Draft MOA concerning Hawaiki Cable debt raises many questions
Pago Pago, AMERICAN SAMOA — A draft copy of a proposed Memorandum of Agreement (MOA) between the ASG, the American Samoa Economic Development Authority (ASEDA), and ASTCA was recently received by Samoa News.
Although the draft indicates Jan. 31, 2019 as the MOA’s effective date, Samoa News has been unable to confirm to date if it has been signed by the parties involved, particularly if two other agreements mentioned in the document - an ”Extinguishment Agreement" and a “swap agreement” have not already been approved and signed.
Samoa News should point out that the MOA would appear to rely on these two agreements being a “done deal” at the time the MOA is signed.
The Extinguishment Agreement, if signed, terminates the American Samoa Government Employees Retirement Fund’s (ASGERF) ownership of the AS Hawaiki Cable by accepting the payments ASGERF received from ASEDA, to resolve ASTCA’s obligations to the Retirement Fund.
ASGERF’s ownership of Hawaiki Cable is not acknowledged in the MOA draft, and is identified only as an ‘investor’ in the cable system.
Under the "Extinguishment Agreement", ASTCA would pay $18.7 million to the ASGERF. This amount includes full payment of the ASGERF's $17 million investment in AS Hawaiki Cable plus a$1.7 million “fee”. The remaining $8,362,321 balance owed ASGERF is to be paid by ASTCA no later than March 31, 2019.
Samoa News was told that ASGERF board members have refused to approve the "Extinguishment Agreement" that calls for the termination of the Dec. 8, 2017 Point-to-Point Leaseback Agreement (IRU) between the Retirement Fund and the American Samoa Telecommunications Authority (ASTCA). Instead, ASGERF members have said the only way ASG can buy their way out of the IRU is to cough up $78.1 million which they reckon is Hawaiki Cable’s current market value.
(See Samoa News Friday, Feb. 8, 2019 edition for further details of the Extinguishment Agreement.)
The second agreement is a “swap” and it depends on the Office of Insular Affairs (OIA) saying yes to use of Capital Improvement Projects (CIP) funds to pay the $8 million plus remaining balance owed by ASTCA to ASGERF, and the CIP funds would be reimbursed with 2018 Bonds funds. Samoa News was told by a reliable source that as of last week Friday the feds had not approved the proposed ’swap’.
MEMORANDUM OF AGREEMENT (MOA) DRAFT
The MOA draft explains that ASTCA needed $33,700,275 to finance its acquisition of the AS Hawaiki System.
In addition, ASTCA needed $3 million for capital improvement projects to "maximize the full potential of the AS Hawaiki System (CapX Projects)."
In December 2018, ASEDA not only successfully raised bond financing of $50,325,000 (2018 series) it also disbursed $15,000,257 from the 2018 bonds directly to Hawaiki to complete ASTCA's payment obligation to Hawaiki for the AS Hawaiki System.
Between December 2018 and March 31, 2019, ASEDA disbursed $18,700,000 to ASGERF to resolve ASTCA's obligation to ASGERF in connection with ASGERF's investment in the AS Hawaiki System: $17 million for the principal investment, plus a fee of $1.7 million.
The MOA draft contends ”ASGERF agreed to extinguish its agreement with ASTCA as a result of these payments".
In a note, the draft points out that “to ensure tax exempt status of the 2018 Bonds, only $10,338,679 of the $18.7 million came from the bonds. The $8,361,321 balance came from CIP funds pursuant to a swap agreement whereby the same amount was drawn from bond funds to finance CIP projects whose CIP funding had been used for the ASTCA/ Hawaiki project.”
The MOA draft states that ASEDA secured $3 million from the 2018 Bonds to be used by ASTCA for CapX Projects; and in December 2018, ASTCA entered into settlement agreement with O3B Limited requiring a payment of $3.3 million by December 31, 2018.
Further, “On or about Dec. 31, 2018, ASEDA and ASG facilitated the payment of $3.3 million to O3B Limited on behalf of ASTCA, thereby fulfilling ASTCA’s settlement agreement obligation and resolving one of ASTCA’s major financial obligations.
“On November 14, 2017, the American Samoa Hawaii Cable, LLC, (ASH) of which ASG is a 33.3% shareholder, authorized a non-cash distribution from Net Cash Flow for its two shareholders in the total amount of $9 million. ASG’s share of the non-cash distribution — $3 million — was used to pay-off ASTCA’s $3 million debt to ASH.
(Samoa News is unaware of any bill allocating these funds — a “non-cash distribution” of $3 million — to pay an ASTCA debt to ASH passed by the Fono.)
In all, since 2017, according to the MOA draft, “ASG and ASEDA have provided $43,000,325 in direct and indirect financial assistance to ASTCA, which allowed ASTCA to acquire the AS Hawaiki System, execute CapX Projects, and resolve major debts to O3B and ASH.
“To date, ASTCA has not paid or provided a commitment for reimbursement of the financial assistance made by ASG and ASEDA.
"In recognition of the substantial financial assistance from ASEDA and ASG, the parties agree to be subjects of this MOA,” the draft says.
The MOA draft identifies the agreement is between ASG and ASEDA, and lists ASTCA’s contribution towards the debt service.
Accordingly,” ASG and ASEDA will ensure that ASTCA receives the entire amount of $43,000,324 for the purposes stated in this MOA.
“Commencing March 1, 2019 through December 2028, ASTCA agrees to make the following monthly payments towards debt service of the 2018 Bonds”. The payments are of $3 million for each year to commence in 2020.
There are no payments listed for the 2019 year.
There is also a chart for ASTCA’S payments towards the debt service of the 2018 Bonds “commencing January 1, 2010 through December 2038.” Although no amounts are shown the MOA draft notes that “All payments must be submitted to the ASG Treasury by wire transfer no later than 10 business days.”
A distribution of ASTCA profits is also identified in the MOA draft:
“Commencing October 1, 2019, all annual profits associated with ASTCA’s operations shall be distributed as follows: 15% to ASGERF; and 85% to the ASG General Fund.
"As used herein, the term 'profits' refers to all revenues of ASTCA after payment of ASTCA's: cost operations, Capital Improvement Program or reserve account, and debt payments including share of debt service for 2018 Bonds.
(Samoa News should point out that the 15% to ASGERF is not explained — especially in light of the Extinguishment Agreement and Swap Agreement being sought by ASG, ASEDA and ASTCA.)
Additional conditions are as follows:
ASTCA agrees to be subject to the certain conditions that include preparing and submitting to ASEDA by March 31, 2019 a comprehensive business plan (“CBP”) setting forth ASTCA’s strategy to become profitable in the next 2, 5, 10 and 20 years. The CBP will include a capital repair and replacement program with justification for future projects.
Furthermore, ASTCA is to develop and submit to ASEDA quarterly and annual reports on ASTCA’s performance as compared to projections in the CPB; and annual and quarterly performance and financial reports will be developed for each unit within ASTCA including, at minimum, a separate unit for broadband services.
ASTCA will "meet with ASEDA at least twice a year to discuss ASTCA operations and developments, and the semi autonomous agency is topProvide to ASEDA quarterly financial reports at least 30 days after the end of each quarter beginning with quarter ending December 31, 2018.
In addition, ASTCA "will not sell, hypothecate, mortgage, or otherwise encumber any portion of the AS Hawaiki System without first securing approval of ASEDA and ASG"; and ASTCA "will not enter into any loan agreement, debt vehicle, lease structure, or other borrowing mechanism without the approval of ASEDA until such time as end of this agreement.
The draft says the MOA commences Jan. 31, 2019 and expires Dec. 31, 2038 "unless parties mutually agree to terminate."