Lawsuit Dismissal Credit Positive for Burlington, Vt.: Moody's
The recent dismissal of a three-year old lawsuit against Burlington, Vt. related to its city-owned broadband provider Burlington Telecom is a credit positive for Vermont's largest city, according to Moody's Investors Service.
A federal district court dismissed the lawsuit on Jan. 2 brought by Citibank against Burlington seeking more than $40 million in unpaid portions of a lease-purchase agreement. The court ruling is a credit positive for Burlington since it "effectively ratified" a $10.5 million settlement reached with Citibank last February that "was favorable to the city", Moody's analyst Nicholas Lehman said in a Jan. 9 report. Moody's revised Burlington's Baa3 general obligation rating to stable from negative last April.
The court ruling comes on the heels of Burlington city officials taking steps to ensure settlement conditions were met including getting approval from the Vermont Public Service Board and finalizing its funding sources to pay Citibank. The city has lined up $6 million in bridge financing from Blue Water Holdings through the sale of Burlington Telecom assets with other funding for the settlement deriving from the sale of city property, BT revenues and insurance, according to Moody's. The Vermont PSB, which ruled in 2010 that Burlington violated its charter by subsidizing BT with taxpayer funds, unanimously approved the settlement last November.
Burlington's $6 million in bridge financing from Blue Water Holdings is led by local investor Ray Pecor III and financed by a loan from Merchants Bank. The financing, which carries a 7% interest rate, will cost Burlington Telecom $558,000 annually, according to Moody's estimates. BT had a customer base of roughly 4,975 at the end of 2014, up more than 25% since January 2012.