Bonds Should be Considered for Broadband Project Financing, say Finance Experts

HOUSTON, May 3, 2023 – States looking to fund broadband projects should consider issuing bonds, said financial experts at a Broadband Communities event Tuesday.

The market is warming up to the idea that broadband projects will pay for its bonds through its generated revenue, said Laura Lewis, principle of financial advising firm Lewis Young Robertson and Burningham. More and more of these bonds are fully supported by the project revenue rather than secondary payment methods, she said.

Because broadband projects are relatively new, investors can demand higher interest rates, the panelists said, which is driving interest despite rating agencies’ lack of support. Bond rating agencies do not favorably rate bonds as a high-reward investment.

Hillary Phelps of finance law firm Chapman and Culter said that her team has been working hard to educate rating agencies on the potential that broadband projects have to provide investors with high rates of return.

However, investors are primarily looking for feasibility studies that prove the profitability of broadband projects and bonds are an increasing reliable way to raise funds, she said.

Unfortunately, many states are not capitalizing on this rising public interest, said Tom Coverick, managing director of KeyBanc. While states are stalling in making a financing decision, interest rates continue to rise, labor is becoming more scarce, and projects are not being completed, he said.

“Your projects’ needs should drive the timing of your financing, not the financing driving when you do your project,” said Lewis.

The real value of bonds is realized in having a fixed interest rate for up to 30 years – triple what a typical bank loan will offer – which can give states the necessary flexibility to build out sustainable broadband infrastructure, said Coverick.

Furthermore, a bond can be structured according to the needs of the states where a traditional bank loan is more rigid, added Lewis.

The panel comes as states await the announcement of Broadband Equity, Access, and Deployment awards from the National Telecommunications and Information Administration and are looking for secondary options for funding broadband projects.