ONEONTA, Ala., June 11, 2018 (GLOBE NEWSWIRE) -- Otelco Inc. (Nasdaq:OTEL), a wireline telecommunication services provider in Alabama, Maine, Massachusetts, Missouri, New Hampshire, Vermont and West Virginia, announced today that it has accepted the FCC’s revised Alternate Connect America Model (A-CAM) funding and made a voluntary prepayment on its debt.
In December, 2016, Otelco elected to move from the FCC’s legacy Universal Service support to A-CAM support. Ten of the Company’s eleven RLEC’s were eligible and began receiving ACAM support in January 2017. A-CAM provides for the deployment of broadband and voice services in rural America by providing consistent support levels through 2026. The Company is required to build out its network to meet specific broadband deployment obligations, including the number of locations that are capable of specific broadband speeds within certain rural portions of Otelco’s service areas. A-CAM support is not subject to the annual reductions which apply to legacy Universal Service support from the FCC’s Budget Control mechanism. The Company is scheduled to receive a total of $71.1 million for the ten-year period under A-CAM and related legacy transition payments for the ten A-CAM companies.
The funding levels established by the FCC in 2016 did not fully fund the required model support for the Company’s Missouri property. The FCC has announced that Otelco will receive an additional $148,000 for Missouri for 2018, with the funding to begin being received during third quarter of this year. A similar amount for the 2017 program year should be received in fourth quarter of this year.
“We applaud the FCC’s action to restore a portion of the funds which were removed from the original A-CAM offers,” commented Rob Souza, President and CEO of Otelco. “Improving broadband availability and speeds for rural Americans is critical for bringing the benefits of the digital age to all Americans, and A-CAM is a significant source of funding to support our investment in expanded fiber deployment. We expect to build the incremental increase in speeds and service locations into our fiber investment plans. In addition, our application with the FCC to participate in the CAF II auction has been accepted. Once all of the applications have been received, the FCC will publish a list of approved bidders. While it is too early to know if we will be approved by the FCC, or discuss our plans for the bidding process, we believe there are specific opportunities to make CAF II work for us.”
Otelco indicated in its first quarter 2018 earnings release that it planned to make a voluntary prepayment on its debt held by CoBank, ACB, as Administrative Agent, Issuing Lender and Swing Line Lender. On May 31, 2018, the Company made a $3.0 million voluntary prepayment, lowering the outstanding loan balance to $81.8 million. At current interest rates, the additional payment will reduce annual interest cost by just under $0.2 million. No fees or penalties were associated with the prepayment, and the Company has the option to offset its 2018 excess cash flow payment due in March 2019 by the prepayment amount. The next quarterly principal payment of $1.1 million is scheduled for June 29, 2018. The CoBank agreement also provides for a reduction in the interest rate margin on the loan from 4.50% to 4.25% once the Company lowers its Leverage Ratio below 3.0, which it expects to do this year. This would represent an additional savings in interest expense of approximately $0.2 million per year.
“It’s exciting to be able to both build out our fiber network while, at the same time, improving our balance sheet through debt reduction,” continued Souza. “We are committed to deploying our cash where it can be the most productive for our shareowners. Given the current low interest rates paid on cash investments, it is much more valuable to deploy our available cash for fiber investments and debt repayment.”
Otelco Inc. provides wireline telecommunications services in Alabama, Maine, Massachusetts, Missouri, New Hampshire, Vermont and West Virginia. The Company’s services include local and long distance telephone, digital high-speed data lines, transport services, network access, cable television and other related services. With approximately 93,000 voice and data access lines, which are collectively referred to as access line equivalents, Otelco is among the top 25 largest local exchange carriers in the United States based on number of access lines. Otelco operates eleven incumbent telephone companies serving rural markets, or rural local exchange carriers. It also provides competitive retail and wholesale communications services and technology consulting, managed services and private/hybrid cloud hosting services through several subsidiaries. For more information, visit the Company’s website at www.Otelco.com.
Contact: Curtis Garner
Chief Financial Officer