OLDS — Town council has formally decided on how the transfer of specific assets will be rolled into Olds Fibre Ltd. (OFL), which operates as O-NET.
Council made that decision during its March 14 meeting. A bylaw formally implementing the decision is expected to come before council shortly.
The move not only includes assets but also the redemption/repurchase of OFL shares and a loan between the Town of Olds and OFL, valued at a total of approximately $14 million.
On Oct. 1, 2021, the Town of Olds completed a purchase and sale agreement with the receiver of Olds Institute for Community and Regional Development (OICRD).
At that time, specific assets of OICRD were rolled into Olds Fibre Ltd. (OFL), which operates as O-NET. OFL became the Town of Olds' municipally-controlled corporation (MCC) on Oct. 1, 2021 as the Town of Olds purchased all the shares of OFL from the receiver.
OFL operates as O-NET, the community-owned internet, TV and phone services provider.
In an email, Town of Olds finance director and interim chief administrative officer Sheena Linderman said council’s decision merely “formalizes how we would structure the rolling in of the assets into the MCC (OFL).”
She said as a result, OFL will owe the Town of Olds approximately $14 million.
Linderman was asked if town taxpayers are still on the hook for repayment of that $14 million after council’s decision.
“Ultimately if OFL defaults on the loan, the Town (of Olds) is still responsible for the payments on the debenture," Linderman wrote. “The difference now being that the Town of Olds owns 100 per cent of the shares in OFL, meaning we own assets not just debt.”
Option 1 was to transfer the assets for a $14-million loan. An advantage of that move would be that the Town of Olds would receive the same bi-annual payment it had previously received.
“This would have implications for OFL,” Linderman wrote, noting the loan would be for $14 million but the assets are valued at $9.1 million.
She wrote that a disadvantage of that option is that OFL would be “heavily leveraged,” which means that the total debt would likely be higher than the total value of the shares.
Option 2 was outlined above. Linderman noted that in this case as well that OFL would be heavily leveraged.
The advantage, as reported in the town’s agenda package, is not only that the Town of Olds receives the same bi-annual payment it previously received, but also that the payments from OFL to the Town of Olds would be before tax, which means the interest would be tax deductible for OFL.
Linderman said Option 3 involved a loan for $10.1 million, transferring the assets and redeeming a portion of the shares.
Under this option, the Town of Olds could create a loan document to cover debenture payments. However, $3.9 million would still be owed.
“This could potentially be covered with dividends, but there is no guarantee with dividends,” Linderman’s email said.
Once again, the concern was that OFL would be heavily leveraged.
Option 4 was to gift the assets.
Advantages would be that the Town of Olds would receive dividend payments and the debt-to-equity ratio would make OFL’s financial statements better.
The disadvantage though would be that dividends are after-tax dollars. OFL would have to record the assets as a gift which would then be taxable.
