financing alternatives for telecom carriers presented by vince wiemer, cpa

Financing Alternatives for Financing Alternatives for Telecom Carriers Telecom Carriers

Presented by

Vince Wiemer, CPA

Copyright © 2004

DiscussionDiscussion

Uses of Funds

The Borrowing Process

Sources of Funds

Contact Information

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Uses of FundsUses of Funds

Acquisitions Purchasing exchanges from current

telecom providers Huge disparity in pricing: $500 to $4,000

per subscriber Infrastructure

Building a telecommunications network Switching, circuits, cable & wire, support

assets Interim Financing

Short-term loans for cash flow needs or to bridge the time lag in receiving long term loans

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The Borrowing ProcessThe Borrowing Process

Determine your financial needs for the next five years Forecast both expenditures and revenues

to determine loan amount and establish ability to repay financed amounts

Determine which financing source best fits your borrowing needs Collateral requirements Repayment terms Interest rates Debt covenants

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The Process (cont’d)The Process (cont’d)

Gather the information that will be needed to obtain financing: Historical financial data

• Audited financial statements

Corporate & legal documents• Establish the borrower’s legal identity and

the authority to enter into agreements

Sources and uses of funds Prospectus narrative Financial forecast Right-of-way agreements

• Environmental studies

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The Process (cont’d)The Process (cont’d)

Contact financing source(s) and begin application process

Once the ability to obtain financing has been determined, advance the primary goal: Negotiate acquisitions Engineering for infrastructure builds

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Sources of FundsSources of Funds

There are several entities that will provide financing for telecom ventures: Rural Utility Service CoBank Rural Telephone Financing

Cooperative Private Funding

Each has different opportunities available and varying terms

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Rural Utility ServiceRural Utility Service

RUS is a U.S. government agency that is a department of USDA

Established in the 1957 Rural Electrification Act

Provides low-cost loans for building electric and telephone systems in rural areas

There are several loan programs

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RUS: Loan ProgramsRUS: Loan Programs

Traditional telephone loan Eligibility: Use of Funds: Collateral: Interest Rate: Repayment Term: weighted average

of the telecom plant depreciable lives Process:

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RUS: Loan ProgramsRUS: Loan Programs

Broadband loan program Eligibility: Use of Funds: Collateral: Interest Rate: Repayment Term: Process:

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CoBankCoBank

The Co-operative Bank is part of the Farm Credit System, a nationwide network of lending institutions

CoBank has ~$31 billion in assetsSpecializes in:

Agribusiness Communications, energy & water

systems Agricultural export financing

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CoBank (cont’d)CoBank (cont’d)

Products: Short-Term Loans

• One-time or line-of-credit borrowing• Asset based loans for operating capital

Intermediate- and Long-Term Loans• Construction of new facilities• Remodeling or expansion• Land or equipment purchases

Tranche Pricing• Allows customers to divide loans into

slices with each segment carrying a different interest rate and maturity

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More products: Tax-exempt Bonds

• Bonds available for facilities and equipment related to industrial development

Leasing Services• Farm Credit Services allows the lease

of virtually any type of equipment and facilities

• Variety of lease types & residuals• Can improve cash flows, free capital,

and provide tax advantages

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Rural communications loan Eligibility: if received or eligible to

receive an RUS loan or under REA Use of Funds: any telecom plant and

some working capital Collateral: telephone company assets Interest Rate: fixed or variable Repayment Terms:

• Short term ~ 12-18 months• Intermediate & long term ~ 10-15 years

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Rural Telephone Finance Rural Telephone Finance CooperativeCooperative

RTFC is a member-owned, not-for-profit lending cooperative

Created in 1987 to serve the financial needs of the rural telecom industry

RTFC is funded by its affiliate the National Rural Utilities Cooperative Finance Corporation

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RTFC (cont’d)RTFC (cont’d)

Products: Long-Term Loans

• Construction projects• Acquisitions

Intermediate-Term Loans• Unsecured loans for equipment

purchases Lines of Credit

• Designed to meet short-term cash needs and interim financing for RUS construction loans

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RTFC (cont’d)RTFC (cont’d)

Loan Terms: Eligibility: based on company’s financial

strength & creditworthiness Collateral:

• telephone company assets for long-term• none for intermediate-term loans

Interest Rate: fixed based on matching funds cost or a monthly variable rate

Repayment Terms: • Long-term: up to 15 years• Intermediate-term: up to years

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Private FundingPrivate Funding

Private investors may be interested in tribal telecoms

Advantages to Tribes: No U.S. Government involvement More flexible eligibility requirements Financing creativity

• Loans or bond issue

Creation of bond authority provides ready financing for other tribal needs

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Private Funding (cont’d)Private Funding (cont’d)

Advantages to Investors: Tribes tax exempt status can

generate benefits for investors Interest and tax benefits can generate

a double-digit return

Disadvantages for Tribes: Most investors will want a second

revenue source as collateral Origination costs may be higher

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Products: Long-Term Loans

• Construction projects• Equipment purchases• Acquisitions

Bridge Financing• Designed to provide interim financing

for RUS construction loans• Could be used for other cash flow

needs

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Loan Terms: Eligibility: based on company’s

financial strength & creditworthiness Collateral: telephone company

assets for long-term Interest Rate: fixed or variable Repayment Terms:

• Long-term: based on depreciable life of assets constructed or acquired

• Bridge Financing: 12-18 months

financing alternatives for telecom carriers presented by vince wiemer, cpa

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