Wednesday, April 28, 2010
MONMOUTH/INDEPENDENCE -- City officials are considering refinancing options on the Monmouth-Independence Network's (MINET) nearly $20 million in outstanding loans.
Lower interest rates and possibly avoiding future cash requests to the cities for capital to connect new customers are among the benefits of a debt restructuring, said MINET manager Phil Garrett.
The catch, however, is that the cities would remain responsible -- as they are now with current loans -- for payments if MINET can't make them.
The concept cropped up last summer, said Scott McClure, Monmouth city manager and a MINET board member.
MINET has about $20 million in debt through three different lenders: the Oregon Business Development Department, KeyBank and Independence.
The utility is working with an underwriter -- a KeyBank
subsidiary -- to consolidate those debts into a bond that the cities would sell and guarantee.
The board wants to structure the new borrowing in a way that allows for a deferral on repayments, so that reserves can accumulate.
There would also be additional funds to reimburse the cities for past debt payments made on MINET's behalf -- like $1.3 million Monmouth gave in 2004 as start-up money -- and to provide some much-needed, short-term financing.
"We can save ourselves some money and avoid future cash calls to the cities," Garrett said during a recent presentation to Independence City Council.
MINET experienced an eight-month stretch in 2009 where expenses outpaced revenues. In December, MINET was short about $427,000 on an $829,000 yearly payment to OBDD. Monmouth and Independence, as guarantors, had to cover that cost.
McClure said a change last year in the repayment terms with KeyBank
-- they're higher now -- and a customer base that's expanded more quickly than originally projected has hurt MINET.
enough monthly revenue to cover basic operations such as salary and purchases of cable content and bandwidth; that's not enough, though, to pay all of the debt requirements beyond those amounts.
And because the utility is relatively new, it hasn't accrued enough revenue for reserves and the short-term financing needed for capital purchases related to new subscribers, he continued.
"MINET makes sense in the mid- and long term," McClure said. "It's the short term that we're having the issue with.
"We have to let revenue catch up with the debt."
If there's no debt restructure, the cities could face having to make more debt payments for MINET during the next three to five years, McClure said.