20040419_809.pdf

DECISION MEMORANDUM
TO:COMMISSIONER KJELLANDER
COMMISSIONER SMITH
COMMISSIONER HANSEN
COMMISSION SECRETARY
COMMISSION STAFF
LEGAL
WORKING FILE
FROM:TERRI CARLOCK
DATE:APRIL 16, 2004
RE:DIRECT COMMUNICATIONS ROCKLAND'S REQUEST TO BORROW UP
TO $3,277,778; CASE NO. DCM-04-
Direct Communications Rockland, Inc. (Rockland) filed an Application requesting
authority to borrow up to $3 277 778 from the Rural Telephone Finance Cooperative (RTFC).
The proposed financing will be structured with two loans: a RTFC first mortgage loan of
777 778 and an interim line of credit amount not to exceed $1 500 000. The first mortgage
loan of $1 777 778 is a IS-year loan maturity with the first mortgage lien shared with Rural
Utilities Service. This loan will be used to refinance interim financing for system improvements
and the purchase the required Subordinated Capital Certificate equal to 10% of loan proceeds on
a RTFC loan. The second portion of the financing is a line of credit up to $1 500 000 that will be
used from time to time as necessary to fund system improvements and upgrade facilities as an
interim financing source. The ultimate purpose is to upgrade service for customers and to offer
broadband services to both business and residential users. The interest rate on the two loans will
be at RTFC's then current market rate at the time advances are made.
STAFF DISCUSSION AND RECOMMENDATION
A major portion of these loan funds will be used for broadband and fiber for non-
regulated services. Staff continues (as it has with other telephone financings) to express concern
about using regulated assets and operations to secure financing for non-regulated activities. Any
adjustments associated with non-regulated costs will occur in future rate cases.
DECISION MEMORANDUM'APRIL 16, 2004
Staff recommends approval of the loan request. To monitor any loan covenants required
Staff also recommends adopting the following reporting requirements:
1) Provide copies of the RTFC final loan approvals including documentation for
advances.
2) Provide a copy of any executed collateral documentation.
3) Provide copies of all annual certification, covenant reports, and letters regarding these
determinati ons.
4) The "Report of Securities Issued"
COMMISSION DECISION
Should the Application be approved with Staff s recommended reporting requirements?
Terri Carlock
TC:udrnernos/DM dcrn-04-2 4.
DECISION MEMORANDUM'APRIL 16, 2004