20031208_706.pdf

DECISION MEMORANDUM
TO:COMMISSIONER KJELLANDER
CO MMISSI 0 NER SMITH
COMMISSIONER HANSEN
COMMISSION SECRETARY
COMMISSION STAFF
LEGAL
WORKING FILE
FROM:TERRI CARLOCK
DATE:DECEMBER 5, 2003
RE:CAMBRIDGE TELEPHONE COMPANY'S REQUEST TO BORROW UP
TO $17.5 MILLION; CASE NO. CAM-03-
Cambridge Telephone Company (Cambridge) filed an Application requesting authority to
borrow up to $17.5 Million from the Rural Telephone Utilities Service (RUS) and Rural
Telephone Bank (RTB). The proposed financing is expected to be structured with three loans: a
RUS loan of $7 500 000 that qualifies for the 5% hardship interest rate with a 15-year loan
maturity, a RUS loan of $6 096 000 and a RTB loan of $3 547 950. The interest rate on the other
two loans will be at RUS's and BTB's then current market rate at the time advances are made.
The loan will be secured by a first mortgage lien on Cambridge s assets under a Supplemental
Mortgage and Security Agreement. The loan contracts will have two covenant requirements:
1) Any future investments by Cambridge in CTC Telecom must receive approval from RUS, and
2) a times interest earned ratio (TIER) of 1.0 must be maintained through December 31 2006
with a TIER of 1.45 after that date.
Proceeds of the loan will be utilized to: 1) implement a long-range network strategy to
upgrade its system by replacing central offices and add DSL capacity to provide broadband
services, 2) install new fiber optic and buried cable, 3) purchase new work trucks and test
equipment, 4) to refund certain existing loans, and 5) for related system improvements.
DECISION MEMORANDUM DECEMBER 5, 2003
STAFF DISCUSSION AND RECOMMENDATION
Staff believes a portion of these loan funds used for broadband and fiber will be for non-
regulated services. Staff continues to express concern about using regulated assets and
operations to secure non-regulated activities. Any adjustments associated with non-regulated
costs will occur in future rate cases.
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 RUS and RTB 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
determinations.
4) The "Report of Securities Issued"
COMMISSION DECISION
Should the Application be approved with Staffs recommended reporting requirements?
Jwu CeuiOCR
Terri Carlock
TC:udmemos/DM cam-O3-2 12.
DECISION MEMORANDUM DECEMBER 5, 2003