Financing Alternatives for Telecom Carriers Presented by Vince Wiemer, CPA

Copyright © 2004Discussion  Uses of Funds  The Borrowing Process  Sources of Funds  Contact Information

Copyright © 2004 Uses of Funds  Acquisitions  Purchasing exchanges from current telecom providers  Huge disparity in pricing: $500 to $4,000 per subscriber  Infrastructure  Building a telecommunications network  Switching, circuits, cable & wire, support assets  Interim Financing  Short-term loans for cash flow needs or to bridge the time lag in receiving long term loans

Copyright © 2004 The Borrowing Process  Determine your financial needs for the next five years  Forecast both expenditures and revenues to determine loan amount and establish ability to repay financed amounts  Determine which financing source best fits your borrowing needs  Collateral requirements  Repayment terms  Interest rates  Debt covenants

Copyright © 2004 The Process (cont’d)  Gather the information that will be needed to obtain financing:  Historical financial data Audited financial statements  Corporate & legal documents Establish the borrower’s legal identity and the authority to enter into agreements  Sources and uses of funds  Prospectus narrative  Financial forecast  Right-of-way agreements Environmental studies

Copyright © 2004 The Process (cont’d)  Contact financing source(s) and begin application process  Once the ability to obtain financing has been determined, advance the primary goal:  Negotiate acquisitions  Engineering for infrastructure builds

Copyright © 2004 Sources of Funds  There are several entities that will provide financing for telecom ventures:  Rural Utility Service  CoBank  Rural Telephone Financing Cooperative  Private Funding  Each has different opportunities available and varying terms

Copyright © 2004 Rural Utility Service  RUS is a U.S. government agency that is a department of USDA  Established in the 1957 Rural Electrification Act  Provides low-cost loans for building electric and telephone systems in rural areas  There are several loan programs

Copyright © 2004 RUS: Loan Programs  Traditional telephone loan  Eligibility:  Use of Funds:  Collateral:  Interest Rate:  Repayment Term: weighted average of the telecom plant depreciable lives  Process:

Copyright © 2004 RUS: Loan Programs  Broadband loan program  Eligibility:  Use of Funds:  Collateral:  Interest Rate:  Repayment Term:  Process:

Copyright © 2004 CoBank  The Co-operative Bank is part of the Farm Credit System, a nationwide network of lending institutions  CoBank has ~$31 billion in assets  Specializes in:  Agribusiness  Communications, energy & water systems  Agricultural export financing

Copyright © 2004 CoBank (cont’d)  Products:  Short-Term Loans One-time or line-of-credit borrowing Asset based loans for operating capital  Intermediate- and Long-Term Loans Construction of new facilities Remodeling or expansion Land or equipment purchases  Tranche Pricing Allows customers to divide loans into slices with each segment carrying a different interest rate and maturity

Copyright © 2004 CoBank (cont’d)  More products:  Tax-exempt Bonds Bonds available for facilities and equipment related to industrial development  Leasing Services Farm Credit Services allows the lease of virtually any type of equipment and facilities Variety of lease types & residuals Can improve cash flows, free capital, and provide tax advantages

Copyright © 2004 CoBank (cont’d)  Rural communications loan  Eligibility: if received or eligible to receive an RUS loan or under REA  Use of Funds: any telecom plant and some working capital  Collateral: telephone company assets  Interest Rate: fixed or variable  Repayment Terms: Short term ~ months Intermediate & long term ~ years

Copyright © 2004 Rural Telephone Finance Cooperative RRTFC is a member-owned, not- for-profit lending cooperative CCreated in 1987 to serve the financial needs of the rural telecom industry RRTFC is funded by its affiliate the National Rural Utilities Cooperative Finance Corporation

Copyright © 2004 RTFC (cont’d) PProducts: LLong-Term Loans Construction projects Acquisitions IIntermediate-Term Loans Unsecured loans for equipment purchases LLines of Credit Designed to meet short-term cash needs and interim financing for RUS construction loans

Copyright © 2004 RTFC (cont’d) LLoan Terms: EEligibility: based on company’s financial strength & creditworthiness CCollateral: telephone company assets for long-term none for intermediate-term loans IInterest Rate: fixed based on matching funds cost or a monthly variable rate RRepayment Terms: Long-term: up to 15 years Intermediate-term: up to years

Copyright © 2004 Private Funding  Private investors may be interested in tribal telecoms  Advantages to Tribes:  No U.S. Government involvement  More flexible eligibility requirements  Financing creativity Loans or bond issue  Creation of bond authority provides ready financing for other tribal needs

Copyright © 2004 Private Funding (cont’d)  Advantages to Investors:  Tribes tax exempt status can generate benefits for investors  Interest and tax benefits can generate a double-digit return  Disadvantages for Tribes:  Most investors will want a second revenue source as collateral  Origination costs may be higher

Copyright © 2004 Private Funding (cont’d)  Products:  Long-Term Loans Construction projects Equipment purchases Acquisitions  Bridge Financing Designed to provide interim financing for RUS construction loans Could be used for other cash flow needs

Copyright © 2004 Private Funding (cont’d)  Loan Terms:  Eligibility: based on company’s financial strength & creditworthiness  Collateral: telephone company assets for long-term  Interest Rate: fixed or variable  Repayment Terms: Long-term: based on depreciable life of assets constructed or acquired Bridge Financing: months

Copyright © 2004 For More Information Rural Utility Service CoBank Rural Telephone Finance Cooperative

Copyright © 2004 Contact Info Vince Wiemer, CPA ALEXICON, Inc North Garnett Road Owasso, Oklahoma (918)