In an eight-page ruling, the Vermont Public Service Board late Tuesday denied Burlington Telecom’s request to dip into the city’s so-called “cash pool” to make a key $386,000 interest payment tomorrow on its lease with CitiLeasing.
This means the city will not be able to make the payment, meaning it will be in technical default of its $33 million lease purchase agreement with CitiLeasing. That’s because on Friday, it agreed to a court order barring it from using pooled cash or “any other city monies” to make the payment. That includes BT revenues.
The court order, which now will govern BT’s ability to pay its bills, restricts BT from using pooled cash and “other city monies” to pay any other bills it owes unless the funds are repaid in 60 days. To enforce that aspect of the order, BT agreed to give several key financial reports to the plaintiffs every 30 days, including reports of accounts payable and receivables, the daily statements of city accounts, all money due to and from BT, all money owed by BT to the city, and financial projections.
It’s unclear what remedy the city will pursue to make up for missing a payment to CitiLeasing. As noted in a previous blog post, the city’s lease does include a $1 million reserve fund that CitiLeasing can access in the event that BT misses a payment. But, repaying the debt to the reserve fund would likely be taken into account as part of any future payments.
The board denial, though eight pages long, was based on two reasons: BT’s failure to present sufficient and reliable information to independently verify its claims that it could repay any borrowed money within 60 days, and the fact BT filed the emergency motion just 12 days shy of when the payment was due. The PSB said this short notice precluded it from conducting a full and fair hearing.
The PSB held a short hearing last week on BT’s motion. At the time, the three-member panel was clearly upset with the utility for violating key terms of its certificate of public good, most notably borrowing $17 million from the city’s checkbook and not repaying it.
In a statement, Progressive Mayor Bob Kiss said he was disappointed in the ruling.
“The work of the City and the Blue Ribbon Committee on Burlington Telecom over the last several weeks has been aimed at preserving and strengthening the tremendous asset we have in Burlington Telecom. This decision jeopardizes these efforts,” said Kiss.
Allowing BT to make its February payment using pooled cash would have given the city more time to find a lasting and sustainable solution to BT’s finances.
“Without the ability to use pooled cash for the February payment, taxpayers and BT operations are placed at a greater risk,” said Kiss, who is currently in Vancouver, Canada, attending a sustainability conference sponsored, in party, by Virgin Group business mogul Sir Richard Branson.
In its ruling, the PSB disagrees that missing the interest payment puts taxpayers, or BT, at any further risk than it already faces due to its own actions. Besides, any negative impact of missing the payment rests solely with the city and BT’s management.
“From at least the time BT filed its amended petition on September 30, 2009, requesting temporary relief from Condition 60, BT has no doubt been aware that it would be unlikely to be able to fund future rental payments under its master lease purchase agreement without access to the city’s pooled cash management system during that time its amended petition was pending,” the PSB stated in its ruling. “Yet BT did not file its request for relief from Condition 60 to make the scheduled interest payment until 12 business days before such interest payment was due.”
In the ruling, the PSB noted that on Feb. 2 it requested BT’s cash flow, as well as documented payables and receivables, so the board could independently evaluate the city’s claim — in an affidavit by Chief Administrative Officer Jonathan Leopold — that it could repay any borrowed money within 60 days.
According to the PSB, the financial information BT provided to the board didn’t make fiscal sense. Starting from a positive cash position of $92,000 on January 4, BT forecasted cumulative cash deficits through April of $115,000 — without taking into account the money needed to make the $386,000 payment, or to repay the cash pool, according to the ruling.
In addition, BT faces another $387,000 interest payment on May 17 and then a larger lease payment of $706,000 on August 17. The latter payment includes both interest and principal.
What’s not clear is what impact this week’s missed payment will have on the city as a whole, and on this lease in particular.
In its ruling, the board said allowing CitiLeasing to dip into the reserve fund means the city is in “technical default” of the lease provisions, but the problem does not rise to a more serious “payment default.”
Kiss said the city is discussing its options with its outside financial advisers. One option would be to allow CitiLeasing to dip into the reserve fund.
“Our financial advisers will have further discussions with CitiCapital about potential ways to resolve the situation,” said Kiss. “While this decision limits the city’s options, we will consider every alternative to meet BT’s immediate needs and move forward to establish a stronger telecom enterprise for the city and BT’s 4600-plus customers.”
Click to download and read the full board order (PDF): (Download PSB Order 2-16-10)
Photo of Mayor Bob Kiss courtesy of WPTZ NewsChannel 5.
This article appears in Feb 17-23, 2010.
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"your comments belie a profound misunderstanding of financial and legal mechanics that responding to you would be a waste of time at this point."
Thanks for wasting all of our time by posting a non-response response "Tommy"…ugh indeed…
Ah, the Internet Trolls return…with nothing to say of course…lol…
“You don’t know that at all. Half a dozen financial firms are willing to give BT the money that it needs right now.”Not one of those firms has made a commitment to lend a dime. You are a joke.
MisterGuy, I admire your willingness to defend the City/Mayor, however your comments belie a profound misunderstanding of financial and legal mechanics that responding to you would be a waste of time at this point. You exhaust the patience of those who are a) concerned about BT and b) defeated by the Mayor’s ability to navigate. It’s become a joke and you, sorry to say, are just to ridiculous to respond to. In your own words “ugh” back at you.
“Half a dozen financial firms are willing to give BT the money that it needs right now.”Again – a response to an RFP is not a commitment to lend money. No one has made a commitment to lend BT money.
"Never mind the fact that no one is going to loan BT the kind of money without a City guarantee (ie. the PJ proposal)"
You don't know that at all. Half a dozen financial firms are willing to give BT the money that it needs right now.
"Your analogy misses the point that the bank can send the repo man to reclaim your car, but it cannot go after your house."
Exactly, and, in this case, the car is BT & the house is the taxpayers of the City of Burlington. Thanks for making my point!
"The agreement between Citi and the City does not limit Citi's recourse to simple reposession of the (now depreciated!) network."
Yes it does…read the contract!
“The agreement that Citi has with the City of Burlington is very similar to the arrangement that one makes when one buys a car with a loan from a bank…”Your analogy misses the point that the bank can send the repo man to reclaim your car, but it cannot go after your house. The agreement between Citi and the City does not limit Citi’s recourse to simple reposession of the (now depreciated!) network. They can and will go after the full $33M.And I don’t know if ignoring a PSB ruling AND a court order constitutes a criminal, or a civil offense, but I doubt that even these guys would risk it!
“IMHO, the City should just make BT’s payment… from pooled cash & have BT dedicate money to get it paid back within 60 days.”One thing that gets lost in all of this is that the wording of Condition 60, and the VERMONT STATE LAW from which it arose, forbids the use of taxpayer funds without equivalent receivables on the books. There is no way BT has $386K in receivables. Taking money from pooled cash would not just violate Condition 60, it would violate the B’ton City Charter and the Vermont Statutes.”many different sides have allied themselves to block BT from moving forward with refinancing”It was determined that BT has no chance to repay the debt on its books now, let alone additional debt. Given that, it would be irresponsible to keep borrowing money. Never mind the fact that no one is going to loan BT the kind of money without a City guarantee (ie. the PJ proposal), which is illegal. Not just ill-advised, not just morally wrong, ILLEGAL.
"The taxpayers will have to eat the 17 million"
…since many different sides have allied themselves to block BT from moving forward with refinancing, which is the *only* way that the City can get it's money back immediately.
"How much of the rest of it will Citi have to eat and how much damage will that inflict on the city of Burlington's reputation and credit rating? Enough damage to force taxpayers to cough of the rest too?"
Surely, a default on the part of BT now will hurt both BT's chances of *ever* getting any kind of financing in the future & it may negatively impact the the reputation of the City. However, the taxpayers of the City of Burlington are NOT on the hook for all of BT's debts, period.
"You cannot seperate a city-owned entity from the fact that the city owns it."
Ugh…I'm constantly amazed at how much misinformation there is out there about BT. The City does not "own" BT, Citi does! The agreement that Citi has with the City f Burlington is very similar to the arrangement that one makes when one buys a car with a loan from a bank…you don't actually own the car until ALL of the payments are made on the car…sheesh…
IMHO, the City should just make BT's payment (that's due today!) from pooled cash & have BT dedicate money to get it paid back within 60 days. To heck with the PSB & the other GOPers that are suing the City to kill BT.
Kiss first said the taxpayers would never be at risk of exposure no matter what happened to BT. Now he’s saying that unless the city uses ‘pooled cash’, the taxpayers will be at risk. This guy is as shifty as they come. He’s a liar. If he has the balls to run for office a third time, it will be hilarious watching how badly he loses. Not even IRV could save this moron in the next election.
The taxpayers will have to eat the 17 million. That much seems clear. How much of the rest of it will Citi have to eat and how much damage will that inflict on the city of Burlington’s reputation and credit rating? Enough damage to force taxpayers to cough of the rest too?You cannot seperate a city-owned entity from the fact that the city owns it. Sooner or later, it’s the taxpayers on the hook.