FOR IMMEDIATE RELEASE
March 26, 2014
Contact: Mike Kanarick
802.735.7962
Mayor Miro Weinberger Announces Major Milestone in BT Settlement
Local Financing Secured and Approved by Unanimous City Council Vote
Burlington, VT – Mayor Miro Weinberger today announced that the City of Burlington has reached a key milestone set forth in last month’s Burlington Telecom (BT) Mediated Settlement Agreement. The City has agreed to terms with local business person, Trey Pecor, President of Lake Champlain Transportation, and Vermont-based Merchants Bank, regarding $6 million of bridge financing for BT. The bridge financing is critical to the City’s ability to complete the Settlement Agreement and thereby dismiss Citibank’s $33+ million claim against Burlington. This evening, the City Council voted unanimously to accept the terms of the proposed Pecor/Merchants bridge financing agreement.
“Securing bridge financing represents a major step towards resolution of the Burlington Telecom problems that have plagued the City for over four years,” said Mayor Miro Weinberger. “This financing commitment means that the City has sufficient resources to complete the $10.5 Settlement Agreement and the ability to file for the final regulatory approvals within the deadline required by the Agreement.
“The City has been seeking a financial partner willing to provide at-risk bridge financing since we shifted financial strategies in October 2012 away from what had been an unsuccessful effort to find a permanent financial partner. Since that time, we have spoken to numerous funding sources, most of them out-of-state special situation investors. I am pleased that, after that extensive search, the best terms were offered to the City by a local business person with decades of personal and family commitment to Burlington, and who is working with a local bank. We are fortunate to have found a partner committed both to growing and strengthening BT and to maximizing the economic and community development potential of the fiber optic network envisioned in the BTV Ignite initiative.”
The proceeds of the bridge financing will be used to pay $6 million of the $10.5 million Citibank settlement. The financing is structured as a lease that is expected to remain in place for approximately three to five years as the City grows and strengthens BT and seeks a long-term buyer of the network. Prior to its Wednesday night vote, the City Council considered two financing proposals, the Pecor/Merchants proposal and another proposal from Rosemawr Management, a New York City-based investment firm. While the Rosemawr proposal was highly competitive, the Pecor/Merchants proposal included a lower interest rate, lower fees, and other benefits. Both the Rosemawr and Pecor/Merchants commitment letters and a summary comparing the two proposals, as well as a copy of the Resolution approved by the City Council, are attached.
“I’m thrilled to be partnering with the City of Burlington, to be partnering with a Mayor and an Administration that are making such great progress and moving our City in the right direction,” said Trey Pecor. “I love this City; my family loves this City; our future is here in Burlington. I am very fortunate to play a role in helping Burlington make the most of that future.”
The Pecor/Merchants proposal will work as follows:
- The proposed financing will be submitted as part of the filing the City will make this Friday with the Public Service Board (PSB), whose approval is needed to implement important elements of the Settlement Agreement. The Pecor/Merchants transaction will not close until the PSB process is complete.
- At the closing on this bridge financing transaction, Merchants Bank will loan Mr. Pecor $6 million at an interest rate of seven percent and a 20-year amortization. The loan from Merchants will be secured by Mr. Pecor’s personal guarantee and all BT property.
- Mr. Pecor will then transfer all $6 million to the City and begin receiving lease payments from BT, also based on a 20-year amortization for a five-year term and seven percent interest rate – meaning that Mr. Pecor will receive no net compensation during the expected three to five year length of the bridge financing period.
- At the time a long-term buyer for BT is found, Mr. Pecor and the City will split any net sales proceeds available after the principal of the lease and related costs are repaid. If an agreement is made with a new buyer during the first 36 months of the lease, that split will be 50/50. The City’s share will decline incrementally over time after 36 months. (Under the terms of the Settlement Agreement, the City’s share of future net proceeds will be split evenly with Citibank and will provide the opportunity for partial repayment of the $16.9 million previously expended by the City.)
The following are comments from three City Councilors about the opportunity presented by selecting the Pecor/Merchants bridge financing proposal:
- City Councilor Karen Paul (D-Ward 6): “The terms of the Pecor/Merchants proposal were more favorable than the other offer, not only in terms of the financials, but also in terms of the non-financial conditions that were in the best interests of the City and our customers. Mr. Pecor’s and his family's commitment to the community is deeply rooted and significant. Having both a local investor and a local bank were attractive elements of this deal.”
- City Councilor Jane Knodell (P-Ward 2): “In evaluating the two proposals, one important factor was how much flexibility the City would have during the bridge financing period in operating BT and, even more importantly, in selecting a future partner or buyer. The Pecor/Merchants proposal gives us more control over the destiny of BT and more assurance that its fiber optic network will become a cornerstone of broad-based economic development for decades to come.”
- City Councilor Dave Hartnett (D-Ward 4): “It’s important to me that our new partner is a local family with a proven track record of caring about Burlington. Whether it’s providing important transportation opportunities and access to recreation by running ferries across the lake or providing family fun at the ballpark, the Pecor family’s commitment to our City is unquestionable. I applaud the hard work and effort of the Mayor and his team that led to two excellent financing opportunities.”
Mayor Weinberger added: “When we announced the Settlement Agreement, there were some who doubted we would be able to secure bridge financing secured only by BT operations and assets. I appreciate all the hard work and discipline exhibited by Terry Dorman of Dorman & Fawcett to help us secure this excellent financing agreement. Also, I offer thanks to Greg Usry and his firm Rosemawr for seriously considering the BT situation and making a strong proposal. We are deeply appreciative of Rosemawr’s interest and, while we won’t be moving forward with Rosemawr at this time, it is clear why they have successfully partnered with many municipalities facing financing challenges.”
Under the terms of the financing, Dorman & Fawcett – the consulting firm that has managed BT for nearly the last four years and has led the financial turn-around of the entity – will continue to manage BT throughout the Pecor lease term. During that period, Dorman & Fawcett will defer all payments until a long-term buyer is found. In the event of a successful future sale, Dorman & Fawcett will receive its deferred fee plus a share of the Pecor/Merchants net sales proceeds.
With City Council approval of the settlement and the bridge financing secured, the next important milestone to which the City of Burlington and Citibank agreed is for the City to seek PSB approval. The City will file with the PSB no later than this Friday, March 28, a date that had been extended from March 15 with the mutual consent of the City and Citibank.
*Please see the following attached documents:
- Combined document: summary comparison of the two proposals, Rosemawr commitment letter, Pecor commitment letter
- Resolution Relating to Approving Commitment Letter for Financing of BT
Please join Mayor Miro Weinberger, Trey Pecor, Geoffrey Hesslink (Executive Vice President and Chief Operating Officer, Merchants Bank), Terry Dorman (by speaker phone), and David Provost (Chair, Burlington Telecom Advisory Board) for a news conference tomorrow at 12:00pm in the Lorraine B. Good room on the second floor of Burlington City Arts.
# # #
