Burlington officials settled a multi-million dollar lawsuit against Burlington Telecom last week, clearing the way for the city’s plan to sell the public utility.
Citibank sued the Burlington Telecom in 2011 after it failed to repay $33.5 million in loans to the bank.
Aside from seeking to recover money, Citibank’s lawsuit also threatened the high-speed Internet infrastructure Burlington Telecom uses. The settlement [PDF] calls for monthly payments of at least $50,000 and 50 percent of the revenue the city collects in the future sale of the company.
With a clear path to repayment, City Council President Joan Shannon said the settlement was a relief.
“The big dark cloud that has hung over the city of Burlington for four years is breaking up,” she said, “and the sun is beginning to shine through again.”
The Citibank lawsuit came after it became public in 2009 that widespread mismanagement in the city’s finances put Burlington Telecom in jeopardy. Officials had diverted $17 million from the city’s general fund into the ailing utility to keep it going – money that still hasn’t been paid back.
Mayor Miro Weinberger said the lawsuit has been his “top priority” since taking office. Burlington voters approved a $9 million “fiscal stability bond” in 2012 to get the city’s finances back in order after the Burlington Telecom scandal.
The new settlement details the beginnings of the city’s plans to sell the majority share of the company to a “private entity.”
Weinberger said the city was in “detailed” conversations with lenders for $6 million in “bridge financing” that will fund the utility until it is sold, but the mayor didn’t name any prospective buyers or a possible sale amount for the company.
Weinberger and other city officials spoke very positively about Burlington Telecom’s financial situation, but all seemed convinced that selling the utility is the right choice.
“I think there’s been a broadly held sense for a long time that ultimately to compete in this quickly evolving, capital-intensive telecommunications space, that a private partner would ultimately be an important part of Burlington Telecom’s long-term success,” Weinberger said.
With the settlement inked, credit rating agencies like Moody’s – which downgraded Burlington’s rating to near junk-bond status after 2009’s revelations – are likely to take another look at the city’s financial status.
“Today, Moody’s please take notice,” said City Councilor Karen Paul. “The city of Burlington has worked harder than perhaps any city in America to face our challenges, and we are confident that just as our fiscal stability bond started us on the road to financial recovery, today this settlement will have the added benefit of repairing the city’s credit rating, which will mean lower interest rates and savings for taxpayers.”