HomeMy WebLinkAbout6 Broadband Agenda Item #6
Memorandum
To: Board of Directors
From: Alan Harry, Director of Telecommunications Services
Date: June 10, 2004
Subject: Broadband Business Planning; Financing; Rating Agency
Summary
The District has been actively moving forward to provide competitive data, video and voice
services to the homes and businesses within its service territory. As part of the process to
secure the funds necessary to construct the District's Fiber to the User Broadband System,
it would be financially advantageous for a Rating Agency to be brought onboard. Dominion
Bond Rating Services, Inc. (DBRS) has been recommended by District placement agents
Riviere Jenison Securities as a firm that can rate the Fiber to the User project Certificates of
Participation (COPs) at a double or triple B rating which will lower the interest rates paid,
thus saving the District a great amount of money over the life of the financing.
History
In September of 2003 you acted to engage the firm of Riviere Jenison Securities as the
placement agent for the financing of the District's FTTU network.
RJS has sought the interest of a rating agency for some time. As you may recall,
discussions with Standards and Poor's and Fitch took place some time ago however they
did not show interest in becoming the Rating Agent for the project.
New Information
During the past few weeks RJS have been in contact with DBRS regarding their interest in
becoming the rating agent for the District FTTU financing. As can be seen by the attached
"Letter of Understanding" DBRS wishes to enter into an agreement with the District to so as
to provide a rating for the FTTU COPs. The cost of engaging DBRS would be $165,000
over the term of the financing.
•Page 1
In order to understand the benefit of this project receiving a rating we have prepared the
matrix below which, utilizing a lending term of 12 years and a loan amount of $24 mm,
shows a minimum savings of $1.5 mm and a maximum savings of $3.2 mm due to the
decrease in the Cops interest rate.
MARGIN
12 years FACTORS
$ Base Rate
24,000,000.00 Assumption Low High LOW HIGH
RANGE BB
rated 4.25% 1.25 1.50 5.31% 6.38%
RANGE non-
rated 1.75 2.00 7.44% 8.50%
Difference 2.13% 2.13%
Minimum
Difference 1.06%
INTEREST at INEREST at Cast of
Year 2.13% 1.06% Difference Rating Savings
1 ($510,000.00) ($255,000.00) ($255,000.00) (85,000.00) ($170,000.00)
2 ($472,241A3) ($234,963.37) ($237,277.76) (20,000.00) ($217,277.76)
3 ($433,679.88) ($214,713.85) ($218,966.03) (20,000.00) ($198,966.03)
4 ($394299.20) ($194,249.17) ($200,050.03) (20,000.00) ($180,050.03)
5 ($354,081.69) ($173,567.07) ($180,514.62) (20,000.00) ($160,514.62)
6 ($313,009.55) ($152,665.21) ($160,344.34) (20,000.00) ($140,344.34)
7 ($271,064.63) ($131,541.27) ($139,523.36) (20,000.00) ($119,523.36)
8 ($228,228.38) ($110,192.89) ($118,035.49) (20,000.00) ($98,035.49)
9 ($184,481.86) ($88,617.68) ($95,864.18) (20,000.00) ($75,864.18)
10 ($139,805.73) ($66,813.24) ($72,992.49) (20,000.00) ($52,992.49)
11 $94,180.23) ($443777.12) ($49,403.11) (20,000.00) ($29,403.11)
12 ($47,585.19) ($22,506.87) ($25,078.32) (20,000.00) ($5,078.32)
($3,442,657.48) ($1,689,607.73) ($1,753,049.74) (165,000.00) ($1,588,049.74)
$3,277,657.48 $1,524,607.73
Max Savings Min Savings
•Page 2
In that the engagement of Dominion Bond Rating Services, Inc. could substantially decrease
the interest paid by the District over the term of the COPs, this report has been prepared
and submitted to the Board for action.
Recommendation
In accordance with the recommendation of District Staff, Aggregate Networks and Riviere
Jenison Securities, it is recommended that the Board authorize the District Manager to enter
into a Letter of Understanding with Dominion Bond Rating Service, Inc to secure them as
the District's Rating Agency for the FTTU network.
0 Page 3