 million and unsecured claims are worth about $3 million.

However, creditor Roswell Commercial Mortgage objected shortly afterwards, arguing that it had no information about the lender -- a newly created limited liability company that has yet to make a single loan and didn’t have a Web site.

"There is nothing on record to establish that this is not a scam," wrote Roswell’s lawyers, comparing it to an e-mail from Nigeria in which a con artist's victim is told he will receive million of dollars if he only pays some relatively small expense.

"It is all a scheme to separate the gullible (or the desperate) from their money," wrote Roswell's attorneys.

The Official Committee of Unsecured Creditors echoed the objection, adding that it was already looking into whether USA Springs should have transferred some money to Tombarello before declaring bankruptcy.

A hearing on this motion kept on being continued and was last rescheduled for June 3, when on Monday, USA Springs filed another motion saying Lower Falls Funding was willing cut its fees in half to $137,500. This time the money would come from Christian Bistany, "a friend and affiliate of a current shareholder" of USA Springs. A principal of Lower Falls – Dave Mazzeo – agreed to personally guarantee repayment of the $137,000. USA Springs said it was unable to get Roswell to agree to this latest proposal, but wanted the court to approve it anyway because it was concerned it "would lose this opportunity."

A hearing on the motion is scheduled on for May 17. -- BOB SANDERS/NEW HAMPSHIRE BUSINESS REVIEW

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