BRISTOL, Va. — A new report shows net proceeds from BVU’s sale of its OptiNet division generated a $2.9 million loss, meaning the city may receive no money from the $50 million transaction.
On Friday, accountants from Blackburn Childers & Steagall — BVU’s contracted audit firm — presented their findings to the BVU Authority board in a five-page report. Mayor and BVU board member Kevin Mumpower requested the report last fall, and BCS was selected in December to review all financial aspects of BVU’s sale of its telecommunications division to Sunset Digital of Duffield. The deal required two-and-a-half years to complete and closed last August.
City officials expected — once it was done — to share in some of the proceeds due to the language of a 2009 transition agreement approved by City Council and BVU’s board at that time. That document specifies that the city and BVU would split evenly the proceeds of a sale of BVU assets, after all debts were satisfied.
“We did a lot of detailed review of invoices, review of supporting documents, things of that nature,” auditor Chad Kisner told the board Friday. “The outcome of this is we determined the resulting net proceeds from the sale are a negative $2.9 million. In addition to where this landed at the negative $2.9 [million], there are additional items that very well could support reducing that number further, beyond $2.9 [million].”
City Manager Randy Eads attended the meeting and then met with BVU officials.
“The numbers appear reasonable to us, bearing in mind, this report is not an audit,” Eads wrote in an email. “We continue to look forward to discussing with BVU how the sale of the OptiNet division should be allocated based upon the transition agreement that was entered into between the city and BVU in November 2009.”
Eads said Friday’s report “is not the end of the discussions” but the beginning of “how the sale of OptiNet and any subsequent return of funds to the city will benefit the citizens of the city of Bristol.”
The report shows $13 million came right off the top. That included $2 million cash retained by the buyer as part of a negotiated amendment to the agreement, a $5 million promissory note to the Virginia Tobacco Commission and a $3.76 million wire transfer to the VTC. A portion of those monies was then sent to the Cumberland Plateau Planning District Commission and its Cumberland Plateau Co., a former BVU partner in its four-county service area.
Another $1.23 million went to the federal Economic Development Administration as repayment for its funding, and $1 million was placed in escrow for two years — in case there are any future claims. That left a balance of just over $36.92 million.
BVU spent $22.58 million to pay off the bond defeasance costs of past borrowing but received $1.15 million in escrow earnings. BVU also paid more than $538,000 to resolve employee leave disparity, as approved by its board.
The report also includes $13.7 million plus $794,000 for interest of internal debt owed by OptiNet to BVU’s electric division, but BVU President and CEO Don Bowman said Friday that hasn’t been paid yet.
“It’s important to note we have not paid off the internal debt yet,” Bowman said. “We want to give the city an opportunity to review and make any requests or responses to it before we do anything. This report is just one piece of the puzzle.”
The electric division loan was used to create the backbone of the OptiNet network in the early 2000s then improperly written off the books in 2007. The Virginia Auditor of Public Accounts discovered this shortcoming during its 2016 review of BVU finances and directed that it be reconciled.
About $13.9 million from the transaction currently remains in the bank, Bowman said.
However, BVU also still owes about $17 million, including the $13.7 million electric debt, $1.76 million in legal and accounting services fees and $1.34 million to repay internal debt for pole attachments.
“It’s also important to note that electric system revenues paid off electric system debt,” Bowman said. “OptiNet revenues were not used to pay off any debt in any other division.”