Requested Authority
CCTC and CVB (collectively, "Applicants") request authority to execute a series of transactions (referred to hereafter as the "Proposed Transactions") whereby CVB will acquire control of CTC Group. The Proposed Transactions are set forth in an Investment Agreement dated August 6, 2003 ("the Agreement").3 The Agreement provides that CTC Group will file and execute a Plan of Reorganization whereby the outstanding stock of CTC Group will be cancelled, the debts and obligations of CTC Group and CTC to existing creditors will be discharged, and CTC Group will issue new shares of common stock to CVB in return for $32 million. After the Proposed Transactions are complete, CTC Group and CTC will emerge from bankruptcy and become wholly owned subsidiaries of CVB. An organization chart illustrating the organizational control of CTC before and after the Proposed Transactions is attached to today's decision.
The Proposed Transactions will be completed at the holding company level and will not result in any transfer of CTC's operating authority or customers. CTC will retain its current name and will continue to operate in substantially the same manner as before the Proposed Transactions. Additionally, CTC's customers will continue to receive service under the same rates, terms, and conditions that currently apply to CTC's services.
Applicants assert that CVB has the requisite managerial and technical qualifications to assume control of CTC. CVB is 100% owned and operated by Kenneth Peterson. As described previously, Peterson is an accomplished manager of telecommunications enterprises and other businesses. CVB will also utilize the managerial and technical abilities of existing CTC executives, who have extensive experience in the telecommunications industry. These executives include:
John D. Pittenger, Executive Vice President, Chief Financial Officer: Pittenger has served as Chief Financial Officer (CFO), Treasurer, and Clerk of CTC since 1989. Prior to 1989, Pittenger was CFO of Comm-Tract Corp., a company that installs and services voice and data communications systems.
Anthony D. Vermette, Vice President, Sales: Vermette joined CTC in 1987 and was appointed Vice President, Sales in 1995. Prior to 1995, Vermette held a variety of positions with CTC, including Branch Manager, Director of Market Development, and Vice President Sales and Marketing for New England.
Russell B. Oliver, Vice President, Network Operations: Oliver joined CTC in 1999 as Vice President, Network Operations. Prior to joining CTC, Oliver was the Vice President of Network Systems Integration for Williams Communications, where he participated in the acquisition and integration of other companies.
Applicants represent that CVB is financially qualified to assume control of CTC. Pursuant to Section 5.3 of the Agreement, CV Corp. acts as a guarantor of CVB's performance of its obligations, financial and otherwise, under the Agreement. Applicants also provided copies of CV Corp.'s financial statements, which show that CV Corp. has sufficient financial resources to guarantee CVB's obligations under the Agreement.4
After CTC Group emerges from bankruptcy under CVB's control, there is no plan for CV Corp. to provide financial support to CVB, CTC Group, or CTC. Applicants represent that CTC Group and its subsidiaries generated $324,000,000 in revenue during the 12-month period ending December 31, 2002, and are presently cash flow positive. Thus, CVB will not need to rely on its parent, CV Corp., in order to finance the operations of CTC Group and its subsidiaries (including CTC) because CTC Group is and will be financially self-sufficient.
To demonstrate CTC Group's ability to support itself financially after it emerges from bankruptcy, the Applicants provided financial projections for a reorganized CTC Group and subsidiaries. The financial projections included (1) pro-forma balance sheets for January 1, 2004, December 31, 2004, and December 31, 2005, reflecting estimated reorganization and fresh-start adjustments; (2) projected income statements for 2004 and 2005; and (3) projected statements of cash flow for 2004 and 2005.5 The financial projections show that CTC Group will generate positive income and cash flow in 2004 and 2005.
Applicants state that the Proposed Transactions are in the public interest because the Transactions will enable CTC to emerge from bankruptcy and thereby enhance CTC's ability to compete in the California telecommunications market. Additionally, the Proposed Transactions will ensure that existing customers continue to receive service from CTC without disruption. Thus, the Proposed Transactions will be transparent to existing customers.
Notice of Application (A.) 03-09-011 appeared in the Daily Calendar on September 9, 2003. There were no protests or other responses to A.03-09-011.
3 A copy of the Agreement was attached to the application as Exhibit B. 4 CV Corp.'s financial statements were provided to the Commission under seal. 5 The projected financial statements were filed at the Docket Office on November 6, 2003.
