BANGOR — A small notice published in the classified advertising section of the Bangor Daily News recently let the public know what has been speculated for some time: Heat pump manufacturer Hallowell International is no longer in business.

Keenan Auction Co. of South Portland will conduct a public auction on June 15 at the Hallowell International offices on Hildreth Street in Bangor. Items for sale include forklifts, office furniture, computers and other business-related assets.

The city of Bangor, which has leased to Hallowell International a warehouse-style building since 2006, confirmed the company’s closure on Tuesday.

“It is deeply disappointing that Hallowell did not succeed, with its product so relevant to the potential of reducing energy costs, and providing needed good manufacturing jobs in the Bangor region,” said Rod McKay, Bangor’s economic and community development director.

Hallowell International produces commercial and residential heat pumps that run on electricity and has sold thousands of units over the last several years as consumers were looking for alternatives to heating oil. More recently, though, technical problems with the units and poor customer service have plagued the company.

For months, the status of Hallowell International has been the subject of conjecture, particularly among customers, many of whom have contacted the Bangor Daily News in recent months to report problems.

In late January, company President Duane Hallowell told the BDN he was trying to find an investor to stem financial uncertainty. Since March, though, neither Hallowell nor his attorney, Benjamin Marcus of Portland, have returned calls for comment.

According to a search of filings in U.S. Bankruptcy Court on Monday, Hallowell has not filed for bankruptcy.

“Although it is our understanding that Hallowell may still be interested in selling the business, its private lender, Northeast Bank, intends to liquidate its secured assets through an auction to recover outstanding debt owed to Northeast Bank,” McKay said. “Northeast Bank has offered the City of Bangor the opportunity to participate in the auction to liquidate assets securing the city’s loans.”

In addition to leasing the building, the city in 2006 approved two community development loans of $100,000 each at 8 percent interest over seven years. One was used to make the lease payments to the city for the building; the other was used to purchase machinery and equipment and to provide working capital during the company’s initial operating period.

In combined outstanding principal and accrued interest, Hallowell International still owes the city $170,317, McKay said, although those loans are secured by fixed assets, including some that could be auctioned next month. The city is still debating whether it will participate in the auction.

“There may be items which the city feels are more valuable if retained for the city’s use rather than be included in the auction,” McKay said.

Although the city stuck by Hallowell, a former employee said the company’s heat pumps were “doomed to fail” from the beginning.

“The product engineering would never be successful in 90 percent of the climates it was sold in,” Randy Margraf wrote in an email to the BDN. “This was a tightly kept secret at Hallowell International.”

One of Hallowell’s biggest customers is a military housing project in New Jersey that has purchased 1,370 Hallowell units over the past three years. Thirty percent have failed, according to Matthew Haydinger of Architectural Renovation and Construction, a private military housing contractor for Fort Dix-McGuire Air Force base in New Jersey.

His company was exploring legal action as of a month ago.

When Hallowell first was granted financing from the city of Bangor in 2006, its president and CEO said the company could create up to 900 jobs. In 2008, the company employed as many as 40 people and sold 1,600 units, but as early as this year, all but a few employees had been laid off.

Even when the company began to struggle, though, McKay said the city determined it was in the best interest to allow Hallowell International to continue to occupy the building, since it was maintaining utilities and insurance. The city also had an interest to assist Hallowell in securing financing, something that ultimately failed to happen.

Reprinted with permission from the Bangor Daily News.

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