HomeMy WebLinkAbout12 Broadband Issue/Financing - slam�
Staff Report
To: Board of Directors
From: Alan Harry, Director of Telecommunications Services
Date: April 26, 2002
Subject: Consideration of Broadband Issues; Financing
One of the integral pieces of the District's proposal to construct a Broadband system within
its service area is that of project financing. In that California State law requires that each
business unit within a Public Utility District be self-supporting, the District's proposed
Broadband operations will require it's own financing mechanism, as well as a revenue
stream to repay any and all debts associated with the project.
Prior to the District's decision to alter the proposed Broadband system infrastructure from
Hybrid Fiber-Coax (HFC)to Fiber to the Home (FTTH), the Board had authorized the
expenditure of up to $50,000 for Financial Adviser and Bond Counsel services. As
previously reported by staff, contracts for these consultant services have not been
consummated. As such, no funds have been expended.
While researching the various technologies available to provide video, data and voice
services over a FTTH infrastructure, I began investigating alternative project funding
opportunities.
Our original financing plan centered on the District utilizing Certificates of Participation
(COPs) as the primary source of revenue. The District has used this form of financing in the
past, and is aware of the costs associated with process of generating the loan. It is not
unusual to incur costs ranging from $225,000 to $500,000 in underwriting fees alone.
An alternative to COPs is Municipal Lease Financing, and Federal and State loan and grant
programs. The District has experience with these forms of financing as well. As you are
aware, the majority of the District's vehicles and equipment are purchased utilizing municipal
lease financing, while a number of the District's major water projects have been funded
through government low interest loan programs. These forms of financing, if used for the
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construction of the District's proposed Broadband system, could save the District up to
$320,000 in underwriting fees.
Recently a firm specializing in Municipal Lease Financing and Federal and State grant and
loan programs has approached the District's General Manager and me. Aggregate
Networks, in conjunction with E-Copernicus & National Strategies, Inc., finances up to 100%
of services and capital expenses for new Broadband networks through Municipal Leasing
and proprietary access to Government Loan and Grant programs, including startup costs,
construction, conduit, fiber& equipment. Formed in early 2001, Aggregate Networks is
currently working with over 10 communities to obtain project funding. These communities
include the City of Mesa Arizona, Wake County North Carolina and Provo City Power.
Due to the potential savings associated with the use of Federal and State grants and loans,
and lease financing, I believe that it is appropriate to further investigate the possibility of the
District's proposed Broadband System being funded in this manner. As such, I have
communicated with many of the communities Aggregate Networks is currently working with,
as well as a number of their funding sources, and have been advised that the firms
Principals have a high level of integrity, and a history of success in their past endeavors.
Aggregate Networks has provided the District with a proposal, including a Lease Application.
Upon completing the application, and paying an engagement fee, Aggregate Networks
would begin structuring the most favorable lease terms for TDPUD, and determining
eligibility for Federal and State programs by working in tandem with their Associates in
Washington D.C.
Aggregate Networks, and their Associates, work on a monthly retainer basis, rather than an
underwriting/syndication fee, to advise, process, implement, consult, obtain competitive
rates, work with Federal and State programs and place financing.
Originally, the District's proposed contract with Emily Wagner and Associates (financial
advisor) totaled $25,000, and included only the preparation of a package to sell the District's
proposed project to the financial community. Following the completion of the package, Ms
Wagner had proposed to locate financing and underwrite the project for a percentage of the
total loan amount. The District's proposed contract for Bond Counsel services with Foley
and Lardner began with a payment of$25,000 with the understanding that additional funds
would likely be required through the funding process.
If the District chose to enter into an agreement with Aggregate Networks, the funds
previously set aside could be used. In their proposal Aggregate Networks offered to provide
lease financing and Federal and State grant and loan services for a total of$15,000/mo for a
period of one year, or$180,000. It is important to note that most Federal grant and loan
programs can take up to ten months to complete. Thus a one-year commitment is
appropriate.
In that the Board has previously authorized $50,000 for contract services related to the
financing of the District's proposed Broadband system, I believe that these funds would be
better spent to retain Aggregate Networks and their Associates.
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I have been advised by Aggregate Networks that within ten to twelve weeks'terms relating
to lease financing of the District's Broadband system would be near completion, and
eligibility for Federal and State grants and loans would be established. As such, it is
recommended that the Board authorize staff to enter into and agreement with Aggregate
networks to retain their service for a period of just over three months at a cost of$50,000.
Before the end of the three month period, I will return to the Board with a status report and
recommendation as to whether or not the District should continue working with Aggregate
Networks, and at what cost. It should be understood that a portion of future fees could be
rolled into the lease financing itself.
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