EPB switching to private loans for fiber-optic business

EPB switching to private loans for fiber-optic business

July 21st, 2012 by Ellis Smith in Business Around the Region

Tennessee's Attorney General will allow EPB to seek $60 million in private financing for its video and Internet division, reducing the utility's dependence on its electric business.

Under the ruling, EPB may exercise the same rights and powers as a private entity providing similar services.

The cash infusion will cover $53 million in outstanding debt through the electric system, and help pay down the existing debt to about $45 million over the next three years.

The initial funding for the fiber-optic division was secured through the electric system, which used its superior credit rating to solicit cash from lenders.

Now, however, the electric system needs the cash to rebuild the grid following several storms, and to allow a cushion for increasingly variable TVA bills.

The video and Internet division will seek $60 million in funds for three years from a consortium of lenders that includes First Tennessee, Regions Bank, Synovus Bank, First Bank, CapitalMark and Cornerstone Community Bank.

Officials hope to close the deal by September, before looming tax, power and debt payments.

The private debt will cost about 1 percent more than the electric system loans because of the increased risk that comes from operating in a competitive marketplace, said Greg Eaves, chief financial officer for EPB.

"It's a different risk profile," Eaves said. "Keep in mind that we just became profitable 15 months ago."

Consumers have only one choice in regard to their power bill. But EPB faces competition from Comcast and AT&T in the video and Internet market.

The utility can simply raise rates to cover the cost of its electric system, but it must be more careful raising rates on fiber-optic customers lest they flee to another provider.

State Attorney General Robert Cooper ruled that EPB could privately finance its video and Internet business in response to a request for the legal opinion by state Rep. Gerald McCormick. McCormick, a Chattanooga Republican, said he asked for the opinion at the request of EPB to clarify the EPB's borrowing authority.

Harold DePriest, president and CEO of EPB, said EPB's video and Internet business will be profitable for the utility this year.

"It took us 11 years to get to this point with the telephone company, but it took us just shy of three years with video and Internet," he said.