Agenda Packets - 1986/10/13 - Laserfiche WebLink

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North Central was an additional $8.5 million of senior debt financing that would be obtained in the year 1992. A review of the Request For Information indicated the existence of no financing commitments that would cover the $2.9 million shortage in cumulative cash flow nor the $8.5 million of additional senior debt financing (total cash shortage of $11.4 million). Second, a review of the loan commitment letter from the Bank of Boston for the $50 million senior debt investment calls for certain financial ratios orrtests to be met in order for North Center to maintain its loan. balance with the Bank of Boston. The loan commitment letter indicates that the total debt to operating cash flow ratio in each of the years one and two must be no higher than 6.5 to 1 and 5.75 to 1, respectively. In performing these calculations or. North Central's pro formas included in the Request For Informa- tion, it is noted that ratios of 8.0 to i in year one and 5.87 to 1 in year two exist. This indicates, based upon the pro formas, that in year one and two North Central will not be in compliance with the loan commitment with the Bank of Boston. Additionally, the operating cash flow to debt ser- vice ratio is also not met in year one when the ratio is required to be at least 1.1 to 1.0. North Central's ratio of operating cash flow to debt service in year one is 1.07 to 1. This indicates, again, that North Central would not be in compliance based upon our understanding of the finan- cial test as described in the Bank of Boston loan commitment letter. It should be understood by the Commission that the above concerns result in the conclusion that the financial pro formas as presented by North Central do not represent an economically viable plan. To this previous conclusion, Mr. Hauser took exception based on insufficient communication of North Central's future borrowing capacity to meet the per- ceived revenue shortfalls and an alleged misapplication of the Bank of Boston financial ratios. The Commission subse- quently continued the public hearing and directed its staff to further investigate North Central's claims. The follow- ing is a summary of our investigation as determined through direct conversations with North Central management and fur- ther documentation supplied by North Central. First, in response to the September 11, 1986 memorandum concluding that the financial pro formas as presented do not represent an economically viable plan, North Central manage- ment has taken the position that despite the pro formas indicating cash shortfalls, significant borrowing ability will exist in the future based upon the level of operating cash flows generated from the systems. North Central has attempted to demonstrate and confirm the additional borrow- - 2 -