Talks between Burlington Telecom and CitiCapital have officially broken down, forcing the city telecom to return equipment it bought through a $33.5 million lease agreement with the financier.
In a letter filed with the Vermont Public Service Board late Tuesday night, BT’s attorney, William Ellis, said the transfer of equipment shouldn’t interrupt existing service, but that remains a possibility.
In mid-November talks stalled between the city and CitiCapital. The impasse ocurred when the city refused to agree to terms being offered by CitiCapital to make good on its lease.
“As a result of this impasse, Burlington and CitiCapital have agreed that the equipment lease is terminated. Now that the lease is terminated, the city will obtain replacement equipment either through a partnership or other means, which will allow CitiCapital equipment to be de-installed and returned,” Mayor Bob Kiss announced via email early Wednesday.
It’s unclear how much time Burlington Telecom and the city will have to un-install the equipment it bought with the borrowed funds and hand over the goods to CitiCapital. It’s not yet clear how Burlington Telecom will find the money — or a new private partner — to re-install equipment in order to keep phone, television and internet services flowing to its thousands subscribers.
According to the letter to the PSB, CitiCapital has agreed to let the city return the equipment “as soon as practical.”
“The city is presently researching several options,” wrote Ellis to the PSB. “Those options include the purchase of replacement equipment, which would allow the CitiCapital equipment to be de-installed and returned, as well as potential partnership opportunities consistent with the city’s obligation to propose a cure to the board.”
The city was unable to persuade CitiCapital to restructure its lease to more closely match its revenues. Burlington Telecom missed several lease payments this year; CitiCapital dipped into a $1 million reserve fund to cover most of those costs.
“The cornerstone of these negotiations has been a plan to utilize the positive cash flow Burlington Telecom is producing from regular operations to support a lease amendment. However, CitiCapital has been unwilling to make an accommodation the city could support,” Kiss said.
The two sides most recently met in Boston on November 15 where CitiCapital once again refused to write off part of its lease agreement, according to Ellis’ letter.
“CitiCaptial representatives also underscored their unwillingness to set a restructuring precedent with the city of Burlington that would redound to their and the industry’s detriment, if other municipalities took actions simile to Burlingtton,” Ellis wrote the PSB. “CitiCapital’s refusal to consider the city’s proposal for restructuring the lease agreement appears also to be influenced by the belief that a ‘higher authority’ will somehow find the money to make the payments ‘at the 11th hour’ if they remain steadfast in their demand for the leased equipment to be returned.”
Earlier this year, the city was in talks with the legislature about ways in which statutory language could be changed to allow the city to float a bond to help cover BT’s debt. Such a bond would need voter approval. That idea, however, never became law or even a proposed piece of legislation.
CitiCapital wasn’t buying any of the city’s claims, or its counter-offers, according to Ellis’ letter.
“The city made an interim proposal consistent with the legal restrictions on the use of city funds that included returning to the Legislature to reconsider the existing statutory restrictions. CitiCapital remained dismissive of the legal restrictions on the use of city funds and asserted that the city had an absolute obligation to make the scheduled lease payments as set forth in the lease agreement,” Ellis wrote.
In other words — the city and its taxpayers are on the hook to repay the money regardless of any legal or license conditions.
Though CitiCapital agreed to let Burlington Telecom and the city to return equipment “as soon as practical” it also wants to be paid in the interim for use of the equipment. The city is trying to renegotiate that condition.
“CitiCapital did agree to an accommodation period to allow continued use of its equipment on the condition that the city made minimum monthly rental payments of $311,000 ,which is well above market rates and beyond BT’s cash resources. The restructuring proposal before CitiCapital provides regular and recurring monthly payments without utilizing non-BT revenue. Moreover, it provides CitiCapital a substantial upside in a format that addresses their concern about setting an industry precedent,” Ellis wrote.
In the letter, Ellis requested a status conference with the PSB to talk about the lease termination in more detail as well as potential partnership opportunities to fund the replacement equipment and to propose a “cure”, or long-term solution, to the board.
Last month, the PSB found Burlington Telecom in violation of several conditions of its certificate of public good.
Despite the setback, the ever-optimistic Kiss said BT would continue to provide services to Burlingtonians.
“Burlington Telecom is an important asset of the City. As always, Burlington Telecom is committed to providing continuing service to the residents and businesses who are its customers in the city of Burlington,” said Kiss.
Download a copy of Burlington Telecom’s letter to the Vermont Public Service Board: Download Hudson, S ltr 11-23-10-1
The complete statement of Mayor Bob Kiss:
The City of Burlington has been in negotiations with CitiCapital to restructure its lease since early this year. The cornerstone of these negotiations has been a plan to utilize the positive cash flow Burlington Telecom is producing from regular operations to support a lease amendment. However, CitiCapital has been unwilling to make an accommodation the City could support.
As a result of this impasse, Burlington and CitiCapital have agreed that the equipment lease is terminated. Now that the lease is terminated, the City will obtain replacement equipment either through a partnership or other means, which will allow CitiCapital equipment to be de-installed and returned.
The City has requested a status conference with the Vermont Public Service Board to discuss this process in more detail as well as potential partnership opportunities to fund the replacement equipment and to propose a cure to the Board. Burlington Telecom is an important asset of the City. As always, Burlington Telecom is committed to providing continuing service to the residents and businesses who are its customers in the City of Burlington.
This article appears in Nov 24-30, 2010.
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I have to think that some entity will make a deal with Citi to purchase the BT assets since they will not recoup the $33.5M by selling equipment. The fiber has to be the most valuable asset and I would think it is going to be hard to find a buyer. My guess is that some deep pocket/strong balance sheet entity (private equity?) will refinance the lease or purchase the assets to take advantage of BT’s positive and routine cash flow.
“I wonder if BT would be able to sell bonds to the people of Burlington to cover part of the cost at below the rate they were paying Citi.”No, it can’t. It’s forbidden by State law, the City charter and the CPG.I don’t think many, if any, BT customers would be willing to pony up the several thousand dollars each that would be required to allow BT to retain the Citi lease or buy it out, which are the only ways it could survive.I’m not sure what Kiss thinks he’s accomplishing by implying otherwise, but BT is done.
I wonder if BT would be able to sell bonds to the people of Burlington to cover part of the cost at below the rate they were paying Citi. That way, all of the people who want it to continue could take on the risk of the debt themselves. Alternatively, could it be mutualized (i.e. sold to the customers in the form of a co-op)? That way the city wouldn’t be on the hook, but it wouldn’t have the issues of being owned by a large out-of-state corporation either? Electricity and heating fuel is already delivered to large parts of Vermont by co-op; why not telecom services in Burlington? It seems to be a good middle road between privatization and the current socialized model…
Rich, BT’s “terms” were “wait to see if we can get the law changed, even though we tried once and failed.” They weren’t even pretending that they could come up with the money any other way. It’s so obvious that no one else will loan them money to cover the debt that the possibility isn’t even mentioned in any of this.Citi did absolutely nothing wrong here. They could have pulled the plug after the first missed payment, but didn’t. It’s called running a business.
Let’s see if I get this right: Citi doesn’t want to accept Burlington’s terms lest it set a bad precedent with other municipalities pursuing similar programs.Question: How much did Citi get from the TARP bailout, even though we risked setting a bad precedent by encouraging irresponsible financial behavior at financial institutions?Answer: $20 billion of taxpayer (and even Burlingtonian) money.Question: How is Citigroup doing now that citizens, even those in Burlington, coughed up money to cover their questionable practices?Answer: $2.2 billion in profit in just the third quarter.Citi=Laughable. If you live in Burlington and have a mortgage or car payment through Citi, switch.
One amazing thing that the letter to the PSB reveals is that BT’s only proposed solution to their problems was to try to get State law changed to allow them to further soak taxpayers. Unbelievable.
What a f-ing nightmare. How can the mayor honestly call BT ‘an important asset to the city’ when it is obviously just the opposite–a massive liability. Definitely prog accounting methods. (By the way i’m no conservative) It’s typical prog thinking to think of the big corporation as always being in the wrong. In this case, Citicorp is actually the victim. If I did to my mortgage company what BT has done to Citicorp I would be out of the house and rightfully so. My biggest fear now is how this will affect our already insanely high city property tax rates, which affect renters as much as homeowners.
I will be brief.Old wise man once said”were screwed” that fits pretty well.I again ask for the resignation of Mayor Kiss, and CAO Leopold, no progress can be made with any prospective third party with the reputation of these two at a bargaining table.
The money owed citi was the entirety of the startup costs for BT, which implies that all of the equipment was leased from citi. The cable, the headend stuff, the trucks, the desks, everything. The $17+m stolen from taxpayers was just to keep this turd floating a little longer.I’m not sure how you “de-install” all of the cable.
The idea that BT can “return” and somehow “replace” the equipment is completely ridiculous. If the management of BT actually believes this is true then that is a bad sign of disconnection-from-reality. It is time for the city council to negotiate with a 3rd party who stands ready to take over BT operations.