EPB’s president said Friday he’s confident the utility’s fiber-to-the-home plan will move ahead on schedule, but acknowledges a lawsuit could delay the project’s financing.
“We’re at the point now where it could” affect the bond issue, said EPB President Harold DePriest. “We are working on the bond issue and are very close to being able to pull the trigger on it, and now we just simply have to evaluate what the lawsuit does to it.”
The city-owned utility still expects to provide video, high-speed Internet and telephone service to the first residential customers at the end of summer or early fall, Mr. DePriest said. That assumes the utility can issue bonds in two months, he said.
EPB announced Friday that Goldman Sachs Group Inc. will lead an investment team to finance the utility’s fiber-to-the-home plan.
In the meantime, EPB is grappling with a lawsuit filed last fall by the Tennessee Cable Telecommunications Association. In a memorandum and order issued earlier this month, Davidson County Chancellor Ellen Hobbs Lyle refused to dismiss the group’s lawsuit challenging EPB’s telecom plan.
In the memo, she rejected arguments by EPB that the lawsuit should have been filed in Chattanooga and improperly did not include the city of Chattanooga.
EPB has until Wednesday to file a response to the chancellor’s ruling, Mr. DePriest said. Utility officials hope to have the lawsuit resolved by spring, he said, when they plan to issue the bonds. The judge’s ruling was on the suit’s location, Mr. DePriest said, not on the case’s merits. EPB hopes the case will be dismissed, he said.
“What they’re (TCTA) trying to do is create uncertainty with the financial markets,” Mr. DePriest said. “Right now we think we’re able to go forward but we’ve thought all along we’d get this in February or March and we’d be at a point where something has to be resolved to be able to go forward.”
The cable association states in its lawsuit that EPB is illegally using electric system revenue to subsidize its entry into the residential telecommunications industry. EPB already offers telephone and high-speed Internet service to businesses.
“I have no idea of what all they would have to do in Chattanooga through EPB to get these bonds through,” said Stacey B. Briggs, president of the cable association. “I’m sure there’s some deal they could work out. It’s just whether that’s going to serve the public interest when you have a plan out there that’s in clear violation of the law.”
EPB officials say their residential telecommunications plan would save consumers money as well as provide benefits to the electric system, including more efficient operations and fewer thefts of electric service and equipment.
The cable industry competes with other utility-owned cable systems, Ms. Briggs said, but other utilities are running into serious problems.
“Is it in the citizens’ best interest to proceed with anything at all, much less a plan riddled with severe and serious legal trouble?” she said.
The structure of the bond issue is being negotiated and may be ready in February for EPB’s directors to send to the Chattanooga City Council for approval, said Greg Eaves, EPB’s chief financial officer and financial vice president.
EPB’s board originally had expected to approve the bond issue in October, but officials said larger-than-expected interest by lenders delayed them while they analyzed financial offers.
The utility hopes to obtain a 4.5 percent interest rate on the municipal bond issue, Mr. Eaves said.
Bank of America, Merrill Lynch & Co. Inc., Morgan Keegan & Co. Inc. and SunTrust Banks Inc. will co-manage the municipal bond issue with Goldman Sachs, Mr. Eaves said. EPB chose Goldman Sachs as the loan’s principal manager in part because the firm has avoided negative fallout from the subprime loan crisis that has been roiling financial markets, he said. Goldman Sachs structured its portfolios to avoid risk from subprime loans, he said, and has fared well during the subprime loan crisis.
“They’ve actually posted a gain through the subprime crisis,” Mr. Eaves said. “Any of them are still strong enough to pull it off, but that’s another indicator of how their (Goldman Sachs) business is managed.”
Staff Writer Andy Sher contributed to this report.