DE 97-245
NORTHLAND TELEPHONE OF MAINE COMPANY, INC.
Petition of Northland Telephone Company of Maine, Inc.
for Approval of Restructuring of all Debt to National
Bank for Cooperatives
Order Granting Petition
O R D E R N O. 22,822
January 6, 1998
On November 26, 1997, Northland Telephone Company of
Maine, Inc. (Northland or the Company), filed with the New
Hampshire Public Utilities Commission (Commission) a petition
seeking the Commission's approval and authority under RSA 369:1-4
for the restructuring of all of Northland's debt to the National
Bank for Cooperatives (Cobank) from direct obligations of
Northland to direct obligations of Northland's parent company ST
Enterprises, Ltd. (STE) guaranteed by Northland and further to
mortgage its properties as security for the loan.
Northland received Commission approval to commence
operations in Docket No. DF 94-071 pursuant to the transactions
involving the acquisition and division of Maine telephone
exchanges of Contel of Maine, Inc. Northland serves
approximately 20,810 customers in Maine and approximately 300 in
New Hampshire. As part of DF 97-071 the Commission authorized
Northland to issue debt securities and to mortgage its properties
to Cobank.
Subject to the Commission's approval Northland's parent
company STE proposes to transfer Northland's debt to STE, to be
combined with other affiliates' loans into a master note
agreement between STE and Cobank. Northland will continue to
guarantee and collateralize the existing loan. The rates, terms
and maturity of the existing debt will remain unchanged after the
debt has been transferred to STE. Upon consummation of the
transaction, STE rather than Northland will be the "borrower" and
will service the debt based on dividend income from its operating
subsidiaries. There will be no inter-company loan agreement
supporting the respective debt between Northland and STE.
Northland will pledge utility assets until such time as STE
retires the debt. In addition to Northland, two other STE
subsidiaries, Sunflower Telephone Company and Northland Telephone
Company of Vermont, Inc. will enter into similar agreements with
the parent company.
Northland cites simplified administrative and reporting
procedures at the STE level to be the primary benefit of the debt
consolidation. In addition, the Company claims that
consolidating the debt will enhance the credit standing of the
entire group, as additional cashflow support will be available on
a consolidated basis.
On December 12, 1997 the Maine Public Utilities
Commission (MPUC) in Docket No. 97-824 approved Northland's
request for the interaffiliate agreement. MPUC noted that the
structure of the agreement would preclude the possibility of
Northland being put in situations that would allow the company to
be vulnerable to default based on actions of other out of state
affiliates. This is because the parent company, STE, will have a
Master Loan Agreement with Cobank with separate loans (or notes)
for each subsidiary and none of the notes will be cross-defaulted
or cross-collateralized. Therefore, Northland would not be in
default if one of STE's other affiliates defaulted on an
obligation for any reason.
The Company submitted projected balance sheets and
income statements detailing, both with and without the proposed
financing, estimated expenses of financing and a Summary of Terms
and Conditions of the proposed loan agreement.
Staff has reviewed Northland's petition and all
exhibits submitted therewith, and recommends approval. Staff has
also consulted MPUC Staff and reviewed MPUC's order in Docket No.
97-824 and reviewed the conditions imposed on Northland in
approving the petition. MPUC ordered Northland to file its
Annual Report with its balance sheet and income statement
presented in both pre-transaction and post-transaction formats
until the loan is retired. MPUC further ordered Northland to
utilize its best efforts to ensure the loan remains current with
regard to its original repayment schedule and to provide
confirming documentation in its Annual Report until the loan is
retired. Northland is required to notify the MPUC immediately in
the event that Northland determines that a scheduled payment is
past due. In any future rate case, MPUC Staff and Commission
Staff would impute a level of debt in the Company's capital
structure.
We find that the proposed restructuring of Northland's
debt, based upon the terms presented in the proposed loan
documents, is consistent with the public good. The transaction
should simplify administration and reporting procedures while
keeping the cost of debt and liabilities of Northland unchanged.
Based upon the foregoing, it is hereby
ORDERED, that Northland is authorized to guarantee the
STE master note in the amount that was previously approved in DF
94-071 for Northland's loan with Cobank; and it is
FURTHER ORDERED, that the mortgaging of Northland's
Property to secure its obligations under the guarantee is
approved.
By order of the Public Utilities Commission of New
Hampshire this sixth day of January, 1998.
Douglas L. Patch Bruce B. Ellsworth Susan S. Geiger
Chairman Commissioner Commissioner
Attested by:
Thomas B. Getz
Executive Director and Secretary