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City of Missoula, Montana Item to be Referred to City Council Committee Committee: A & F Item: Resolution Approving The Proposed Transfer of Control of Bresnan Communications, LLC to BBHI Holdings LLC, an entity wholly owned by Cablevision Systems Corporation Date: October 14, 2010 Prepared by: Brentt Ramharter Initiated by: Brentt Ramharter Action Required: Approve the Proposed Transfer of Control of Bresnan Communications, LLC to BBHI Holdings LLC, an entity wholly owned by Cablevision Systems Corporation Recommended Motion: I move the City Council "Approve the Resolution Addressing the Proposed Transfer of Control of Bresnan Communications, LLC to BBHI Holdings LLC, an entity wholly owned by Cablevision Systems Corporation" Timeline: Referral to committee: October 14, 2010 Committee discussion: October 20, 2010 Deadline: Have council approve ASAP. Background and Alternatives Explored: Bresnan Communications, LLC, a Delaware limited liability company (“Bresnan”) operates a cable system in the City of Missoula Montana pursuant to a November 3, 2003 Franchise Agreement adopted by the City as Ordinance No. 3237 (“Franchise”). Under the Franchise Bresnan is authorized to operate a cable television system (“System”) that provides cable services and other communications services in the City. Bresnan has requested the City’s approval of the proposed change of control of Bresnan (the “Transaction”) to BBHI Holdings LLC, a Delaware limited liability company and an entity indirectly wholly owned by Cablevision Systems Corporation, a Delaware corporation (collectively “Cablevision”). On or about July 2, 2010, Bresnan and Cablevision submitted to the City FCC Form 394 “Application for Franchise Authority Consent to Assignment or Transfer of Control of Cable Television Franchise,” (the “Application”) along with such other exhibits as provided therewith. Moss & Barnett, PA has reviewed selected financial information that was provided by Bresnan and Cablevision to assess the financial qualifications of Bresnan, as an entity indirectly wholly-owned by Cablevision following completion of the Transaction. Pursuant to the Franchise the Transaction is prohibited without the written consent of the City. Federal law provides the City with 120 days to examine the Transaction and the legal, technical and financial qualifications of Bresnan resulting from the Transaction. ---PAGE BREAK--- At the request of the City, Moss & Barnett has reviewed selected financial information that was provided by Bresnan and Cablevision to assess the financial qualifications of Bresnan following completion of the Transaction. Section 8.1 of the Franchise requires a $200,000 performance bond to be posted by Bresnan until the system upgrade has been completed. It is our understanding that the upgrade is now completed and Bresnan has no performance bond in the City. In addition, Section 8.2 of the Franchise allows the City to demand a Letter of Credit from Bresnan in the sum of $25,000 in the event the City “alleges” a violation of the Franchise. The Letter of Credit is only posted by Bresnan once the City issues a written notice of violation. Therefore, the City has no real financial security available should the “Grantee” lack the financial resources to comply with the terms of the Franchise. However, pursuant to Section 9.5 of the Franchise (See section 2 of this Report for relevant Franchise language), the City has the right to impose a “corporate guaranty” when considering a change of control of the Grantee under the Franchise. In order to ensure Bresnan’s compliance with its Franchise obligations and since Moss & Barnett have based a significant part of their analysis on the Financial Statements of Cablevision, the parent entity, it was recommended that the City consider conditioning any approval of the proposed change of control on the delivery of a guaranty from Bresnan Broadband Holding, LLC in a form reasonably consistent with Attachment A to the sample resolution.1 After closing of the Transaction, Bresnan Broadband Holding, LLC will essentially hold all the franchises operated by Bresnan and affiliated companies in Montana and other states (total of 300,000 subscribers). Obtaining a corporate guaranty from Bresnan Broadband Holding, LLC will provide the City with additional security should the Grantee under the Franchise lack sufficient financial resources to meet its Franchise obligations. Based on the analyses completed by Moss & Barnett, it is recommended by the city's consultant that the City review the attached Report, listen to any additional public comment or information, as necessary or appropriate, and undertake all necessary action to pass and adopt a resolution approving the Transaction in a form substantially similar to the attached resolution. Financial Implications: This must be approved to allow Bresnan Communications to be sold to Cablevision Systems Corporations. Attachments: Resolution-revised Change of Control Report 1 The proposed resolution is virtually identical to the sample resolution included as Exhibit D to the Franchise.