Bondholders to take loss on Monticello broadbandMONTICELLO, Minn. (AP) — The bondholders who put up money for the city of Monticello to build a broadband network will be taking a big hit.
MONTICELLO, Minn. (AP) — The bondholders who put up money for the city of Monticello to build a broadband network will be taking a big hit.
After defaulting on the debt a year ago, the city is offering to repay a fraction of the $26 million it borrowed, Minnesota Public Radio reported Monday.
Monticello's tale kindles the debate over whether local governments should build their own broadband networks or whether the projects are best left to private companies.
The city's $5.75 million settlement offer is for 22 cents on the dollar. City Administrator Jeff O'Neill said it would give investors more money than their bonds are currently worth in exchange for releasing the city from further obligations.
At least 90 percent of bondholders must accept the settlement for it to be valid. If they don't, they risk receiving an even smaller return. If they accept, the settlement could be finalized by end of the year.
Since it began providing service in 2010, the central Minnesota city's broadband network has struggled to compete with prices offered by private companies for Internet, phone and television service. That's partly because the city had debt payments it had to make to its bond holders.
"That's the risk that bondholders took," said Rick Frimmer, the attorney representing the bondholders.
Monticello built the network because it wasn't able to persuade TDS, the incumbent provider, to upgrade to faster Internet service. Shortly after the city decided to build the network, TDS filed a lawsuit that nearly derailed the project. While the city spent more than a year sorting out the lawsuit, TDS installed the very upgrades residents sought.
"Monticello has struggled much more than the average community-owned network," said Christopher Mitchell, director of the Telecommunications Initiative at the Institute for Local Self-Reliance.
Mitchell said residents benefit from the competition the city's broadband provides.
"You can get faster speeds at lower prices in Monticello than you can get almost anywhere else in the country, and certainly in the Midwest," he said.
Barry Fick, senior vice president at Springsted Inc., which advised the city on the project, said the risks were clear to investors from the start because the debt was tied to the project's revenue.
"Long term I think this will help the city — everything else being equal — to improve their credit rating because they no longer have this large debt outstanding and having to generate lots of revenue from the system," he said.