House probe
bares details of fiber optic deal
by La Poasa
Samoa News Staff
The parties that
are pursuing the redeployment of the Pacific Rim (PacRim) East
undersea fiber optic cable in order to connect American Samoa
with Hawaii by the end of this year intend to pursue interconnecting
an additional cable to serve neighboring Samoa.
According to
a business model for the Pacific Rim East cable project - which
government officials say is soon becoming a reality - Samoa will
utilize a portion of the PacRim cable's capacity but will not
materially impair a minimum level of capacity to be agreed to
by ASG in the purchase and sale agreement. It also states that
no connections may be made unless and until all required governmental
agreements and permits are obtained.
The business
model, which was part of documents submitted by the governor's
chief counsel, Tasi Tuiteleleapaga, to the House Budget and Appropriations
Committee yesterday, also provides that ASG - which will own
one-third of the company that owns the cable - may assign its
ownership interest to the American Samoa TeleCommunications Authority
(ASTCA).
The parties in
the PacRim cable project are ASG, Telecom New Zealand (TNZ),
Merchant Capital, an investment and merchant banking company
based in Alabama, and Elandia Incorporated, parent company of
Blue Sky Communications.
The letter of
intent, which was signed by ASG and the three parties last year
to redeploy the PacRim cable, refers to TNZ, Merchant Capital
and Elandia as an entity called "Cable Enterprise".
According to the model, Cable Enterprise will acquire ownership
of the cable, but it will then sell 100 percent ownership to
a company that will be made up of themselves plus the American
Samoa Government (ASG).
The new company
is referred to in the business model as the "single purpose
entity" or SPE and will be organized under the laws of Delaware
as a limited liability company. According to the model, ASG will
own one-third of SPE while the other two-thirds will be owned
by TNZ, Merchant Capital, and Elandia or their affiliates.
The model states
that Cable Enterprise, on behalf of SPE, and with the assistance
of ASG, will arrange financing that will fund the acquisition
of the cable, the necessary landfall stations plus the physical
relocation and redeployment of the cable for the lump sum of
$18 million.
It has been widely
reported that ASG's cost for the project is $9 million, and the
business model has revealed that funding for portions of the
project will be arranged through the issuance of revenue bonds
in the approximate principal amount of $11.6 million.
The bonds will
be repaid over a 12-year period that will extend through the
year 2020. According to the business model, the bonds will be
secured and repaid from revenues generated by the company that
will own the cable, prior to any distributions to equity holders.
Regarding ASG's
share of $9 million, the business model states that the money
will be made in three annual installments of $3 million. The
first installment was due on Dec. 1, 2007. The second installment
is due on Dec. 31, 2008 while the third installment will be due
on Dec. 31, 2009.
According to
the business model, SPE may securitize the $9 million in equity
contributed by ASG in order to have such funds available for
the project's construction cost.
The process
of securitization typically uses an SPE as the vehicle for the
finance process in order to reduce the risk of bankruptcy and
thereby obtain lower interest rates from potential lenders.
The business
model also provides that the SPE will enter into agreements for
the maintenance, operation, management and marketing of the cable
system and that the terms of the agreement "must be commercially
reasonable."
It also states
that a portion of the cable system's transmission capacity will
be available for lease at standard rates to be published by SPE
in accordance with all applicable governmental laws and regulations
to all entities licensed to provide telecommunications services
within American Samoa, including but not limited to, ASTCA.
The business
model as well as the letter of intent between ASG and the three
parties was submitted by Tuitelelepaga to the House Budget and
Appropriations Committee, which has held several hearings on
the fiber optic cable project.
Tuiteleleapaga
told House members yesterday that new developments have been
made in the Pacific Rim cable project and he requested an opportunity
to give the governor a full briefing on the developments of the
PacRim before testifying before the House committee, which is
reviewing legislation to include the fiber optic cable project
for funding from the $20 million Retirement Fund loan.
The new developments
are said to be that the parties involved have finalized financing
commitments to secure a November ship date whereby a submarine
ship will move the existing PacRim cable to connect American
Samoa with Hawaii, according to sources close to the project.
The governor,
who joined the National Oceanic and Atmospheric Administration
(NOAA) scientists on their cooperative study trip to Rose Atoll,
will return tomorrow.
Another $3 million
for the project has been appropriated from Capital Improvement
Project (CIP) funds.
Tuitelelepaga
apologized yesterday to lawmakers for any confusion they might
have regarding the projects, which has been the subject of two
hearings since early this year.
(The government
is looking at two cable projects, the PacRim and the South Pacific
Information Network (SPIN) East cable project, but it's the PacRim
project that is close to becoming a reality.)
Rep. Vaito'a
Hans Langkilde said it's not the intent of the House to hinder
progress for this important initiative but lawmakers are concerned
about the lack of supporting documents.
Laolagi had written
to Tuiteteleapaga requesting that he appear at the hearing with
copies of the letter of intent, contracts, venture agreements
and/or other documents "which reflect the nature of and
the cost to ASG for its participation in both these projects,
to include not only the initial investment, but also any continuing
obligations."
The committee
chairman also requested that the governor's attorney provide
"any documents that reflect the rate of return projected
for ASG from operation of these cable systems."
Laolagi, who
echoed similar comments by Vaito'a, said the committee will keep
in touch with Tuiteleleapaga so that another hearing can be scheduled
to receive testimony from the governor's attorney.
Reach the
reporter at la@samoanews.com.
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