COOPERATIVE Fiber to Homes, Farms and Businesses Border To Border Broadband Conference February 5th, 2014 RS Fiber History In 2010, cities and two counties commissioned a Fiber To The Home/Farm feasibility study for a fiber network in all of Sibley County, the city of Fairfax and four townships around Fairfax. A statistically valid phone poll showed initial support for the project above 60%. In 2011/2012 - RS Fiber identified support from the service area and received pledge cards from 56% of the households in the project area. (4,300 pledge cards) In late 2012 the legal community determined the proposed method of financing for the project was not viable and the project was put on hold. In July of 2013 the RS Fiber began to explore an alternative structure that made use of a private fiber cooperative created in late 2012 to represent the interests of the rural area. The new structure was discussed with the RS Fiber Joint Powers Board, attorneys associated with the project, and the RS Fiber Cooperative Board. All found the structure to have merit and have started to discuss its implementation. RS Fiber History Under the restructured project the private cooperative board will own and operate the fiber network. The RS Fiber Joint Powers Board will remain in existence, expand its membership to include townships and provide an economic development loan to the cooperative. The loan will be used by the cooperative to secure needed additional financing. The new structure has certain advantages for the project. The new financing method substantially reduces the amount of money that needs to be borrowed, lowering the penetration rate for break even and reducing risk. And because it is now a private business opportunity it is not subject to poorly written telecommunications legislation regarding participation by local units of government. It’s the same, only better The new RS Fiber Cooperative will have the same footprint, benefits and advantages as the RS Fiber project. The only things that change dramatically are ownership and financing. The private cooperative will own and operate the network Faster Internet speeds offered (50 megs, 100 megs and gigabit ) Internet speeds will be symmetrical (same upload as download) Live high school sports/event programing will be provided Telemedicine services will possible on the fiber network Home and Farm security services will be offered Improved Business Plan Under the previous financing plan, break even occurred when 69% of households and small businesses in the project area signed up for service. Under the new plan the breakeven points drops to 45%. That means the project already has more pledge cards than needed for break even. Why does the break even drop so much? The project borrows less money and interest doesn’t accrue as fast. Under the previous financing plan Total project construction costs were $55 million. However, a $70 million Revenue Bond was required because of the type of financing and the public nature of the financing. The additional $15 million was required by bond holders to be used for: Debt service reserve fund Cash flow needs Capitalized interest payment on debt Additional interest expense because the $70 million was borrowed all at once with interest accruing on the entire amount beginning on day one. Under the new financing plan Total construction costs are still $55 million. Cities and townships will provide a $15 million economic development loan to the cooperative in the form of a G.O. tax abatement bond. The cooperative will leverage that into a $40 million primary loan (with bank, USDA, SBA and HUD support and guarantees) No debt reserve fund is required The $15 million economic development loan to the cooperative will be used for start up construction and cash flow needs. Interest accrues only when funds are accessed. G.O Tax Abatement Bond Under Minnesota Law, Cities, Counties, Townships, and School Districts can use authority granted under M.S. 469.1812 – 469.1815 to issue bonds for economic development purposes. The co-op will make bond payments on behalf of cities and townships. Public hearings will be required along with votes of the participating councils and township boards. There is no real cost to cities/townships to participate unless the project fails. The twenty year G.O. tax abatement bond will be subordinate to primary financing. Unlike traditional G.O. bonds sold by cities and counties, this G.O. bond will be supported by a revenue stream. It is, however, ultimately guaranteed by the ability of the participating government entities to raise taxes to make the payments if the co-op fails and cannot make those payments. Breakeven explained 7,200 homes/small businesses in the project area. 4,300 pledge cards have been received. 69% of 7,200 is 4,968 Under the previous financing plan another 686 pledge cards were needed for breakeven 45% of 7,200 is 3,240 Under new business plan the project currently has 1,060 more pledge cards than needed for breakeven Pledge Cards become Contracts In the coming months the RS Fiber Cooperative board will reintroduce and remarket the project to everyone in the project area through mailings and public meetings. Potential customers will be asked to sign a one-year contract/pledge card. It will include prices for all three services It will allow fiber to be buried on customer’s land It is only enforceable if project is constructed If you sign a contract/pledge card by a certain date the fiber will be installed to your home/business at no charge. Project Timeline February - December 2014 Meet with cities and townships Begin marketing campaign Work toward primary financing Hold series of public meetings throughout project area Get city/township approval for G.O. Bond Secure project financing January 2015 Finish backbone engineering Begin project construction (3 year build) Questions?