3. Request for Exemption from Pub. Util. Code § 851
Encumbrance of All Assets to Secure Indebtedness
SureWest seeks authority for exemption from § 851 regarding the encumbrance of all assets for the purpose of securing indebtedness of its parent company. SureWest states that, upon obtaining Commission approval, it would grant a security interest in all of its assets in connection with credit facilities described in its application, as well as guarantee notes secured by these assets on behalf of its parent company, SureWest Communications.12 SureWest Communication's lenders require it to encumber all of its assets to secure indebtedness, including those assets of SureWest. Since SureWest Communications (and consequently SureWest) represents that it is required by its lenders to encumber all of its assets to secure indebtedness, and the exemption from § 851 that we authorized in D.10-05-019 applies to some but not all of the assets of URF ILECs, SureWest (as a subsidiary of SureWest Communications) must still file an application requesting authority to encumber its assets pursuant to § 851.
In support of its desire for this type of exemption from § 851, SureWest refers to past decisions in which we have granted URF ILECs partial relief,13 while granting its competitors more extensive relief.14 SureWest states that in these decisions, the Commission recognizes that the § 851 process does not suit the needs of the current telecommunications marketplace or its customers. SureWest also states that, unlike other URF ILECS, such as AT&T, Verizon, and Frontier, which are subsidiaries of large national holding companies, SureWest's parent is smaller, with operations in just a few states. SureWest concludes that the remaining applicable requirements of § 851 have a greater effect on it than on the other URF ILEC's.
SureWest Communications finds that, given its size, as well as current credit market conditions, the difference between interest rates offered for secured loans is much less than for an unsecured loans. Therefore, in order to acquire indebtedness at a lower rate, SureWest and SureWest Communications must now encumber all of their assets to secure indebtedness, which they believes puts them at a disadvantage relative to its competitors.
SureWest finds that, in its most recent request to encumber assets to secure new indebtedness,15 that it was unable to "nimbly" adjust the amount of indebtedness it had requested in that § 851 application, when, subsequent to filing its application, the lender offered to increase the amount of the loan. Since it would have had to amend its application, including notice of the amendment as well as allowance for a protest period regarding the amendment, SureWest decided not to amend its application. SureWest states that if it had been exempted from § 851 as requested in the current application, it would have been able to accept the increased loan amount. SureWest posits that, inherent in being required to receive Commission approval, its ability to take advantage of low interest rates is jeopardized and it is placed at a competitive disadvantage.
SureWest assures that, if its requested exemption is granted, the property it encumbers to secure indebtedness could not be transferred without Commission approval.
12 Since SureWest's finances are managed at the holding company level, its parent, SureWest Communications, obtains financing for SureWest.
13 See D.10-05-019.
14 See D.85-11-044 and D.97-01-015.
15 See Application (A.) 10-12-013 and D.11-02-022. In that decision, the Commission granted SureWest Communications and SureWest authority to encumber assets for the purpose of securing specific amounts and forms of debt.
