A local investment company has withdrawn its $20 million anticipated investment in Thermogen Industries, the startup planning to build a wood pellet plant at the site of the former Great Northern Paper mill in Millinocket.

CEI Capital Management, a for-profit subsidiary of Brunswick-based Coastal Enterprises Inc., confirmed Monday that it will withhold $20 million it planned to invest in Thermogen as part of the Maine New Markets Capital Investment tax credit program. The company also announced it would withhold an additional undisclosed amount of investment in Thermogen as part of the federal New Markets Tax Credit program.

The news is the latest blow for Thermogen’s efforts to finance its $140 million wood pellet project, which it claims could provide 55 direct jobs in Millinocket. In April, it lost $9 million in state-backed financing when the Finance Authority of Maine’s board voted to reduce the amount of a bond it would sell on Thermogen’s behalf from $25 million to $16 million. The board determined that a change in production technology was substantive enough to require a new vote.

Charlie Spies, CEI Capital Management’s CEO, was not available for comment on Monday. But a company statement provided to the Portland Press Herald cited two reasons for the change of heart: an approaching deadline for using its allocated tax credits and changes in Thermogen’s proposal that are substantial enough so it “no longer satisfies CEI Capital Management’s underwriting requirements.”

“This decision was not made lightly,” the CEI statement said.

Cate Street Capital, a New Hampshire-based private equity firm, manages the investment fund that owns Thermogen Industries. It also manages the fund that owns the Great Northern Paper mill in East Millinocket that’s been idle since February.

Alexandra Ritchie, managing director of Cate Street Capital, confirmed that CEI’s decision “represents another obstacle to overcome in regards to finalizing the financing structure,” but downplayed its significance to the project’s final outcome.

“CEI’s decision to withdraw their allocation from the Thermogen transaction is in no way a reflection of the project, but simply that they must adhere to their own specific deadlines for when they must place and close on their individual New Markets Tax Credit allocations,” she said. “The Thermogen project continues its development and hopes to reach a financial close on the transaction in the near future and be able to begin construction immediately thereafter.”

The Finance Authority of Maine in August 2013 approved CEI’s application to invest $20 million in Thermogen as part of the Maine New Markets Capital Investment program, which provides refundable state tax credits of up to 39 percent to investors who make equity investments through qualified organizations such as CEI Capital Management.

Tax credits

That means that the investors working through CEI would have been eligible for tax credits worth $7.8 million from Maine Revenue Services if the investment had been completed.

Christopher Roney, FAME’s general counsel, said that FAME does not need to approve CEI’s decision to pull its investment.

Along with CEI’s $20 million in Maine tax credits, FAME also approved in August applications from CCG Community Partners LLC in Princeton, New Jersey, and USBCDE LLC in St. Louis, Missouri, to invest another $20 million in Thermogen. Calls to those organizations seeking the status of their investments were not returned on Monday. Roney said FAME has not received notification from either that an investment has been made.

The Maine tax credit program is modeled after the federal New Markets Tax Credit program, which Congress created in 2000 to attract investment capital to low-income communities by allowing individual and corporate investors to receive a tax credit in exchange for making equity investments in financial entities like CEI.

However, unlike the state program, the federal program requires no pre-approval process and the amount has not been disclosed. Christen Graham, CEI’s spokeswoman, would not provide the figure, claiming it is CEI’s policy to only comment on investments that are closed.

CEI worked for three years with Thermogen representatives, banks and the state and federal governments to allocate millions of dollars in tax credits toward the project in Millinocket, according to its statement.

“As a Maine-based company we understand very well the need for economic support there,” the statement said and invited Thermogen to reapply.

Ritchie said Cate Street Capital has a longstanding working relationship with CEI, including the latter’s investment in Cate Street’s Burgess BioPower project in Berlin, New Hampshire.

She reiterated the economic impact Thermogen could have on the region.

“Thermogen has the ability to be the cornerstone of a renaissance for a captive, challenged industrial wood-based rural economy,” she said in the statement. “Thermogen is a solid project that, as it comes to fruition, will bring much-needed economic benefits to the entire Katahdin region.”