Vermont Business Magazine The City of Burlington received permission from the Vermont Public Service Board to sell the assets of Burlington Telecom to a local investor in an order dated November 3, 2014, but the city will continue to be responsible for the operation of the telephone, cable and Internet provider.Under the agreement, the city will fund the largest component of the city's $9.03 million settlementpayment with Citibankthrough a sale of substantially all the assets of Burlington Telecom to Blue WaterHoldings LLC, which will then lease BT's assets back to the city. Blue Water isa Vermont limited liability company formed by Raymond CPecor III as ownerand managing member, as part of a sale and operating lease financing. Pecor and his family are the owner/operators of the Lake Champlain Transportation ferries and the Lake Monsters minor league baseball team, among other things.
Mayor Miro Weinberger said Monday: “Today's unanimous decision by the Vermont Public Service Board,following months of careful review and analysis, is great news for the people of Burlington.The PSB’s decision – both approving the Settlement Agreement that my Administration negotiated earlier this year and determining that all existing and ongoing violations of Burlington Telecom’s certificate of public good are resolved – moves the City another major step closer to putting the financial uncertainty caused by the mismanagement of BT fully behind us.I want to thank the PSB for the care and due diligence the Board and staff brought to this process.We now will move quickly to implement the Settlement Agreement.”
The PSB order (CLICK HERE) said that for more than five years, the city and its finances have been burdened by the consequences of actions taken by former city officials in funding investments in Burlington Telecom from 2007 to 2009. The most serious of these continuing burdens involve the potential exposure of the city of more than $33.5 million in the Citibank Lawsuit and the consequences of an unauthorized $16.9 million investment by the city in BT that was funded through non- reimbursed short-term advances to BT. The officials now in charge of the city's government and administration were not responsible for the city's actions that led to the Citibank Lawsuit, the city's unauthorized funding of investments in BT, or the CPG violations found by the Board in October 2010.
As proposed, the largest component of the City of Burlington's $9.03 million settlement payment will consist of the $6 million Blue Water will pay to the city upon the sale by the city of BT's assets to Blue Water under a proposed sale and operating lease financing. Blue Water will lease BT's assets back to the city for a maximum five-year lease term and will retain ownership of BT's assets during and after the term of the Lease unless there is a sale of BT's assets to another private entity. During the Lease term, monthly rental payments of $46,500 ($558,000 a year) will be made to Blue Water from BT's net cash flow. The rental payment amount reflects a 7% interest rate and a 20-year schedule of amortization on $6 million. Under the proposed financing, the city will have the right to direct a subsequent sale of BT's assets during the first four years of the operating lease. If an agreement for sale is entered into within three years, the city will ultimately receive 25% of the net proceeds of the sale (after payment to Blue Water of the remaining unamortized balance of $6 million and other deductions) or 17.5% of such proceeds if an agreement for sale is entered into within four years. There is no assurance there will be any future sale of BT's assets (or any recovery of the city's investment in BT) if the city is unable to direct a sale of BT's assets within four years at or above a pre-approved price.
Because of the increased performance lately of Burlington Telecom, the PSB suggested that a better end result could be for the city to pay off Citibank with a revenue bond. This had not previously been suggested by any of the parties. Ultimately, the PSB acknowledged that this was not a practical alternative to the complex Blue Water deal. Citibank did not support a plan that would have required voter approval, which its uncertain outcome, and it would have extended the process upwards of another nine months.
The PSB wrote:
"No party presented evidence opposing the proposed Blue Water sale and lease financing. In fact, all parties to this proceeding support the Board's approval of the proposed Blue Water sale and lease financing.
"Although alternatives to the Blue Water sale and lease financing to fund the Citibank settlement may have been possible, the Board concludes it is in the general good of the state to allow the City administration and the City Council to make the funding and financing decisions with respect to the Citibank Settlement that they believe best serve the interests of the City and its taxpayers. On this basis, the Board approves the Blue Water sale and lease financing."
While it is unclear, as the PSB states, what role Blue Water will have going forward, the PSB supported the conclusion that the city would be responsible for the operation of Burlington Telecom.
The PSB wrote:"After the sale of BT's Assets to Blue Water, the City will continue to be the licensed operator of Burlington Telecom and intends to continue to assume responsibility for compliance with the CPG and other regulatory requirements. The Board agrees with the City and the Department that the City, as BT's licensed operator, remains the appropriate entity to be held primarily responsible for compliance with the CPG and other regulatory requirements so long as the City remains the holder of the CPG to operate Burlington Telecom. As the Department suggests in its brief: "Board oversight over Blue Water, as owner of the BT Assets, should be less than that of the City, as the operator of BT."
The city's, and consequently Burlington International Airport's, bond rating suffered and the cost of borrowing money has been more expensive because of it. However, as of April 14, 2014, Moody's changed the outlook for the city's Baa3 bond rating fromnegative to stable. An improvement in the city's bond rating, the PSB wrote, would lower the interest costs on new bondissuances by the city and might allow the city to lower its debt service costs by refinancing someof its outstanding bonds.