One of those moves came last week when the FCC granted a petition from Wilson, NC to preempt a North Carolina law that puts conditions on municipal ownership of broadband networks.
The state legislation, commonly called the Level playing Field Law, was passed in 2011 and does things like limit the footprints of publicly owned networks to municipal boundaries, require voter referendums before funding ventures into the highly competitive telecommunications industry, and limit the ability of a publicly subsidized networks from undercutting prices of private sector networks.
Even though Mi-Connection is the poster child for why a law like this is needed – its purchase was done without a referendum and minus the tens of millions in taxpayer funded subsidies the company surely would have gone under as a private sector operation – both Davidson and Mooresville supported the FCC action.
Last year, each town submitted official comments of support for Wilson’s petition.
In light of all the company’s challenges over the years, it is somewhat ironic that the towns supported the FCC action. That irony is made even more pointed because Mi-Connection is actually exempted from most provisions of the state law in question as a pre-existing network when the law was passed. Even the one provision that may have impacted the company – the limit on service boundaries - was irrelevant.
At the January 22nd Mi-Connection Board meeting company CEO, David Auger, was asked about the possible impact of any upcoming regulatory decisions that would “take the shackles off of municipal ownership.”
Mr Auger responded that it was“not really an issue for us”. He went on to say “our boundary is so large it would take us 20 years to get out of it.”
No, the FCC action is not why there is something positive on the horizon for Mi-Connection.
It really does nothing for the company one way or the other.
Instead, the potentially positive turn of events originates much closer to home with activity in the office of Mooresville’s finance director, Deborah Hockett. Ms Hockett has been looking at refinancing the outstanding debt for the company and has been making some real progress.
She has recently worked with Wells Fargo on a rate modification for the nearly $9 million outstanding balance of the installment loan the company took out for network upgrades after the 2007 purchase. The rate modification drops the interest rate from 6.24% down to 2.36% and saves nearly $1.6 million in interest by the loan payoff date of March 2023. In the upcoming fiscal year alone, it saves $322,428 in interest - which would be covered entirely by the towns’ annual subsidies if it had to be paid.o
However, as good as that news may be, it pales in comparison to what might be saved if an even bigger financial transaction occurs.
For years, the taxpayers who have been subsidizing the operation have always heard that “there’s nothing that can be done about Mi-Connection until 2017” because of the bonds that were used to buy the company. Well, it turns out, that is not entirely true.
Yes, much the bonds could not be refunded early without penalty because they have a 10-year call provision – meaning they can't be refunded within the first 10 years. However, now that we are much closer to the call date and interest rates have dropped enough it may be financially doable to refund a big chunk of the existing bonds and reissue new bonds at a lower rate.
About $61 million of the original $80 million in principal falls into this category with interest rates in the 4-5.1% range.
Mooresville has already begun the process to see if something can be worked out to refinance this portion of the debt. The town enlisted Southwest Financial Advisors on an RFP for underwriters to conduct the transaction. If that goes well, the town needs to get on the Local Government Commission’s schedule for approval to issue the new bonds. That could happen as quickly as April or May.
While there certainly are no guarantees and financial markets can change quickly, if all goes well, the towns could be seeing some significant savings as early as the next budget cycle scheduled to wrap up by the end of June.
Let’s all cross our fingers and wish Ms Hockett success in what she is trying to accomplish. That, more than anything done or not done in Washington or in Raleigh, will help Mi-Connection gain sounder financial footing.
I have not researched the following numbers , but I think here's a logical MI Connection solution
ReplyDeleteDave Auger at the last public meeting said that MI's financial goal is to get to an EBITDA of 29. I assume that's what's needed to get a sale offer in the $60M to $70M range to breakeven on the (I think) current approx $70M Bond and installment debts. I don't remember if he said in what year that goal may be achieved. My gut tells me that's optimistic give the ever increasing competition and movements to "un-plug". In the meantime isn't it possible if not probable that Davidson and Mooresville EACH must continue to contribute $1M to @1.5M/yr to offset annual operating losses (2M - 3M/yr total) ? Therefore, if it takes just 5 years to get to the magic number 29, the towns may be out another $10M to 15M ?
So here's my question. What can we get for MI now? If we can get $45M today , perhaps $25M can be refinanced 10yrs @ 3% = $2.8M/yr . If that's possible, does it make sense now to at least have a public dialog , entertaining selling now, fixing our residual financial obligations and finally eliminate future marketability risk?
By the way, it was unrealistic 2007 subscriber growth assumptions (just prior to "unexpected" 2008 real estate market crash) that created this albatross, the longer we hold on for a future price, the more probable that a severe market adjustment will bite again.