A plan to bring broadband service to 22 communities in Vermont is in need of credit enhancement to help the program move forward with a $100 million certificate of participation deal, according to its proponents.
The volatile municipal market has shut the East Central Vermont Community Fiber Network out of selling the $100 million of COPs, but a guaranteed backing by a third party - such as a vendor associated with the project or a local bank - could give ECFiber the help it needs at market.
ECFiber is made up of a group of 22 municipalities with the authority to issue tax-exempt, non-recourse capital leases. The consortium was poised to issue the COPs in October, but market uncertainty following the Lehman Brothers bankruptcy ended those plans. Adding a letter of credit or some other form of guarantee may help jump-start the project's financing.
"What we're engaged in right now is investigating several different sources of credit enhancement to reduce the risk of our lease and make it marketable," said Loredo Sola, chairman of ECFiber's governing board.
Oppenheimer & Co. is the underwriter on the COP deal. Sovereign Securities Co. is financial adviser and McKee Giuliani and Cleveland is bond counsel.
ECFiber does not have the power to tax residents to meet debt service payments or sell notes or bonds. The project will bring broadband, fiber-optic service to 24,000 homes and businesses across 1,200 square miles of territory, affecting roughly 50,000 people.
The development will generate 300 construction jobs, 100 permanent positions, and approximately 1,500 private-sector jobs, according to Sola.
Officials were hoping for the federal government to guarantee broadband project financing through the American Recovery and Reinvestment Act of 2009, which President Obama signed into law last month. While the stimulus bill does not include such credit enhancement for fiber optic projects, Sola said the law does allocate $7.2 billion in grants and loans for broadband development throughout the country, with the Agriculture and Commerce departments distributing those funds.
Sola believes fiber optic developments can support themselves and what such projects really need is credit enhancement through the federal government to help access the volatile capital markets. In addition, the stimulus dollars may not reach municipal broadband projects for another year. ECFiber may utilize those funds in the future.
"Good broadband projects, a well thought-through business plan with a good broadband project will pay for itself even in rural areas," Sola said. "The government does not need to subsidize broadband. It simply needs to stabilize the credit environment so that municipalities can go to the market to get the funds they need to create municipal fiber projects."
ECFiber will begin construction immediately after issuing the COPs, with the initial round of subscribers receiving service one year after construction begins. ECFiber's average rate will likely be $120 per month for telephone, Internet, and cable television access, although residents can pick and choose which services they need. The minimum monthly rate is $60 and the maximum charge is $200, depending on level of service.