The city of Burlington has settled a long-running lawsuit with the main creditor of its municipally owned cable, telephone and Internet provider.
Mayor Miro Weinberger on Monday announced that Citibank will drop its $33 million lawsuit in exchange for $10.5 million and a share of Burlington Telecom’s future value.
The agreement closes one chapter in a five-year saga that erupted in 2009 with the discovery that city officials had obligated taxpayer money without the knowledge of the Burlington City Council. Citibank sued in 2011 for nonpayment of the $33 million it was owed.
“The settlement will allow the fiber optic system to remain in place,” Weinberger said Monday afternoon at a news conference at Burlington City Arts. He added that the city may also stand to recover at least a portion of its original investment.
Weinberger was joined by City Council President Joan Shannon (D-Ward 5) and members Karen Paul (I-Ward 6) and Vince Brennan (P-Ward 3), as well as City Attorney Eileen Blackwood and David Provost, chair of the city’s Blue Ribbon Committee on Burlington Telecom.
“Given the huge risks the city faced in this lawsuit,” Paul said, “I could not be happier with the terms of this agreement.”
The settlement requires approval by the Burlington City Council and action by the state’s Public Service Board. But for now, the lawsuit is on hold. And many questions remain about the future of the city’s public telecommunications utility, including whether the city will hold any ownership stake in the future.
Under the terms of the deal, Burlington Telecom will continue operations and Burlington taxpayers stand to recover at least a portion of the $16.9 million spent by the city prior to 2010.
The $10.5 million settlement will be paid largely by an estimated $6 million investment from a “special situation lender” who has yet to be named. The terms of this bridge financing also are not yet known or decided. Weinberger said he hopes to close the deal in a matter of weeks.
The prospect of a bridge loan is largely credited with buying the city about four years to find a “long-term partner” to take full or majority ownership of Burlington Telecom.
Weinberger credited BT staff and management with turning the company around to profitability after its early losses. Despite its bright future, though, he said private investment will give the firm a better chance at long-term success in the competitive high-tech field.
In addition to the bridge loan comprising part of the settlement, another $1.5 million will come from co-defendant McNeil, Leddy & Sheahan P.C. law firm. Weinberger declined to comment further on the law firm’s role in the settlement, saying the mediated negotiations that led to this portion of the agreement are confidential.
City funds — which Weinberger expects will be comprised either mostly or totally of BT revenues — will chip away at $1.3 million more of the obligation. Nearly $1 million will be counted from BT revenues already paid to Citibank since 2012. Another $250,000 in revenues will be paid between now and the settlement’s closing.
Another $500,000 will be paid by the city’s insurance carrier, which also is covering the costs of defending the city in the previous two years of litigation.
Monthly payments of $50,000, or 60 percent of BT’s net cash flow, will also be paid until Citibank has received at least $250,000.
The settlement’s first milestone will be City Council approval by Feb. 28, followed by a filing for Public Service Board approval no later than March 15.
Weinberger was not conclusive about potential for involvement by the cooperative of individuals who previously expressed interest in BT ownership, but he said the co-op may still have a seat at the table under the new arrangements.