[1st-mile-nm] Utopia Re-financing Update

[Richard Lowenberg]

http://origin.sltrib.com/ci_8645697

UTOPIA wants to reissue bonds, set term at 32 years
Move will lower interest rate and give agency about $20 million more

By Steven Oberbeck
The Salt Lake Tribune
03/20/2008

The Utah Telecommunications Open Infrastructure Agency (UTOPIA) is getting ready
to go back to the nation's capital markets to raise additional millions to help
build out its fiber-optic network.
    Despite the approximately $20 million in new funding the bond issue will
provide, the question likely will remain for several more years whether UTOPIA
and its ambitious plan to offer a high-speed fiber-optic connection to all
homes and businesses in 11 Utah communities will be successful.
    UTOPIA's board of directors this week agreed to issue up to $189 million in
bonds, part of which will be used to retire approximately $135 million in
previously issued notes that carry a higher short-term interest rate.
    The proposed bond issue, after all the fees and other expenses are paid,
should give UTOPIA another $20 million to continue the construction of its
massive fiber-to-the-home network.
    "We need to get a financial structure in place that will support our
business model," UTOPIA Chairman Alex Jensen said. "This [bond issue] is
designed to make ensure that UTOPIA will be a success."
    UTOPIA was born in 2002 amid a sense of frustration by community leaders
that the state's private telecommunication providers were too slow in bringing
high-speed Internet and other services to their cities. In all, 18
municipalities organized to explore construction of a state-of-the-art
fiber-optic system that could serve all the homes and businesses within their
boundaries.
    Eventually, community leaders in 11 cities - believing such a system would
be a sure-fire success - pledged $202 million in tax money over 20 years to
partially back UTOPIA's bonds so it could get a more reasonable interest rate
on a project Wall Street viewed as junk-bond risky. With the cities pledging to
back repayment of the bonds, the new debt is expected to carry an interest rate
of around 6 percent.
    UTOPIA's bond counsel, attorney Laura Lewis, said that along with providing
a break on interest rates the new issue also will be structured to extend the
payback to 32 years. And that will be better for UTOPIA, she said.
    "We're structuring this so that debt will rise over time as UTOPIA's
revenues increase," she said. "It doesn't take a rocket scientist to know that
the real challenge [meeting debt obligations] come in the early years" of
operations.
    Still, extending the payback period on the bonds to 32 years will mean that
UTOPIA will have to go back to its 11 member cities that earlier pledged tax
revenue to support the system for 20 years and ask that those communities
extend their guarantees for 32 years.
    The total amounts that the cities have guaranteed, however, will remain the
same, Lewis said.
    Paul Isaac, the assistant city manager for West Valley City, said he expects
there will be a lot of scrutiny of UTOPIA's request from City Council members.
    "We have two members on our board who weren't there when the initial pledge
was made," he said. "So I expect we'll be seeing a lot of Laura Lewis over the
next little while."
    Lewis said she expects the bonding to be completed by mid-May.
    Pointing to UTOPIA's continuing losses and its failure to meet any of its
earlier revenue and customer projections, Royce Van Tassell of the Utah
Taxpayers Association questions whether UTOPIA will be able to sell its bonds,
also pointing to iProvo, that city's fiber-optic network.
    "You'd expect that bond buyers would eventually want to be paid back and
given the losses we've seen so far with UTOPIA and iProvo that is
questionable," he said.

    steve at sltrib.com


-- 
Richard Lowenberg
1st-Mile Institute
P.O. Box 8001, Santa Fe, NM 87504
505-989-9110;   505-603-5200 cell
rl at 1st-mile.com  www.1st-mile.com

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