Rural Broadband Access Loan and Loan Guarantee Program

1
Rural Broadband Access Loan and Loan Guarantee
Program

• By
• Farwa Naqvi
• Broadband Team

2
Lending Levels FY 04

• 4
• Cost of Money (Mandatory)
• Cost of Money (Discretionary)
• Guaranteed

• 80,000,000
• 1,453,163,367
• 598,101,651
• 80,000,000

3
Broadband Update

• 90 loan applications received
• 12 Approved - 134,116,108
• 11 Complete - 120,904,972
• 31 Incomplete - 396,178,176
• 21 Ineligible - 300,921,269
• 15 Incomplete/Returned - 192,781,234

4
Incomplete/Returned Applications

• Major sections of the application were missing or
  not adequately addressed
• Market Survey
• Business Plan
• System Design
• Financial Forecast
• Environmental Report
• Legal Notices

5
Ineligible Applications

• Reasons
• Credit Support
• Technology
• Service Area
• Services

6
Credit Support

• 20 of the requested loan amount
• Cash
• Undepreciated assets
• Licenses
• Letters of credit

7
Letter of Credit (LOC)

• Terms for the Bank 
• Investor to enter into LOC to benefit Broadband
  Borrower and Government. The LOC must be secured
  by assets other than those of the Broadband
  Borrower
• LOC to be irrevocable permitting unconditional
  draws by the Broadband Borrower and the
  Government.
• LOC to be in effect for 5 years 

8
Letter of Credit (cont.)

• Terms for the Borrower (Included as conditions in
  the loan agreement)
• LOC must be in effect for the shorter of 5 years
  or until the Borrower achieves an equity level of
  20
• Borrower agrees to draw on the LOC if the
  quarterly financials show a negative cash flow
• Borrower agrees to draw on LOC when directed by
  RUS
• Failure to maintain the LOC will be an Event of
  Default

9
Cash Requirement

• Only applicable to start-up companies and
  existing telecommunications entities that do not
  have positive cash flow for the previous two
  calendar years preceding the date of the
  application
• These entities must have cash to cover the
  operating expenses for the first full year of
  providing service (Interest expense included)
• Accounts Receivables cannot be used to satisfy
  the cash requirement

10
Cash Requirement (cont.)

• If the cash provided to meet the 20 credit
  support requirement is sufficient to cover the
  first years operating expenses, then the cash
  requirement has been satisfied as long as the
  applicant is not proposing to use the cash for
  plant investment in the first year
• If the cash needed to cover the first years
  operating expenses exceeds the minimum 20 credit
  support requirement, then the applicant has to
  come up with cash for this amount, which in
  essence, also satisfies the credit support
  requirement

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Market Survey

• Community level
• Evaluate the needs of the potential subscribers
  and their interest in services that the applicant
  is proposing to provide
• Basis for the subscriber projections and service
  rates that is used to develop the financial
  forecast

12
Market Survey (cont.)

• The survey instrument should be designed to
  capture the following information
• Age and income levels
• Existing services (voice, video, data etc.) and
  rates
• Subscribers interest in the price points and the
  services to be offered

13
Subscriber Projections

• Developed from market survey
• Yearly basis for 5 years
• Broken down by each community and type of service

14
Voice Services
15
Data Services
16
Video Services
17
Financial Forecast

• Inclusive of all operations of the applicant
• Total subscribers numbers based on subscriber
  projection tables for each type of service
• Service rates to be charged based on the results
  of the market survey
• Detailed assumptions for every revenue and
  expense item on the income statement

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Budget

• Breakdown of costs
• Site basis for wireless systems
• Community/Exchange basis for wireline (HFC, FTTP,
  DSL) systems
• Brief description of the budget item, the unit
  cost, quantity, and total cost

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Network Diagram

• Block diagram specific to the network being
  proposed
• Points-of-connections with the ISP, PSTN, and
  video content providers
• Flow of traffic through the network from the back
  bone to the end user

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Contact Information

• Farwa Naqvi
• Broadband Team
• [phone]
• Farwa.Naqvi_at_usda.gov