20060227Decision memo.pdf

DECISION MEMORANDUM
TO:COMMISSIONER KJELLANDER
COMMISSIONER SMITH
COMMISSIONER HANSEN
COMMISSION SECRETARY
LEGAL
WORKING FILE
FROM:TERRI CARLOCK
DATE:FEBRUARY 27, 2006
SUBJECT:COLUMBINE TELEPHONE COMPANY'S APPLICATION FOR
DEBT AUTHORITY; CASE NO. COL-06-
RECOMMEND:APPROVAL WITH REPORTING RESTRICTIONS
Columbine Telephone Company, Inc. (Columbine) requests authority to borrow up to
$11 000 000 from the Rural Telephone Finance Cooperative (RTFC). This Application was filed
January 26 2006 with a requested Order date of February 25 2006. To facilitate the schedule for
decision meetings, Columbine agreed to an extension for the Order to be issued.
The proposed loan is for a term of 15 years at a fixed or variable rate to be determined at
issue. Current estimated rates are approximately 7.1 % variable or 7.1 % - 7.24% fixed. The
variable rate is subject to change monthly and may be converted to a fixed rate at any time
without a fee. The assets of Columbine and Silver Star Telephone Company, Inc. (Silver Star)
will not be pledged to secure the loan. Instead, the stock of Columbine, Silver Star and Goldstar
Communications (a wholly-owned subsidiary of Silver Star) along with the assets of Goldstar
Communications and other unregulated subsidiaries will be pledged to secure the loan. RTFC
will require Silver Star to maintain a minimum Times Interest Earned Ratio of at least 1.5 and a
minimum Debt Service Coverage Ratio of 1.25. The covenants also include restrictions on
dividend distribution, additional indebtedness and a Leverage Ratio not to exceed 5 times cash
flow.
The proceeds of the loan will be used to finance construction of a new office-building
complex; general plant and equipment for regulated and unregulated operations; purchase of
DECISION MEMORANDUM FEBRUARY 27 , 2006
The proceeds of the loan will be used to finance construction of a new office-building
complex; general plant and equipment for regulated and unregulated operations; purchase of
RTFC 10% Capital Certificates; and other corporate purposes. The budgeted amounts include
approximately $2.75 million for the Columbine office-building complex in Driggs, ill;
$1 million supplemental funds for the Freedom, WY headquarters building; $1.3 million for fiber
cable; $800 000 for terminal equipment; $600 000 for switching; $850 000 for facilities in the
Teton Springs subdivision; $2.7 million for wireless and internet facilities; and $1 million for the
R TFC certificates.
ST AFF DISCUSSION AND RECOMMENDATION
As with other debt authority requests, Staff continues to express concern about using
regulated operations to secure non-regulated activities. Any adjustments associated with
allocations, non-regulated costs or the need for a new office building will occur in future rate
cases.
To monitor the loan covenants required by RTFC, Staff recommends the following
reporting requirements be included in the order approving the Application:
1) Provide copies of the RTFC final loan approvals including documentation for
advances.
2) Provide a copy of any and all executed collateral documentation.
3) Provide copies of all annual certification, covenant reports, and letters regarding these
determinations.
4) The "Report of Securities Issued"
Columbine accepts these reporting requirements.
COMMISSION DECISION
Should the Application be approved with Staff s recommended reporting requirements?
JVU0l ~ ili,
Terri Carlock
TC:udmemos/coltO62dm2.06R TFc. TC.doc
DECISION MEMORANDUM FEBRUARY 27 , 2006