Burlington officials made their case to the state Tuesday for selling Burlington Telecom in the course of two transactions that would get the city out of the telecom business and settle a pending $33 million lawsuit for about $10.5 million.
Mayor Miro Weinberger announced in February that a deal had been struck between the city and Citibank, which sued Burlington for nonpayment of the capital lease that financed Burlington Telecom. Citigroup agreed to settle for about one-third the amount.
The city proposes raising most of the needed funds by selling Burlington Telecom to an interim owner, who in turn would sell the utility in a few years to a third party.
Public Service Board approval is required for the deal to go through. A decision is unlikely before September.
Burlington has asked the PSB to remove some conditions of the utility’s certificate of public good — namely that it expand service to every building in the city. Waiving that requirement is key to making BT an attractive purchase, city officials said in testimony on Tuesday.
Whether the city would retain any ownership after the second sale is an open question — as is the likelihood Burlington taxpayers will ever be paid back the $16.9 million the city’s former chief administrative officer improperly diverted from general funds to prop up BT.
The nature of a potential or preferred buyer down the road also is uncertain. The question is important for some local groups who want to ensure any future owner would meet the high bar for community service set by BT.
Burlington businessman Trey Pecor, in conjunction with Merchants Bank, has agreed to buy BT for about $6 million. Pecor would set up a special entity called Bluewater to lease BT’s operations back to the city, which would continue contracting the firm Dorman and Fawcett to manage the business.
Dorman and Fawcett has drawn high praise from all parties, including the PSB, for salvaging BT’s operations and finances. The company — also credited with striking the Citibank settlement and finding the bridge financing — is now being paid for its management work.
To help secure Pecor’s involvement, Dorman and Fawcett agreed to defer payment for services during the course of the interim, operational lease. Dorman and Fawcett would be paid retroactive management fees, plus about 10 percent of the purchase price once a sale to a third party goes through.
Bluewater would walk away with 40 percent, leaving 50 percent for the city to split in half with Citibank.
And that may not leave much to either pay back taxpayers or plow back into partial ownership.
Outstanding debt to the city aside, BT is now running in the black and projecting solid revenue growth. Partial ownership could give the city a say in how the business is run over the long term, should city leaders at the time decide that’s worth the liability.
Stephen Barraclough, Dorman and Fawcett’s acting manager of BT, said the plan is to wait at least two years before looking for a buyer. The firm recommends giving BT time to rejuvenate its reputation after the cloud of scandal and litigation lifts. And only then, with a fresh track record, will the company’s true value be known, according to Terry Dorman.
But all parties to the settlement have agreed to a certain pre-approved sale value. That figure will determine how much may be left over for the city after Citibank, Pecor and the deal’s negotiators are paid.
Dorman and the city’s attorney repeatedly declined to name or estimate the potential asking price, saying it would harm future negotiations.
In an unguarded moment, however, PSB member John Burke, while describing a hypothetical situation to a witness, cited $11 million. Staff attorney Lars Bang-Jensen quickly, but loudly, reminded Burke that what he’d just said was confidential.
That’s not to say an asking price couldn’t be lower — or higher — when BT eventually is put on the market.
But if competing offers are made within 36 months for at least the pre-approved target, the city of Burlington will hold the most discretion over which buyer is chosen.
For lower offers or for those made after three years have passed, city officials at the time will lose some of their bargaining authority.
