A request to refinance two loans made to the Olds Institute for Community and Regional Development (OICRD) is getting hung up in the process and could leave the town out more than $3 million in the short term.
The two loans were made by the Alberta Capital Finance Authority (ACFA) as debentures through the town to the OICRD for infrastructure costs related to the fibre-to-the-premise network. The first was made in 2010 for $6 million over a 10-year term; a second in 2014 for $8 million over a 15-year term.
Both loans had interest-only payments for the first three years, and the town says the OICRD has made all payments as scheduled.
However, in order to assist OICRD with meeting cash flow requirements, the town has subsequently re-loaned most of the principal payments back to OICRD over the course of seven years, to the tune of $3.7 million.
The total outstanding principal owed to ACFA, as of Dec. 31, 2017 will be shy of $10.2 million. However, with the re-loan arrangement, the OICRD still owes the majority of the original $14-million total ñ $10.2 million to the ACFA and $3.7 million to the town.
In August, council approved a bylaw authorizing the consolidation of the two loans into a single $14-million debenture to be paid back over 25 years, which would lower repayments for the OICRD, which add up to about $1.5 million per year right now. According to the town's finance director Garth Lucas, with refinancing, this would drop to about $900,000.
Previously, Lucas said he expected the refinancing to go through without too much trouble. In early September, however, the ACFA did not immediately approve the request to consolidate the original two loans, as he had anticipated.
"The way I worded the original $14-million bylaw," said Lucas, "is that it was a refinance of the project."
"In my mind I was thinking, (of) the two sums together," he said. "Alberta Capital Finance doesn't necessarily agree that the two sums together is their problem."
Since some of the principal has already been repaid, the ACFA says the request is not technically a refinancing, as it is asking for more money than is owed.
"Alberta Capital Finance seems to be hesitant to approve a new debenture of $14 million for the same project that has already been approved for previous debentures," read the report submitted by Lucas to the town.
To that end, ACFA might only approve a refinancing of the remaining $10.2 million ñ in which case, the extra $3.7 million that the OICRD owes the town would be paid back over a number of years.
Lucas says the ACFA has not made a decision yet, and doesn't expect an answer until sometime in October.
While Lucas is waiting for the decision, he has submitted a new borrowing bylaw request ñ for the refinancing of the remaining principal owed to ACFC into a single $10.2-million loan payable over 25 years ñ which was given first reading at the last regular meeting.
As for whether there are any worrisome financial implications for the town if the ACFA doesn't come through with the $14 million, Lucas says there are none.
"I am not concerned," said Lucas. "It will have an impact on cash flow, and it is simply that the money will be available back to the town over a period of years rather than all of a sudden, all at once."
"But it's still going to be available to the town, it will come back to the town," he said. "The money would have been available for council to designate for specific future projects and now that will have to wait until the loan payments are made."
Lucas emphasized that when it comes to the project, the town is excited.
"The federal minister of innovation has acknowledged that the Town of Olds is way out there in providing a really fantastic resource to the citizens of Olds," he said. "We need to be proud of living in Olds and happy that we have the Internet infrastructure that we have."
In addition, Coun. Harvey Walsh said he considers the fibre-to-the-premise project a success, and noted that the financing isn't a subsidization of a private enterprise, because the money will eventually be paid back ñ it's more a question of when.
"I think there was a sense that it could pay for itself quicker, but reality is it needs to be paid for over a long term," said Walsh in a recent interview.
"Anybody who owns a mortgage knows, you sign up for 10 years, you've got to spend all your money to the mortgage company," said Walsh. "But if you have a 20-year mortgage, you can at least afford a car, too."
SIDEBAR:
THE NUMBERS:
$6 million ñ first debenture made to the OICRD in 2010 for a 10-year term
$8 million ñ second debenture made to the OICRD in 2014 for a 15-year term
$10,171,325 ñ outstanding principal owed to ACFC
$32,597,811 ñ debt limit for the Town of Olds as of Dec. 31, 2016
ONLINE RELATED STORIES:
Town approves consolidation loan for OI (Aug. 15, 2017): https://www.oldsalbertan.ca/article/Town-approves-consolidation-loan-for-OI-20170815
Town temporarily returns loan payment to OI (June 27, 2017): https://www.oldsalbertan.ca/article/Town-temporarily-returns-loan-payment-to-OI-20170627
