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Public Service Board Denies Burlington Telecom Access to City Cash


Published February 17, 2010 at 5:00 a.m.

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.