Despite the approximately $20 million in new funding the bond issue will provide, the question likely will remain for several more years whether UTOPIA and its ambitious plan to offer a high-speed fiber-optic connection to all homes and businesses in 11 Utah communities will be successful.
UTOPIA's board of directors this week agreed to issue up to $189 million in bonds, part of which will be used to retire approximately $135 million in previously issued notes that carry a higher short-term interest rate.
The proposed bond issue, after all the fees and other expenses are paid, should give UTOPIA another $20 million to continue the construction of its massive fiber-to-the-home network.
"We need to get a financial structure in place that will support our business model," UTOPIA Chairman Alex Jensen said. "This [bond issue] is designed to make ensure that UTOPIA will be a success."
UTOPIA was born in 2002 amid a sense of frustration by community leaders that the state's private telecommunication providers were too slow in bringing high-speed Internet and other services to their cities. In all, 18 municipalities organized to explore construction of a state-of-the-art fiber-optic system that could serve all the homes and businesses within their boundaries.
Eventually, community leaders in 11 cities - believing such a system would be a sure-fire success - pledged $202 million in tax money over 20 years to partially back UTOPIA's bonds so it could get a more reasonable interest rate on a project Wall Street viewed as junk-bond risky. With the cities pledging to back repayment of the bonds, the new debt is expected to carry an interest rate of around 6 percent.
UTOPIA's bond counsel, attorney Laura Lewis, said that along with providing a break on interest rates the new issue also will be structured to extend the payback to 32 years. And that will be better for UTOPIA, she said.
"We're structuring this so that debt will rise over time as UTOPIA's revenues increase," she said. "It doesn't take a rocket scientist to know that the real challenge [meeting debt obligations] come in the early years" of operations.
Still, extending the payback period on the bonds to 32 years will mean that UTOPIA will have to go back to its 11 member cities that earlier pledged tax revenue to support the system for 20 years and ask that those communities extend their guarantees for 32 years.
The total amounts that the cities have guaranteed, however, will remain the same, Lewis said.
Paul Isaac, the assistant city manager for West Valley City, said he expects there will be a lot of scrutiny of UTOPIA's request from City Council members.
"We have two members on our board who weren't there when the initial pledge was made," he said. "So I expect we'll be seeing a lot of Laura Lewis over the next little while."
Lewis said she expects the bonding to be completed by mid-May.
Pointing to UTOPIA's continuing losses and its failure to meet any of its earlier revenue and customer projections, Royce Van Tassell of the Utah Taxpayers Association questions whether UTOPIA will be able to sell its bonds, also pointing to iProvo, that city's fiber-optic network.
"You'd expect that bond buyers would eventually want to be paid back and given the losses we've seen so far with UTOPIA and iProvo that is questionable," he said.
steve@sltrib.com
