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Tattered Flag pays back $1.5 million borough loan; refinancing by brewery ends deal decades early

By Dan Miller

danmiller@pressandjournal.com

717-944-4628
Posted 7/10/19

Tattered Flag Brewery & Still Works has repaid the $1.5 million loan the company received from Middletown in 2015 toward opening in the former Elks Building.

The borough had loaned the money …

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Tattered Flag pays back $1.5 million borough loan; refinancing by brewery ends deal decades early

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Tattered Flag Brewery & Still Works has repaid the $1.5 million loan the company received from Middletown in 2015 toward opening in the former Elks Building.

The borough had loaned the money to Tattered Flag through the Industrial and Commercial Development Authority, which owned the Elks Building at West Emaus and South Union streets.

The financing package included a $1.1 million loan that Tattered Flag put toward renovating the building and converting it into the brewery and still works. The remaining $400,000 went toward Tattered Flag purchasing the building from the ICDA.

Tattered Flag owns and occupies the entire former Elks Building, except for the Elks Theatre, which is still owned by the ICDA, which is trying to sell it.

The $1.1 million loan was to be repaid by Tattered Flag to the borough at 4 percent interest over 25 years.

Tattered Flag had been making its scheduled payments on the loan on time each month to the borough, borough Manager Ken Klinepeter told the Press & Journal.

The $1.4 million obtained through the refinancing by Tattered Flag is the payoff amount that was needed to settle the loan, Klinepeter said.

Klinepeter acknowledged that Tattered Flag paying off the loan early means the borough will not make as much money from interest payments as it would have had Tattered Flag taken the entire 25 years.

Tattered Flag had the right in the contract to pay off the loan early without penalty, Klinepeter said. The borough didn’t lose any money, as the borough recouped all of the funds that the ICDA had loaned to Tattered Flag, he added.

The borough would have received about $59,000 a year in interest had Tattered Flag continued financing the loan over the 25 years, borough Finance Director Kevin Zartman told the Press & Journal.

However, the borough expects to earn about $44,000 a year in interest from placing the entire payoff amount in an interest-bearing account, Zartman said, “so the borough is still earning a return on the money and has the funds available should they be needed at any time.”

Council has not yet decided what to do with the money.

“I expect they may discuss moving the proceeds or a portion thereof into a capital reserve fund or similar fund for future use,” Klinepeter said.

Pat Devlin, one of the Tattered Flag ownership partners, said Tattered Flag repaying the money to the borough is a sign of the success the business is having.

Tattered Flag just celebrated its third anniversary.

“We’re expanding and growing,” Devlin said, adding that Tattered Flag is already outgrowing its space.