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Home My WebLink About5E - Transfer of Ownership of Integra Telcom MEETING DATE: AGENDA #: PREPARED BY: AGENDA ITEM: DISCUSSION: ISSUES: 4646 Dakota Street S.E. Prior Lake, MN 55372-1714 CITY COUNCIL AGENDA REPORT September 8, 2009 5E Suesan Lea Pace, City Attorney Frank Boyles, City Manager CONSIDER APPROVAL OF A RESOLUTION APPROVING A TRANSFER OF OWNERSHIP OF INTEGRA TELECOM Introduction The purpose of this agenda item is to consider approval of a transfer of owner- ship of Integra Telecom, Inc.. Historv On June 15, 2009, the City Council approved a franchise agreement with Integra Telecom, Inc. for cable TV purposes. The ordinance and state statute provide that the City Council must approve any transfer or change in ownership. Current Circumstances On August 19, 2009, David Kunde, representing Integra Telecom, provided a letter and press release detailing a transfer in ownership interest for Integra Tele- com, Holdings, parent company for Integra Telecom, Inc. A copy of the letter and press release are attached for City Council review. It is therefore necessary under both the terms of the City's ordinance and State Statute that the City Council approve the transfer. Conclusion The City Council should decide if it wishes to approve the transfer, the terms of which are described below by City Attorney Pace. Minnesota Stat. Section 238.083 deals with when and under what circumstances a franchising authority must approve or deny a request to transfer a franchise. Subdivision 2 of the statute provides that "a sale or transfer of a franchise, in- cluding a sale or transfer by means of a 'fundamental corporate change,' re- quires the written approval of the franchising authority." Subdivision 1 of the statute defines what constitutes a "fundamental corporate change." A funda- mental corporate change means the sale or transfer of a majority of a corpora- tion's assets; merger, including a parent and its subsidiary corporation; consoli- dation; or creation of a subsidiary. The transaction that was described in Mr. Kunde's letter and the accompanying press release appears to be a restructuring of Integra's debt resulting in a change in the ownership of a majority of Integra's shares. "The transaction will result in certain of [Integra's] current debt holders, including Goldman, Sachs & Co., Tennenbaum Capital Partners, and Farallon Capital Management LLC con- verting their current Integra debt into Integra equity interest." www.cityofpriorlake.com l,l.?hp~,954,44!,.9~QO / Fax 952.447.4245 Mr. Kunde's letter indicates that "[a]fter the restructuring, no party will own a ma- jority of the Company's common stock or have a majority of seats on the Board of Integra Telecom, Inc. The key question not answered in the materials pro- vided, is whether the new equity shareholders will collectively control a majority of the Company's stock or collectively have a majority of seats on the Board. However, the press release represents that almost $1.3 billion dollars of debt is being reduced to approximately $600 million and further states that Goldman, Sachs & Co., Tennenbaum Capital Partners, and funds managed by Farallon Capital Management LLC will become "major new shareholders." Minn Stat. Section 238.083 Subd. 6. Transfer of Stock; controlling interest de- fined(.) provides: Sale or transfer of stock in a corporation so as to create a new controlling interest in a cable communication system is subject to the require- ments of this section. The City attorney recommends that the City Council go through the formality of acting on the request and sees no reason why the request should not be ap- proved. The Statute requires the Council to make two (2) key findings that are included in items 1 and 2 below. Procedurally, the City Council should vote to approve the "transfer" and find that: 1. That the transfer or transaction described by Integra in a letter from Dave Kunde of Integra to Frank Boyles, Prior Lake City Manager dated August 19, 2009 will not adversely affect the company's subscribers; and 2. No public hearing is necessary. 3. Execution of the necessary documentation should be authorized. These findings are incorporated in the attached resolution. FINANCIAL IMPACT: There is no financial impact associated with this City Council action. ALTERNATIVES: 1. Adopt the attached resolution approving the transfer of ownership and au- thorize the Mayor and City Manager to execute the necessary documents. 2. Take no action and provide direction to the staff and City Attorney. RECOMMENDED Alternative #1. MOTION: 4646 Dakota Street S.E. Prior Lake, MN 55372-1714 RESOLUTION 09-xx A RESOLUTION APPROVING AMENDMENT NO.4 TO THE STEMMER RIDGE DEVELOPMENT CONTRACT Motion By: Second By: WHEREAS, On June 6, 2005, the Prior Lake City Council approved the Development Contract for Stemmer Ridge with Arcon Development; and WHEREAS, On August 1, 2005, the City of Prior Lake approved the assignment of the Development Contract to Toll Brothers, Inc. from Arcon Development; and WHEREAS, Toll Brothers has completed the improvements in accordance with the Development Contract with the exception of Phase 2; and WHEREAS, Toll Brothers has provided the City with a separate letter of credit for Phase 2; and WHEREAS, The Developer has requested an extension for the completion of the Phase 2 improvements of one year to December 31, 2010. NOW THEREFORE, BE IT HEREBY RESOLVED BY THE CITY COUNCIL OF PRIOR LAKE, MINNESOTA as follows: 1. The recitals set forth above are incorporated herein. 2. The Mayor and City Manager are authorized to execute on the City's behalf Amendment NO.4 to the Development Contract for Stemmer Ridge. PASSED AND ADOPTED THIS 8th DAY OF SEPTEMBER 2009. YES NO I Haugen I Erickson I Hedberg I LeMair I Millar Haugen Erickson Hedberg LeMair Millar Frank Boyles, City Manager R\Council\2009 Agenda Reports\09 08 09\Stemmer Ri~t~fflt-~'trgMi.'t!b9R.c Phone 952.447.9800 / Fax 952.447.4245 integra' TELECOM RECEIVED 4690 c~I~9a12 JR~et S.E. Prior Lake, Minnesota 55372 Telephone: (952) 226-7000 Fax: (952) 447-6016 August 19, 2009 Mr. Frank Boyles City of Prior Lake 16200 Eagle Creek Avenue NE Prior Lake, MN 55372 Re: Integra Cable Franchise Dear Frank: I want to bring to your attention a transaction that is taking place with our parent company so that you have all the details you may need if anyone were to have questions at the City. I understand Brian Grogan, Ginny Zeller and Jeff Oxley have already spoken with John Baker regarding this issue. Integra Telecom, Inc. ("Integra"), the parent company of Integra Telecom, Holdings, which is the sole owner of Scott-Rice Telephone Co., has entered into a transaction that will result in certain of its current debt holders, including Goldman, Sachs & Co, Tennenbaum Capital Partners, LLC, and Farallon Capital Management, L.L.C., converting their current Integra debt into Integra equity interests. As a result of the conversion, current Integra shareholder, Warburg Pincus Private Equity X, L.P., will have its equity interest in Integra decreased and certain other Integra stockholders will have their equity interests, including Integra common stock, cancelled or very substantially diluted. After the restructuring, no party will own a majority of the Company's common stock or have a majority of seats on the Board of Integra Telecom, Inc. Neither the Board of Scott-Rice Telephone Co. nor its management will change as a result of this transaction. The conversion will be transparent to the City and our customers in the City as the conversion will not directly affect Scott-Rice Telephone Co, the telephone or cable system or any local employees or management. In fact, the conversion will result in a significant reduction of Integra's outstanding debt obligations from approximately $1.3 billion to approximately $600 million that will have an overall positive impact on Integra's financial statements and financial capabilities in the future. The attached article from the Portland Business Journal may help answer any additional questions regarding the reorganization. Of course, we will be happy to provide any additional information the City may desire. 1 "Your local communications partner for home and business." Minnesota Statutes Section 238.083, as well as the Prior Lake Cable Ordinance at Section 306.800, set forth the criteria for a transfer or change of control of a cable franchise. While we do not believe that City approval is required for the above described transaction, we feel that it is appropriate to notify the City of this transaction and allow the City an opportunity to consent, if the City determines that consent is required. If the City determines its consent is not required, we request a written notification of that determination. To that end, we have provided below an acknowledgement of City determination for your signature on behalf of the City. While this restructuring does not directly affect Scott-Rice Telephone Co., Integra does wish to consummate its restructuring as soon as possible. The City's formal approval of the transaction, or, in the alternative, written acknowledgement that no such approval is necessary, will be part of the documentation filed with the restructuring. For this reason, we would appreciate your prompt consideration and disposition of this matter on or before the regularly scheduled September 8th City Council meeting. Please feel free to contact me should you wish to discuss this matter further. Very truly yourf.l! d!J 4v ' (), David Kunde 1U 2 The City of Prior lake, Minnesota hereby acknowledges receiving notice of the reorganization described in the August 18, 2009 letter from David Kunde. After reviewing this matter the City has determined that formal approval by the City of this reorganization is not required under the City Code, Integra's Cable Franchise or Minnesota State law. City of Prior lake Minnesota By: Its: 3 Integra Telecom restructures debt - Portland Business Journal: \'k"mber~;: L.Qgjn Not R€{lls.tf:'wd? RenidM fvr frN! wxtm sli;(vic€'f, Bisi:NISS JOURNAl Choose Another City: I Portland ..::I PBJ Editorial Calendar Classifieds Book of Us.ts Sllbscribe and Save t ~lJ~cribe to Portland BlJ'Sir:€S5._Jour[:nJ Best mom'H.l11 hWl:inesscs Local Bil". Directory LA TEST NEWS ~()rtlan(1 ~Vfi' Ifl(;hj~tril;;'-;; Tec1:m.2Jp9Y Integra Telecom restructures debt t:lti.'-;lrj(':'h ~'r!nl E'~~u;i H;~n: "l~~ r~ss F:(~0d'S C;)mr:~2!1t'S ~qrtl<!!1iLk()_f1!l~t,llQg Find Local Businesses Faster & More Easily wiSing "I>"~the Decision Engine \v.Y'NBing com Integra Telecom Inc. has brought on three new investors in order to reduce its $1.3 billion debt to $600 million. Eh~.nn~_Jobs Ministry Health Care is Hiring Great Pay & Benefits Apply Now M:nistrYHealthnrg/Careers The investors include Goldman, Sachs & Co., Tennenbaum Capital Partners, and Farallon Capital Management LLC. Portland-based Integra provides an array of commnnications services for businesses in 11 Western states, including phone and Internet service. vv The deal converts debt into equity for the $684.2 million Ads by Google conlpany. "This agreement strengthens our business by increasing our equity base while reducing our total debt burden by more than half, thereby better aligning our balance sheet with the needs of our business and enabling us to continue to focus on our customers," said Dudley Slater, CEO ofIntegra Telecom, in a news release. "We are confident that this agreement will position Integra to be an even stronger, more profitable company moving forward." Integra is one of Oregon's fastest-growing companies. In 2007, the company purchased Minneapolis, Minn.-based Eschelon Telecom Inc., and the year before purchased Vancouver, Wasll.-based Electric Lightwave LLC. The company has roughly 2,300 employees, with about 550 of them working in Portland. The deal should close before the end of the year. In addition to regnlatory approval, the company will seek the approval of existing investors. The company doesn't anticipate any effect on its work force or continuing operations. :-)"111 r:,Yk YiHl0<:)' Buzz READER COMMENTS {OJ Comments You must be logged in to add a comment Please Login or Register. Contact the Editor Need Assistanc.:,? More Lat{~st N.,iWS.... More News Headlines Popular News Stories Related Industry News Latest News . z~mtes_~_laJ1ds:...lli.gM_Q_~fLe~, [:l1!JUng . MEill;o[ now _(,wm$l~Yi_l,ior; . F)--"liM!2_p~rL5_~'c0r.'1J)]el-;.~~ he!pJ9r sPI? ,~eIQQf:n> . 5P_9rts f\-,JnW[itx_J2fi0k1J?.fi;lY~G; '1':Q_y.~_ tc) Beav~rt.QQ . t:iQ.l!~JJ:!.fu'i;:lJi..Btg.mdafl~ Rene\.~':!'Qle Energy . S1lfY_9--y.:....QclJQ9! sI~QPI"l.r:..!r$:.QQt rQLn.~190ok_~ ever M_l;l(~$ . .8..m;JQ(t: Ru~':;i-';;n h;:;r.kF-,_5 Lise!;! 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NOr1:hW~ 11:I Qhi~lf NI:r<;illiLQ1[jcer ry1CK"n7i,~_Wdblrl(.il1e rvlegm r.;"'nt~[ifumn~ ("Jil IIii http://portland.bizj ournals.com/portland/ stories/2009/07 /20/ daily2 9 .html Page 1 of2 8/19/2009 RECEIVED AUG 1 9 2009 ri2tegra TELECOM MEDIA CONTACTS John Nee, 503-453-8084, iohn.neela:>intearatelecom.com Shannon Riggs, 503-546-7885, ?hannonla:>laneor.com INTEGRA TELECOM RESTRUCTURES DEBT Leading Business Telecom Provider Reduces Overall Debt by More than Half,' New Shareholder Commitments Strengthen Balance Sheet PORTLAND, Ore. - July 22,2009 -Inteara Telecom Inc., a facilities-based, integrated communications provider for business, reached an agreement with requisite majorities in its three primary lender groups to effect a full restructuring of the company's balance sheet. According to the agreement, all of Integra's senior secured second lien operating company debt and unsecured parent company debt will be converted into common equity. As a result, the company's overall debt will be reduced from almost $1.3 billion to approximately $600 million. This new debt level translates to 2.7 times Integra's 2008 operating EBITDA (earnings before interest, taxes, depreciation and amortization) of $225 million. Additionally, Integra will welcome Goldman, Sachs & Co., Tennenbaum Capital Partners, and funds managed by Farallon Capital Management LLC as major new shareholders. These shareholders join Warburg Pincus alongside other Integra investors. "This agreement strengthens our business by increasing our equity base while reducing our total debt burden by more than half, thereby better aligning our balance sheet with the needs of our business and enabling us to continue to focus on our customers," said Dudley Slater, CEO of Integra Telecom. "We are confident that this agreement will position Integra to be an even stronger, more profitable company moving forward." The nation's economic downturn and increasing unemployment have resulted in recent operating trends where new installations are offset by higher economic churn, causing flat revenue trends. In response to current operating conditions, Integra initiated negotiations with its lenders earlier this year to better align the terms of its loans with today's economy and the company's business strategy. Integra is the largest competitive local exchange carrier based in the Western U.S., generates the highest levels of operating cash flow, and is recognized for its industry-leading, locally staffed customer service. This agreement focuses solely on the restructuring of the company's balance sheet, and the management team anticipates no impact on the company's workforce or ongoing operations. "We have been investors in Integra, and the competitive telecommunications industry, for many years. Integra stands out as one of the top performing companies in this industry, and we are pleased to support this transaction which creates a stronger balance sheet better suited to the current economic environment," said Michael Leitner, Managing Partner, Tennenbaum Capital Partners. "Along with all the new shareholders, we share a conviction to grow and establish Integra Telecom as the premier competitive telecom provider in the Western U.S." "Despite the recession, Integra has remained an operating-free-cash-flow-positive company and this restructuring positions Integra as one of the highest operating-free-cash-flow producing companies in its industry and adds to their competitive advantage, leaving them with what will now be one of the lowest levels of debt among their peers," said Carlyn Taylor, Senior Managing Director of FTI Capital Advisors, who advised the company in the restructuring process. "Our strengthened balance sheet allows us to focus on our core business objectives: focusing on our customers, investing in our network and supporting innovative new products. This agreement ensures our continued ability to invest cash profits back into our network and services for the long-term benefit of our customers." said Slater. "Integra closed the first half of 2009 recording two of the company's best months in its history, as measured by our new account acquisitions, and we look forward to continuing that momentum in the months and years ahead." The restructuring transaction is conditional on state and federal regulatory approvals. The company will also be conducting a full vote solicitation of smaller holders of the company's debt, who are expected to support the transaction. Integra anticipates the transaction to be completed by the end of the year. About Inteara Telecom Inteara Telecom Inc. provides voice, data and Internet communications to thousands of business and carrier customers in 11 Western states, including: Arizona, California, Colorado, Idaho, Minnesota, Montana, Nevada, North Dakota, Oregon, Utah and Washington. The company owns and operates a best-in-class fiber-optic network comprised of metropolitan access networks, a nationally acclaimed tier one Internet and data network, and a 4, lOO-mile high-speed long haul network. The company has earned some of the highest customer loyalty and customer satisfaction ratings in the telecommunications industry. Integra Telecom and Electric Lightwave are registered trademarks of Integra Telecom Inc. For more information, visit www.intearatelecom.com. ###