How is the Project Funded?

The project was originally expected to be funded with a capital lease, with the network owned by the leasing company, and leased to the group of towns until the lease is paid off. This kind of funding has been very common for projects that are expected to generate revenue, such as parking garages.

With the economic meltdown, the capital lease market basically away. Since then ECFiber has entered an application for a loan administered by the USDA's Rural Utility Service, through a program that is part of the ARRA (Stimulus program).

Subscribers pay the interest, principal, and operating costs. There is no cash outlay by the towns. Under the provisions of H.248, (the bill that formed the Vermont Telecommunications Authority) a town is not permitted to raise taxes to fund a Telecommunications project.

It depends largely on the source of the funding. The original capital lease was close to $100 million. The application with the RUS is closer to $70 million, largely due to a lower interest rate.

The following factors determine the success or failure of the project:

There are a number of risks that could cause the project to fail, or would significantly delay its ability to generate revenue:

Response by competitors - it is difficult to say what current operators will do in response to the announcement of this project. Several of the towns have had conversations both Verizon and Comcast, and neither has indicated an interest in providing coverage to areas with lower density.

Cost over-run - we are doing our best to estimate the costs, and to estimate the returns conservatively. The risk still remains.

Time over-run - a delay in bringing up the network could affect the revenue stream.

Execution risk - The fact that Tim Nulty is managing the project goes a long way toward eliminating this risk. As with the others, this risk remains.

Insufficient Revenues to service the debt - This is the absolute worst case, if all of the other risks come into play. The agreements are structured so that the towns are not required to repay any debt, but such an event could (possibly) affect their credit ratings. But since most towns do not have a credit rating, virtually all municipalities undertake their capital debt financing through the Vermont Municipal Bond Bank. While the Bond Bank is rated, the individual participants in a financing are not separately rated. Instead, they receive from the rating agencies what is called a "shadow" rating. For underwriting and credit-enhancement purposes, the individual participating municipalities are treated as if they possessed a credit rating one notch below the credit rating ascribed to the Bond Bank. Given that there are no more than a half dozen Vermont municipalities with their own credit ratings, most towns failing to appropriate annual capital lease payments are not going to see a credit "downgrade" because there they have no rating to begin with.