Broadband stimulus and vendor financing

Debt markets may be thawing for telecom service providers. (Just this week, for example, Equinix and Terremark raised $325 million and $400 million, respectively, in new debt). But for many rural broadband providers, the doors to the country’s financial markets aren’t yet open, which poses a quandary for those hoping to snag federal broadband stimulus funds: How do they raise the capital required to undertake the broadband projects they hope will win them stimulus awards?

One way to do it — though not necessarily an easy way — is with the help of broadband equipment vendors, said Tim Nulty, chairman of ECFiberNet, the East Central Vermont Community Fiber Network.

In a recent Webcast addressing broadband stimulus, Nulty — no stranger himself to the rigors of raising funds for rural broadband deployment — said his organization is currently trying a new model of vendor financing to get sufficient credit for a proposed broadband buildout.

Traditional vendor financing, which typically extends equipment purchases over three- to five-year periods, is not likely to be helpful for these projects because such deals put pressure on cash flow in the early stages of a buildout, Nulty said. Furthermore, they only finance the equipment itself.

“A bunch of boxes sitting in a warehouse doesn’t get a network built,” he said.
Instead, Nulty is trying to get equipment vendors to finance a portion of the entire project in order to secure a credit rating that will open doors to the debt markets.

“Instead of [the vendor] saying, ‘You’re going to buy $3 million worth of my boxes; I’ll finance $3 million of it on three-year terms,” [they would] say, ‘Look, the whole project is $40 million; I’ll provide $3 million of some kind of backing to the whole project, provided I’m guaranteed you spend $3 million on my gear,’” Nulty said. “That kind of concept requires innovation; it requires a lot of thought and hard work. But it’s not impossible. Remember, vendors have a hard time selling now, too. Anything that enables them to sell gear for hard money is attractive to them. That innovative way of improving otherwise unsaleable debt is promising, but it ain’t easy at all. It’s a way we’re pursuing.”

E-mail me at ed.gubbins@penton.com.