Should give industrial bonds a good hard look

Read this and then my comments below. It’s an excerpt from a recent SEC filing by the computer chip manufacturer, AMD:

In anticipation of the potential need for increased manufacturing capacity over the longer term, on December 22, 2006, we entered into a Grant Disbursement Agreement with the New York State Urban Development Corporation d/b/a Empire State Development Corporation, or ESDC, in connection with a potential new 300-millimeter wafer fabrication facility on the Luther Forest Technology Campus in Saratoga County, New York. Under the agreement, AMD would be able to construct a new facility designed to produce 300-millimeter wafers using 32-nanometer process technology between July 2007 and July 2009.

Should we choose to build the facility, the State of New York is required to issue bonds or otherwise fund the project and related research and development in the amount of $650 million. Actual disbursement of funds occurs as we submit appropriate documentation verifying that expenditures on the project have been incurred. If we move forward with the project, we must complete the construction of the facility in accordance with the final plans and specifications approved in writing by ESDC and must maintain business operations on the Luther Forest Technology Campus for a minimum of seven years after the date full employment at the facility is first achieved. Funds disbursed to us may be subject to repayment, in whole or part, if we do not attain and or maintain certain levels of employment for specified periods of time.

Couple of comments:

1. If New Brunswick wants to get serious about attracting large scale manufacturers, it needs to have proper incentive tools (like the tax breaks for oil sands development in Alberta). Industrial bonds, issued by a state or province, are an interesting option. Essentially, the company leverages the relatively low cost of community bonds compared to other forms of investment capital. Sure there is risk but relatively limited with companies of this stature.

2. Saratoga Springs is pretty well about as rural as you get in New York state – about 100 kms north of Albany. The truth is that these mega projects can easily be sited in places like Miramichi, Sussex and Truro and still provide significant economic benefits to adjacent urban markets.

3. We haven’t had such projects in Atlantic Canada since Michelin in Nova Scotia. Why not?

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0 Responses to Should give industrial bonds a good hard look

  1. Anonymous says:

    That must be a rhetorical question since the constant giveaways to Irving and the forestry sector essentially make people’s eyes gloss over.

    Combine that with bricklyn, in other words, as a taxpayer you are on the hook whether a company succeeds or not. You don’t get much more successful than Irving, yet the province has multiple ‘loans’ to them, rolls over whenever a contaminant happens, and bankrolls liability. Not to mention the company is so cheap they won’t even pay fair taxation on energy startups- $500,000 vs. Levis $10 million a year.

    That’s the political economy of New Brunswick. People aren’t stupid and know all these things, Irving likes it that way, McCain likes it that way, and as you frequently mention, a good percentage of New Brunswickers like it that way.

    So the problem is finding ‘good’ deals, when the province has to work like hell just to get ‘bad’ deals. THAT is why it doesn’t happen.

    To combat that takes a LOT of political action. It means combining regional, provincial and federal politicians and uniting businesspeople, which is a hard sell. NB doesn’t have the cash that New York has, and keep in mind that that’s not true that its a ‘safe bet’. During the boom years one fifth of the top 100 in Fortune’s top 100 were saved from outright collapse.

    Like they say, companies want to make profits, but want governments to bankroll the risk. Identifying the risk is hard enough, but NB is hardly in a position to bail out AMD.