OLDS — The town has confirmed it still plans to turn the assets of Olds Institute, including O-NET, into a municipally-owned corporation (MOC).
But there are no indications of what the future may be of Olds Institute and Olds Fibre Ltd., which owns O-NET, the community-owned firm that provides high-speed internet as well as phone and TV service.
The town is looking at an MOC as a way to solve a big problem, debt and a line of credit totalling $18 million.
The town incurred $14 million worth of debt and a $4 million line of credit to help Olds Fibre Ltd. finance the installation of fibre optic lines in the community.
During a closed-door meeting on Aug. 26, receiver David Lewis of BDO Canada Limited presented council with the summation of a report listing four main options to solve that problem, ranging from formal insolvency to refinancing or selling the assets outright.
In a couple of those options, it was estimated it could take as long as 28 to 30 years to have those debts paid off.
But advantages could include enabling OIds Institute/Olds Fibre Ltd. to keep operating in some form.
In a news release, the town said it had little choice but to create an MOC because it said there’s just not enough projected revenue to cover loan and principal costs.
“BDO determined that combined projected revenues of Olds Institute and Olds Fibre would be insufficient to cover the loan installments of principal and interest payments owed to the town,” the news release said.
“BDO also confirmed that a substantial risk exists for the Town of Olds, in terms of default on payment as the town would be required to make payments on the funds borrowed from Alberta Capital Finance Authority (ACFA).
“Olds Fibre Ltd. continues to require substantial capital investment in order for growth to occur.
"Therefore, council has determined that the Town of Olds is not in a position to provide the required capital investment as a lender and has agreed to move forward and enter into a municipally-controlled corporation.
“I believe the outcome of the report justifies council’s decision to conduct this review, and we are confident that O-NET will continue to deliver high quality services to their customers,” Town of Olds Mayor Michael Muzychka said in the release.
Certainly, figures on the BDO website outlining the financial position of Olds Institute paint a bleak picture.
The receiver lists the total net book value of OIds Institute's assets as of April 30, 2021 to be $16,080, 515.
As of that date, the total amount owed to secured creditors: was $17,404,730. And the total amount owed to unsecured creditors was $754,321.
The summation of the BDO report laid out a variety of options to solve the problem.
One option was refinancing.
"However, the Institute would need to find a lender who would be willing to advance the funds to repay a portion of what is owing to the town,” the summation said.
It said sale to a third party “may be a viable option.”
“However, it is likely they would want to purchase the shares of Olds Fibre Ltd. and the fibre and Wi-Fi assets of the Institute.
“The challenge with this option would be finding a purchaser who is interested, as there may be a limited number of buyers in the market,” the summation said.
Another idea advanced was to undertake formal insolvency -- most likely receivership of Olds Institute and Olds Fibre Ltd. The town would apply to court to appoint a receiver.
“The receiver could sell the assets by a tender process, where the town would credit bid and offer the full amount of the loan to purchase all the assets of the Institute and Olds Fibre," the summation said.
“This would allow an opportunity to see if any other parties would be interested in purchasing the assets, and allow the town to consider if an offer is sufficient to sell or if they will just continue to operate Olds Fibre.”
According to the summation, the advantages of this option include a good chance the town could maximize the recovery on its loan.
Also, if no other parties interested, the town would gain control of the assets of Olds Institute, including the shares of Olds Fibre.
The report said disadvantages include the fact that Olds Institute “would no longer be operating as a going concern, and may or may not halt operations all together.”
Also, the report said, “consideration would need to be given to what will happen to the loans from private lenders.
Thirdly, it warned there would be “significant costs” associated with appointing a trustee or receiver and the town would have to foot that bill.
Another idea would be to update the loan to the Olds Institute to become interest-free so that all payments made would become principal payments.
“When the principal balance is repaid in full, there can be an additional lump sum payment or dividend paid out to make up for lost interest,” the report said.
It listed a couple of advantages to that route: the loan would be fully repaid, plus Olds Institute and Olds Fibre Ltd. “can continue operating as a going concern.”
However, the summation noted there are a couple of disadvantages to that option too.
For one thing, the report said the town can’t update its loan with the ACFA, so interest payments would still be due and payable. That means “taxpayer funds would be required to pay over the terms of the loan.”
Another disadvantage is the time it would take fully repay the loan. The summation noted that Olds Institute is making semi-annual payments of $235,273.
“If these were converted to principal-only payments, it would take just under 30 years for the Institute to repay the loan in full,” it said.
Another option listed is to sell the assets of Olds Institute.
The summation said in order to do so, the fibre and Wi-Fi assets, along with the loan owning to the town should be transferred to to Olds Fibre. Ltd. It was recommended that terms of the loan be updated at that time as well.
“If the fibre and Wi-Fi assets were transferred into Olds Fibre, the financial advisor believes that Olds Fibre may be able to obtain alternative financing for a portion of the amount owing to the town,” the summation said.
“If they were able to obtain this financing, they could make an immediate lump sum payment to the town as part of a repayment plan.”
The summation said advantages of this route include the fact that Olds Fibre Ltd. could keep operating and Olds Fibre's cash flows would likely improve because it would no longer be required to pay monthly rent to Olds Institute for the fibre and building.
Also, although Olds Fibre Ltd. would not be required to make payments to the town, the summation said “historically, the payments to the town have been “significantly less” than the rental payments to the Institute.
It also said that eventually, the loan would be repaid, via dividends.
Two disadvantages of that option were listed.
One is that if minimum annual fixed dividends were $500,000, “it would take 28 years for the town to recover what was advanced.”
Also, if insolvency proceedings, such as a bankruptcy were held, the summation warned that the “town’s position may be eroded, as they would only hold equity under this option.”
