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HomeMy WebLinkAboutOB 3 TRANSFER CABLE 09-17-84OLD BUSINESS NO.. 3 9-17-84 Honorable Mayor & Members of the City Council William Huston, City Manager Extension of Consent for Transfe~ of the Cable Television Franchise to United Cable Television Corporation of Southern California The City Council, in your last action regarding the transfer of the cable television franchise, required that Communtcom and United Cable complete the acquisition by September 18, 1984. Construction of the system was completed by the required date of June 30, 1984. Per the attached letter, United Cable is requesting an .extension of time, to December 31, 1984, for the City's consent to the transfer of the franchise. United Cable is also requesting (as the agent for Communicom), the release of the construction bond to be replaced by a franchise bond of $50,000. The City Attorney's office has reviewed, this request and finds it to be in order. Staff feels the request for an extension of time to finalize the acquisition of Communicom is a policy matter and subject to the discretion of the City Council. The City Attorney's office will have a resolution prepared (in lieu of the resolution referred to in the attached letter) for City Council approval in the event you authorize the extension. William Huston, City Manager Attachment united cable television corporation RECEIVED SE[: 1 2 1984 CITy MANAGER September 10, 1984 HAND DELIVER Mr. Bill Huston City Manager City of Tustin 300 Centennial Way Tustin, California 92680 Dear Mr. Huston: This letter will update you on the completion of construction of the cable television system in Tustin and the status of the acquisition of CommuniCom by United Cable of Southern California, Ltd. ("UCSC"). The letter will also request a revision to your previous approval for the hypothe- cation of the cable television franchise in Tustin and an extension of time for the City's consent to the transfer of the cable television franchise to UCSC. The City of Tustin required that CommuniCom complete construction of the entire cable television system in Tustin by July 30, 1984. [See Section 1.a. of Resolution No. 84-51.] I am pleased to inform you that this deadline has been met. During the months of June and July, 1984, CommuniCom completed construction of 1,558 feet of underground plant and 1,086 feet of aerial cable plant in seven different areas in Tustin. The areas constructed, the length of cable installed and the number of dwellings affected are as follows: Location Footage Built Dwellings Affected Yorba and Bonner 245 ft. underground 32 Medford and 241 ft. aerial 15 Heinstridge Lucero Way 130 ft. underground 29 Denver Technological Center · 4700 South S~racuse Parkway · Denver, Colorado 80237 · (303) 779-5999 Mr. Bill Huston September 10, 1984 Page 2 Andrew St. and Estero Circle 200 ft. underground 56 Orange and San Juan 923 ft. underground 73 Sixth East of~ E1Camino (Tustin Square) Sixth East of E1Camino (Tustin Gardens) 845 ft. aerial 60 ft. underground 56 101 Construction of this 2,644 feet of aerial and underground plant allowed CommuniCom to connect previously constructed, but heretofore unenergized, cable television plant in Tustin with a source of energy, so that a total of 13,126 feet of cable television plant was energized as a result of the additional construction of only 2,644 feet of cable plant. The only area in Tustin that is not constructed is the Enderle Gardens area, which has refused to give CommuniCom the authority to install cable in its privately owned streets. (Enderle Gardens is specifically exempted from construction under Section' 1.a. of Resolution No. 84-51.) With construction of the cable television system now having been completed, we are hopeful of increasing subscribers and subscriber revenues in Tustin. I should note that CommuniCom's gross receipts from cable television operations in Tustin increased by nearly 300~ from the first quarter to the second quarter of 1984. Also, as required by Section 7 of Ordinance No. 905, CommuniCom has made two quarterly payments of its franchise fee in 1984 so that the City of Tustin is receiving its franchise fee much earlier than under the previous arrangement when the City received ~ franchise fee only once a year. As you will recall, UCSC is the limited partnership formed by a subsidiary of United Cable Television Corporation to acquire the cable television system in Tustin and several other jurisdictions. United intends to arrange equity financing for the acquisition through an offering of limited partnership interests in UCSC. United anticipates that the offering will commence in the autumn and will close by the end of this year. After considerable negotiation and. Mr. Bill Huston September 10, 1984 Page 3 dialogue, United Cable Television Corporation, UCSC and the general partner of UCSC signed a definitive Agreement of Purchase and Sale with CommuniCom and Nielson Enterprises Inc. (the parent corporation of CommuniCom) providing for the sale of the system in December, 1984. The Agreement will not become effective and binding until the prior owners of the cable television system, who are now creditors of CommuniCom, have also consented to this arrangement. We understand that these persons are currently reviewing the agreement provided to them, and we understand that they intend to respond in the very near future. Assuming their agreement, we believe that the transaction will proceed expeditiously and that all the express conditions to closing can be satisfied by the end of the year. UCSC proposes to buy the stock of CommuniCom and then liquidate CommuniCom and its subsidiaries so that UCSC will hold CommuniCom's assets directly. The financing of the proposed acquisition of CommuniCom by UCSC has changed since it was last explained to the City. Initially, UCSC planned to fund a portion of the purchase price through loans advanced by a group of major banks to be led by The First National Bank of Boston and by UCTC of Southern California, Inc., the general partner of UCSC. The bank loan was to be secured by hypothecating UCSC's assets, including the franchises, as security for the loan. Recent discussions have changed the financial structure of the acquisition. The lead bank will now be Mellon Bank of Pittsburgh, Pennsylvania. The First National Bank of Boston will remain a lender to UCSC, but in a different manner. UCSC will hypothecate its assets, including each of its cable television franchises, as security for the bank group, as well as for other lenders making the loans described below, that will allow UCSC to finance the acquisition and the expansion, improvement and operation of the cable television systems. The loans that are involved and the amount of each are as follows: 1. A group of banks led by Mellon Bank will loan an estimated maximum amount of $120,000,000 to UCSC. As mentioned, this loan will be secured by UCSC's assets, including the franchises. Mr. Bill Huston September 10, 1984 Page 4 2. UCTC of Southern California, Inc., will loan a principal amount of up to $5,000,000 to UCSC. UCSC will secure this loan by granting a lien on UCSC's assets, including the franchises, junior in priority to the lien securing the bank loan. 3. The First National Bank of Boston, Security Pacific National Bank, United Cable Television Corporation and Niel~on Enterprises Inc. ("NEI"), the parent corpora- tion of CommuniCom, will lend UCSC up to a maximum of $26,000,000 in the aggregate if the funds are necessary for the payment of the bank loan and under other condi- tions. The loan from these entities will also be secured by a lien on UCSC's assets, including the franchises, junior in priority to the liens securing the bank loan and the general partner's loan. 4. UCSC will pay part of the purchase price for CommuniQom's stock in the form of promissory notes with an aggregate principal amount of $11,265,000. UCSC will deliver the notes to NEI at the closing, and NEI in turn will assign the notes to The First National Bank of Boston, Security Pacific National Bank and other holders of CommuniCom's long-term indebtedness. UCSC has agreed to secure these notes by a lien on its assets, including the franchises, junior to all the liens referred to above. United believes that the financial structure of the acquisition, in its revised form, will be sufficient to provide UCSC with debt and equity financing sufficient to fund the acquisition of CommuniCom and the improvement, development, expansion and operation of the cable television systems to be owned by UCSC. When Ordinance No. 905 was passed, the City did not include any provision specifically referring to the hypothecation for the bank group. The reason for this omission was that the City interpreted Section 25-0-90(d) Tustin City Ordinance No. 597, as amended by Section 4 of Ordinance No. 905 (stating that "no such consent [by the City Council] shall be required for [a] transfer in trust, mortgage or other hypothecation [of the cable television franchise], in whole or in part, to secure an indebt- edness''), to mean that the Council does not need to of Mr. Bill Huston September 10, 1984 Page 5- specifically consent to any hypothecation of a cable televi- sion franchise. Although the City believes that Section 4 of Ordinance No. 905 renders it unnecessary for the City to consent to any hypothecation, we are requesting that the City indicate that it does not have any objections to the hypothecations described above. In Resolution No. 84-51 the City of Tustin extended to September 18, 1984 the time for the expiration of the consent to the transfer of the franchise to UCSC. Inasmuch as it now appears that the t-ransfer will take place in December, we request that consent be extended to December 31, 1984. I am also authorized to inform you that CommuniCom, the current franchise owner, joins in these requests. Section 13 of Ordinance No. 905 requires CommuniCom to deposit $t00,000 cash or file a bond in the same amount for the duration of construction. When construction is completed, the $100,000 deposit or bond is released, to be replaced by a $50,000 bond. Section 13 deleted all require- ments for any subscriber's bond. As a result of a number of differing bonding ~equirements in effect in Tustin during the past few years, CommuniCom currently has in effect 'the following cash deposit and bonds for the City of Tustin: 1. A cash deposit of $55,000.00 held in a joint account in the names of the City and the franchisee at Wells Fargo Bank (Account No. 6995-000064-001); 2. A Franchise Bond for $100,000.00 issued by Firemen's Fund insurance Company (Bond No. SLR 7095208); 3. A Franchise Bond (Subscribers) for $5,000.00 issued by Firemen's Fund Insurance Company (Bond No. SLR7092936); and 4. A Franchise Bond for $5,000.00 issued by Firemen's Fund Insurance Company (Bond No. SLR 7092937). Since construction of the Tustin cable television system is now complete, as CommuniCom's manager, we request that the City release the $55,000 cash on deposit, the Mr. Bill Huston September 10, 1984 Page 6 $100,000 bond and the two $5,000 bonds as soon as CommuniCom delivers to the City a new franchise bond for $50,000. In order to expedite approval of the requests outlined above, we are enclosing a form of Resolution which extends the expiration date for the consent for the transfer of the franchise to UCSC to December 31, 1984, indicates that the City does not object to the hypothecations as security for the loans described above, and releases the $55,000 cash deposit and the three bonds upon delivery of a $50,000 replacement bond. We would request that you have this Resolution reviewed by your counsel and placed on the City Council's agenda for their scheduled meeting of Monday, September 17, 1984. CommuniCom and United would appreciate your expeditious consideration of the Resolution in order to permit the acquisition to proceed under the timetable des- cribed above. Representatives of United and CommuniCom will be pleased to provide any additional information that you may require. Thank you for your kind attention to this matter. Very truly yours, Robert D. Towe Vice President - Operations United Cable Television Corporation Acting Agent for CommuniCom SFM6J:wpc cc: Mayor Ursula Kennedy Hon. Frank Greinke Hon. Ronald Hoesterey Mr. Robert Ledendecker Ms. Monda Buckley James G. Rourke, Esquire