City Takes Loss on Cable Sale
Update: There are two ways to evaluate the sale of an asset. 1) look at all the costs to create the asset, all the profits used to to maintain the asset, and the cost to sell the asset. 2) look at what you have to pay off when you sell the asset. The first method, far more difficult to calculate, is a more accurate look of what benefit (or detriment) the asset provided you over the years. But the second method provides you with a snapshot view of whether your sale provided cashflow to your bottom line. In the comments after my post, you will see that Matt Funke does not approve of the second method in this case because one of the three bonds the city was required to pay off was originally not used for City Cable. My request for more documentation from the city was denied as Client-Attorney privilege. But, the third bond was encumbered against the sale of City Cable and my evaluation correctly reflects the purchase agreement.
Late last week I received a final, fully executed copy of the City Cable Asset Purchase Agreement. The first thing I noticed is that it is much longer (218 pages rather than the 185-page version released in late March: Asset Purchase Agreement Originally Signed By Mayor Degaris).
The following is a spreadsheet of the major items negotiated in the transaction details:
|CITY CABLE SALE|
|Indebtedness (Bonds)||$ 14,720,421.72|
|Building (estimated)||$ 2,100,000.00|
|Accounts Receivable||$ 559,547.00|
|Counsultant Fees||$ 262,500.00|
|Total Assets/Exp/Bonds||$ 17,642,468.72|
|Sold For||$ 17,500,000.00|
But wait…that’s not all, in addition to paying New Wave $142,500 to take City Cable off our hands, the city also negotiated:
Tax Free For Next Five Years
The City also gave away any income they might have received for five years in section 6.11(e):
Seller acknowledges that the transactions contemplated by this Agreement are of substantial public benefit to Seller and agrees, to the maximum extent permitted by law, that it shall, and shall cause all of its subdivisions, legal organs, authorities or bodies (“Seller Divisions”), to reduce the amount of any property taxes, fees, assessments or similar charges imposed or assessed by Seller or a Seller Division on or with respect to any real property (including any interests therein) acquired by Purchaser pursuant to this Agreement to zero ($0) for the year of transfer and the five full succeeding years.
Details to support the spreadsheet:
Indebtedness / Bonds
One of the major differences is that the original version stated there was no indebtedness and the final version lists three bonds. Yea, three – not two – bonds (schedule 3.7(d)). Only two of the bonds were paid off at close as part of the transaction (section 1.5(a)) but three bonds are described as being part of the cable system:
1. In 2005, the Seller issued its City of Poplar Bluff, Missouri General Obligation Bonds, Series 2005, in the aggregate principal amount of $6,790,000 (the “Series 2005 Bonds”). The Series 2005 Bonds are secured by a pledge of tangible property taxes and the full faith, credit, and resources of the Seller. The Seller’s estimate of the amount to defease the Series 2005 Bonds is $5,442,268.26.
2. In 2012, the Poplar Bluff, Missouri, Public Building Corporation issued its Poplar Bluff, Missouri, Public Building Corporation Leasehold Refunding Revenue Bonds, Series 2012, in the aggregate principal amount of $3,660,000 (the “Series 2012 Bonds”). The Series 2012 Bonds are secured by various assets owned by the Seller. The Seller’s estimate of the amount to defease the Series 2012 Bonds is $3,461,689.49.
3. In 2009, the Poplar Bluff, Missouri, Public Building Corporation issued its Poplar Bluff, Missouri, Public Building Corporation Leasehold Refunding Revenue Bonds, Series
2009, in the aggregate principal amount of $8,830,000 (the “Series 2009 Bonds”). The Series 2009 Bonds are secured by various assets owned by the Seller. The Seller’s estimate of the amount to defease the Series 2009 Bonds is $5,816,463.97.
The total of the three bonds, which apparently hold the Cable System as collateral, is $14,720,421.72. The way this looks, even if this third bond wasn’t defeased, we’ve still transferred the equivalent debt of this City Cable bond as part of the sale.
The building is listed in schedule 1.1(h) as a 11,214 sq ft building on 1.6 acres of land. It has an estimated value of $2.3M. In looking at the City Cable books, it appears that less than $200,000 of the original purchase price of the building was paid for by City Cable and the remainder was paid by the sewer and electric departments. In other words, over $2 million dollars of value was added to deal by including that building.
The consultant, Rural Broadband LLC, was paid separately by the city as required by the agreement in schedule 3.24 (Rural Broadband LLC Invoices) totaling $262,500 for the efforts of selling City Cable.
Accounts Receivable were also given to New Wave according to section 1.1(e). This would be amounts that City Cable has billed customers but have not received payment for. In other words, services rendered by City Cable but the payments go to New Wave. The approximate amount based on the books provided on page 176 (part of schedule 3.7a) shows the total Accounts Receivable as $559,547.
All Claims Against A Third-Party
As part of the Purchase Assets in section 1.1(f), the city agreed to give New Wave :
Claims against third parties primarily relating to the Business or the System…
I’ve asked for some clarity on this from Mayor Pearson, but according to at least two different lawyers, the Purchase Agreement awards the City’s judgment/claim of $206,000 against Poplar Bluff Internet (a third-party) to New Wave as part of the sale.