Incinerator firm hounded by debt, mismanagement BURNED

June 12, 1994|By Kim Clark | Kim Clark,Sun Staff Writer

The idea appeared fail-proof.

It was the summer of 1988, and a handful of Maryland's business and political elite thought they had a solution to the panic that was driving beach-goers away from syringe-littered ocean shores.

They'd collect all the trash from local hospitals and burn it in a new, massive incinerator at Hawkins Point in South Baltimore, a prototype for others they'd build across the country.

They thought they'd clean up. And not just the beaches.

But today Medical Waste Associates Inc. is in a crisis. It survives only on the forbearance of its creditors, and its owners are banking on a sale to save the plant.

Much is riding on the sale negotiations. If creditors force the plant to close, MWA's Baltimore-area hospital customers -- already under pressure to hold down costs -- could end up paying millions of dollars more each year to dispose of their infectious waste.

Meanwhile, hospitals across the country, put off by MWA's troubles, continue burning waste in smaller, polluting incinerators or sending it to landfills.

One question lingers: How did a venture with such potential turn into such a mess?

After all, its five founders included such supposedly savvy people as William Boucher III, former head of the Greater Baltimore Committee; Thomas D. McKewen, former head of the Maryland Environmental Service; and the late state Sen. Harry J. McGuirk.

The answer is that the group thought they could pull off the

classic 1980s deal that used borrowed money to chase quick profits. But an overload of debt, compounded by over-optimistic assumptions, technical failures and mismanagement, derailed their dream.

In nearly four years of operation, the nation's largest infectious waste incinerator has driven away its hospital customers, has been caught illegally importing out-of-state waste and has paid thousands of dollars to settle state pollution charges.

At the same time, it paid the original partners -- who invested less than $100 apiece for their 7 percent to 8 percent stakes -- hundreds of thousands of dollars in salaries even though the company has defaulted on about $27 million of debts to everyone from its laundry service to bondholders.

"It makes me angry," said Betty Krysiak of the accounts receivable department of Lord Baltimore Laundry Inc., which has been owed more than $21,000 for three years. "If they could afford to pay themselves that much, why not pay us?"

But Neil J. Ruther, one of the original partners and general counsel to Medical Waste, blames the problems on bad luck and a contractor who bollixed the construction.

He and the other partners have done nothing wrong, he insisted.

"You couldn't have bought that expertise for that," he said. "I have worked for three years for free."

He still believes MWA will work.

"This is a great plant and a great idea," he said. "This is the wave of the future."

At first glance, the MWA partners are an unlikely collection.

Mr. McKewen, a soft-spoken engineer, had been in charge of developing landfills for the state in the 1970s. Since the early 1980s, he had been trying to start a waste incinerator business.

Mr. Boucher, the outgoing scion of a Baltimore tobacconist, spent 25 years as the first head of the powerful GBC before starting and selling a public relations firm and then branching into real estate development. He had helped finance Harry Hughes' gubernatorial campaigns in the 1970s and 1980s.

Mr. McGuirk, a South Baltimore politico nicknamed "Soft Shoes" for his smooth manner in the halls of power, had once run against Mr. Hughes and was working for Gov. William Donald Schaefer in the late 1980s.

Mr. Ruther was a specialist in commercial law at Ober Kaler Grimes & Shriver who quit to focus on his business ventures.

The fifth was Andrew H. Kaufman, a developer with ties to AlvinSherman, owner of a large Florida homebuilding company.

What the five had in common were connections -- to political power and to money.

They knew whom to call, and how to get what they needed from government: everything from the land for the incinerator, which was owned by the city, to state environmental permits and permission to sell tax-free revenue bonds.

And they would use their business connections to find investors willing to kick in cash.

Mr. Kaufman helped bring on Mr. Sherman, then owner of Development Corp. of America. Three companies associated with Mr. Sherman and his family were given 54 percent of MWA in return for loans of more than $1 million.

And the Baltimoreans brought on a group of three wealthy black investors: Otis Warren Jr., a prominent Baltimore developer; Raymond V. Haysbert Sr., chairman of Parks Sausage Co.; and Theo Rodgers, a developer, each contributed $100,000 in 1989 in return for a total 6 percent share.

Mr. Warren said the founders told him they wanted to include minorities in MWA's ownership, and persuaded him MWA was a goldeninvestment. But now he fears his group will lose money.

"We all thought we were going to get rich," Mr. Warren said. "I feel ripped off."

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