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Burlington Telecom strikes a deal with local investor - WCAX.COM Local Vermont News, Weather and Sports-

Burlington Telecom strikes a deal with local investor

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BURLINGTON, Vt. -

A local businessman is stepping in to help Burlington pay off a legal settlement with its former leaseholder, Citibank. It is a complicated deal to help keep the struggling Burlington Telecom afloat while the city continues to look for a buyer.

Mayor Miro Weinberger, D-Burlington, signed a contract Thursday afternoon that he says is the next major milestone in digging Burlington Telecom out of a massive hole.

"Basically the city was faced with $51 million in debt with an asset that everyone that worked on this concluded was not worth $51 million. So we had to find a path forward," said David Provost, a member of the Burlington Telecom Advisory Board.

That path is bridge financing. The $33 million lawsuit with Citibank, was reduced to a $10.5 million settlement, which the city was running out of time to pay.

Local investor Trey Pecor and the Merchants Bank have committed to be bridge financers for the city, essentially loaning the city the $6 million it needs to meet its obligation to Citibank.

This financing structure will be in place for three to five years and the city will make monthly payments of about $40,000 to Pecor. Officials say the ultimate goal is to build revenues within Burlington Telecom to make it more attractive for sale. Consultants Dorman and Fawcett have been trying to find a buyer for two years.

"My future plans are being a bridge financer. We have 33 months to let Dorman do their thing. We are going to sell this thing. That's what the city wants and that's what I want. I don't have plans past three years. I don't want the city to default on this, I have no interest in running it," said Pecor.

In the meantime, the contract allows the city to continue to run and have rights over the utility company, but as for actual ownership, technically Pecor will own all assets, and therefore own Burlington Telecom.

The mayor says this bridge financing is a necessary milestone to sell Burlington Telecom as a whole package down the road, to help recoup the millions owed to Citibank and taxpayers.

"If and when there is a future sale, there is a waterfall of how the funds work. The first thing that happens is that the Pecor/Merchant lease, the principal remaining on that will be paid lease, and it's going to be an amortizing lease -- the principal of that will be paid down to zero," said Weinberger.

If and when Burlington Telecom is sold, the city will first split all proceeds 50/50 with Pecor, and then the remaining proceeds will be split in half again with Citibank. A sale official said they hope that will happen within a few years.

The Pecor/Merchants Bank deal was one of two options that the city council chose. There were some questions surrounding the fact that Pecor has given money to the Mayor's Campaign, but the Mayor says this deal was only picked because of it's financial benefits to the city. 

The contract was signed Thursday, but it must be formally approved by the Public Service Board Friday. 

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