Judge approves HRK loan to continue operating

jsalman@bradenton.comJuly 13, 2012 

TAMPA -- A federal bankruptcy judge Thursday allowed HRK Holdings LLC to borrow up to $80,000 from a private investor to continue operations until the company can raise more capital.

HRK's loan request was the focus of the second emergency hearing called by the embattled Palmetto firm since it filed for Chapter 11 bankruptcy June 27 over expenses incurred during a toxic spill last summer at HRK's Piney Point facility.

The short-term loan was issued to bridge an $78,000 operating shortfall until the next hearing Aug. 8, when HRK hopes to finalize the sale of about 30 acres at Piney Point to Pennsylvania-based Air Products and Chemicals Inc. for $5.8 million.

The company also is actively marketing other portions of the 675-acre site near Port Manatee to any potential buyers, said Scott Stichter, an attorney representing HRK.

"The only way this debtor can emerge from bankruptcy will be to sell its way out of it," Stichter said during Thursday's hearing in Tampa.

The $80,000 loan carries a 150-day term and 9 percent interest. The lender will be granted a lien on portions of HRK's assets.

Judge Rodney May also in late June authorized HRK to spend up to $42,500 a week to pay 15 employees -- including the company's top two officers -- until more details in the bankruptcy case are settled.

Chief executive Jordan Levy earns $225,000 annually, and to the chief financial

officer earns another $130,000, according to the court.

Stichter argued the loan and employee wages were critical to finalizing the land sale, which ultimately will be used to pay down the estimated $21 million of debt HRK owes to more than 60 creditors.

The court has not ruled how the $5.8 million will be split, although HRK already has filed a request to keep some, records show.

That didn't sit well with some of the creditors observing the hearing from the gallery. A full disclosure of HRK's assets and obligations has yet to be released.

"I don't think I'll ever get my $250,000 back," said Jim Mikes, whose company was never repaid for escrow funds issued to HRK. "But I want to make sure these guys don't walk away with a dime."

Exclusive Bradenton Herald reports revealed this month that HRK knew about a 6-inch tear in the gypsum stack liner that was used to store material from the dredging of Berth 12 at Port Manatee in February 2011.

That initial rip was not fully sealed until April -- just weeks before the dredging work began and a similar rupture spilled 170 million gallons of toxic water into Bishop Harbor on Tampa Bay.

It appears Port Manatee was never made aware of the first incident until after the spill occurred, according to public records and emails obtained by the Herald.

The Florida Department of Environmental Protection also waived a stipulation in 2006 that originally ordered HRK to install a protective dirt cover on top of the system, records show.

Because that was never done, heat-induced stress cracks penetrated the seams of the liner months before it ever was filled with water. Some environmental experts believe the massive toxic spill could have been averted with the dirt cover, which is common for gypsum stacks of that size.

A report commissioned by HRK also found the heat cracks contributed in part to the liner's tearing.

The August 2006 agreement with DEP allowed HRK to skate on nearly $4 million worth of dirt costs. But the deal also handed all financial responsibility back to HRK should a catastrophe occur.

Now HRK has filed a litigation against 10 companies, including the makers and installers of the gypsum stack, to ease its financial burden. That case will be heard independent of HRK's bankruptcy.

HRK officials also are suing the port for $1.5 million they claim their company is still owed for the project. The port has countered with its own request for repayment over a $4.8 million settlement it signed with the dredging contractor.

DEP officials have yet to explain why the agency never informed the port of the initial tear. The state said it dropped the dirt cover request because it believed at the time the dredged material inside the reservoir would do the job.

The environmental resource manager in charge of the case has not returned phone calls or emails seeking comment. The DEP is owed an estimated $1.2 million from HRK, according to court documents.

HRK says the Piney Point site is not currently being used, but steam was erupting from one of the stacks Thursday and water was pouring from an outflow close to where the toxic spill had previously occurred. The company vows the property is safe.

"My concern at this site is more environmental than financial," DEP attorney Jonathan Alden said, tapped into the hearing via phone conference.

"The environmental obligation will need to be funded if this company is going to remain operational. By law, it can't be ignored."

Josh Salman, Herald business writer, can be reached at 941-745-7095. Follow him on Twitter @JoshSalman.

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