City Takes Loss on Cable Sale

May 15, 2014

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:

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.

Consultant Fees

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

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.

In other words, Poplar Bluff Internet no longer owes the City any money.

  1. Matt Funke

    Just like every other post on this thread, Brian, you come up with a new argument each time a hole is poked in the previous “theory.”

    Some years ago when I lived in Jefferson City, we refinanced our house and then sold it 18 months or so later. I guess YOU might say we made a stupid decision, because we were still a few months away from earning back the origination fee on the loan with our interest savings. Of course, most normal people would say we just made the best decision on the facts available at the time. We were able to significantly reduce the interest paid on the note in the first decision, while in the second decision, a job opportunity for the Mrs. was more important than a small loan fee paid 18 months earlier. (Economists refer to this as a “sunk cost,” and they have a poor opinion of actors who make decisions based on them.)

    Now, if you’d like to show your math on the 2009 refinancing and calculate the city’s interest savings since then and compare them to its origination costs, we can play the parlor game of whether that refi wound up being the right decision since it was only outstanding for five years. My guess is that, based on how low interest rates went in the economic downturn, I’d be surprised if the savings didn’t offset the origination costs over the last five years.

    But I don’t really know and I don’t really care: it’s irrelevant and would be a foolish item to judge the 2009 or 2014 council on. You don’t refuse to refinance a debt when it makes economic sense to do so just because there is a chance you might repay early. AND, you don’t refuse to sell an asset when it makes economic sense to do so because of a past financing decision.

    “Yeah, that guy offered me far more than my house is worth to me, but I’m not gonna sell it ’cause I paid a loan origination fee in 2009.”

  2. Matt Funke

    “I say it should be included because the city made a bad decision to use it as a security which is now having to be covered with City Cable cash.”

    How in the world would you know whether it was a bad decision or not?! Until a few hours ago, you didn’t even know the decision has been made! I’m certain you don’t have the slightest clue what factors may have led the city, some years ago, to pledge those assets against debt it was refinancing from the coliseum, library, golf course, and McLane Park. (Perhaps additional assets provided a better investment rating, and therefore a lower interest rate.) Like always with Brian Becker: verdict first, then the evidence!

    “This evaluation was based solely on the sale of the assets and what had to be cleared to make the sale.”

    In other words, “I realize now that my evaluation is fatally flawed, but there’s no way I’m going to admit that.”

    1. Brian Becker

      It just showed itself as a bad decision because we sold City Cable and had to pay off most of that note with proceeds. If you go look at the minutes of that meeting in 2009 where they refinanced, you will hear them talking about how it will cost us a little more up front but over the term of the note we will save $600k. Well we didn’t let it go to term, and now that has cost us.

      Matt, the evaluation isn’t flawed. It correctly reflects the purchase agreement which shows we had three notes to pay off to sell City Cable. You want that third note to reflect as a reduction of liabilities for the City. But to do that we couldn’t use the payoff values of any of the notes in the evaluation, we’d have to go back and look at how much we spent to build the network, how much profit we used to upgrade the network, etc.

      You don’t like this evaluation because it reflects poorly on the decision to sell City Cable. Rather than attacking me, maybe you should put the blame where it truly rests: Doug Bagby and Wally Duncan.

  3. Matt Funke

    What you did with the other money is not relevant to this discussion. The people of Poplar Bluff may assign great value to the coliseum, library, golf course, or athletic fields. That really doesn’t have any bearing on your statement that the “City Takes Loss on Cable Sale.”

    1. Brian Becker

      Your theory only applies if the city gets to decide WHERE to spend the money. The way this purchase agreement reads, the city doesn’t and therefore takes a loss.

      My eval doesn’t include the loss in 5% utility taxes each month for five years, the cost of buying a double wide to house MU temporarily, or the staff expenses we are incurring for six months during the transition. It’s a bad deal all the way around. But, go ahead and blame my evaluation for their stupidity.

      1. Matt Funke

        Just like if you sold a house that was pledged as collateral to secure a home equity loan, if the bonds were secured by city cable assets, that has to be satisfied before the sale can close. The city chose where to spend that part of the money 16 years ago.

        But I’m going to assume this is as close as you’ll get to admitting you’re wrong and call it a day.

        1. Brian Becker

          Not wrong, Matt. Just looking at it from a totally different view point than you want me to. You want to say that the retirement of debt not used to build the network doesn’t count against the sale, however, I say it should be included because the city made a bad decision to use it as a security which is now having to be covered with City Cable cash.

          This evaluation was based solely on the sale of the assets and what had to be cleared to make the sale.

          If you want a “what we paid for it” and “what we got out of it” evaluation then you would have to include the several million net profits used to upgrade the system over the 13 year history.

          Anyway you slice the deal it was a bad one. But, go ahead and blame my evaluation rather than their stupidity.

  4. Matt Funkw

    There are a lot of errors in those three sentences. If your cost of construction is $200,000, and you borrow the full amount, and if the house is deemed to be worth $300,000 and you use the supposed equity to borrow an additional $50,000 that is not invested in the house, you then have debt outstanding secured by the house totaling $250,000. If you sell the house for $240,000, you received $40,000 more than you invested in it.

    I would prefer you either leave my name out of your update, or state:

    “Update: According to Matt Funke, my evaluation of the purchase agreement is wrong and the Series 2009 bonds shouldn’t count in the calculations of net loss. I have requested more documents from the city. Brian.”

    I have no idea whether the Series 2009 Bonds required a pledge of city cable assets. They may have included it, but I don’t know whether they did or, if they did, whether it was “required.”

    1. Brian Becker

      Yea, you got $40k more than you invested in it…but you mismanaged your money and spent $50k more on other things that have no value. So, you end up with a $10k loss when you sell your home.

  5. Matt Funke

    Brian, I did not say the purchase agreement is wrong. I said that the proceeds of that particular debt issuance were used for projects other than city cable, and that your conclusion was incorrect as a result. That does not mean that city cable assets did not secure the bonds and I have no reason to believe the purchase agreement is incorrect.

    1. Brian Becker

      If I built a house for $200k and it’s worth $300k so I get a $50k line of credit and pay off my credit card debt so my equity is $300k and my debt on the house is now $250k and I’ve juggled my liabilities around. If I sell the house for $240k, I have to pay $10k to clear the debt on the house. But when looking at the house transaction: I have a $10k net loss on the house.

  6. Matt Funke

    Brian, as noted on your Facebook page, I believe your conclusion here is misleading. The $5.9 million in 2009 series bonds is actually, based on my reading of the city’s financial statements, the remaining balance of the 1998 bonds which financed the coliseum construction (including the pool), the library expansion, the golf course addition, and baseball fields at McLane park. Please reconsider. Thanks.

    1. Brian Becker

      And as stated on FB, the purchase agreement clearly states that $5m of the 2009 Bonds have, in some way, secured the City Cable sale.

  7. Brian Becker

    First, welcome.

    Next, the former City Manager thinks he has a 3-year ($270k) contract that renews every year. If that is true, then how can you fire him without paying a chunk of money? Your argument is echoed by many, but it’s really a silly argument. The smartest time to let him go would be right before the contract renews again…so, at most the city council cost the city an extra three months (June-July-August) of salary.

    But, he doesn’t have a three year contract…at most he has a 1 year contract that ends August 31, so they only would owe him three months.

    Finally, he doesn’t even have a contract. As I showed in Crazy Claims About Bagby’s Contract, Mr. Bagby’s contract is invalid on multiple fronts and he is an “at will” employee who can be fired at any time.

  8. s price

    we are new in town so I dont have a dog in this fight. You talk about how the old admin wasted money. I dont see the new admin doing better. the coast tax payers over 250,000 right out the dont fire someone that may or may not have a contract to toy know for sure and did you let him go because he didnt do his job or because of revenge. eather way its not good business.