NC Hearts Gigabit Interactive: Broadband Finance Matters

1. NC Hearts Gigabit Interactive: Broadband Finance Matters April 26, 2019

2. CoBank at a Glance • A broad-based cooperative financial services organization with a mission to serve as a dependable credit provider to vital industries across rural America: • Agribusiness • Communications • Energy • Water • CoBank maintains a financially strong and growing capital base • Over $139 billion in Assets, $104.5 billion in Loan Volume and Shareholder’s Equity of $9.5 billion as of December 31, 2018 • 2018 Net Income: $1.19 billion • 2018 Patronage Distributions: $700 million • Headquartered outside Denver, CO; regional offices and banking centers throughout the country • Approximately 1000 employees nationwide • Member of the Farm Credit System, a Government Sponsored Enterprise AA- Rated by Fitch and S&P 50 Most Creditworthy Banks in the World

3. CoBank in Rural America

4. Our Commitment to Broadband • Dependable – deeply committed to rural America • Capacity – have the capital base to support our customers in both good times and bad • Knowledgeable • Communications Banking Group Loan portfolio of $4.5B in commitments/$3.7B in outstandings serving over 150 Communications customers in the following sectors: RLECs, Cable TV, Wireless, Towers, CLECs, Fiber/Data Transport and Data Centers • Electric Distribution Banking Group Loan portfolio of $13.2B in commitments/$9.0B in outstandings serving over 620 Electric Distribution customers. >$450MM of loan commitments have been made to 26 Electric Distribution broadband projects across the US

5. Existing CoBank Electric Distribution Coop Broadband Transactions

6. Broadband Financing Structures • Each transaction is different but generally takes on one of three structures: • Direct loan to an electric distribution provider. • Direct loan to the broadband subsidiary/JV guaranteed by the parent. • Direct loan to a stand alone broadband/telecommunications entity.

7. Financing Structures:Broadband as Part of the Electric Cooperative • Typical Terms and Conditions – assuming project debt/total assets ≤ 50% • In general - same requirements as standard electric loans, with some additions • Tenor: Up to 30 years • Security: Secured by assets of the cooperative If more than one lender, review options (shared mortgage, lien accommodation) • Covenants: Standard: equity/assets, debt service coverage May have additional leverage test (Debt/EBITDA) • Pricing: Similar to electric loan pricing • Fees: Minimal to none

8. Financing Structures:Broadband Subsidiary with Credit Enhancements • Typical Terms and Conditions With Full Guaranty of Electric Cooperative • Guaranty must be allowed by other lenders • Requirements similar to standard electric loans • Financial covenants based on the projected operations of the subsidiary and/or the consolidated operations of the guarantor. • Tenor: Up to 20 years • Security: Secured by assets of the broadband subsidiary and assignments of all material contracts. • Pricing: Slightly higher than electric loan pricing • Fees: Minimal to none

9. Financing Structures:Broadband as a Stand Alone Company • Typical Terms and Conditions for a Telecom/Broadband Project • No Start up Borrowers. • Total Leverage < 3.5x EBITDA with FCF positive in sight. • Maturities of 5 to 7 years with a bullet generally not exceeding 50% of loan. • First lien on all assets including all material contracts. • Interest rates are higher than direct loans to electric distribution cooperatives. • Fees typically include an upfront as well as unused commitment fees assessed quarterly. • Loans documented by outside counsel at borrower’s expense.

10. Partnering • Local Telephone Company • Other Electric Cooperatives • Cable Companies • WISP’s • Fiber networks • Wireless Phone Providers

11. Jim Bagley & David Girvan: United Electric, MO • With 89% of the membership unserved or underserved, United saw broadband as a potential way to offset declining electric sales with economic development and an additional revenue stream from high-speed internet • United has a density of ~2.5 members per mile, and they recognized they had to serve nearby communities that have higher densities to make their project financially feasible • Partnering with another electric cooperative to offer video services drastically reduced the cost of providing video • Funding – American Recovery and Reinvestment Act grant and a loan from CoBank • Lessons learned: • Hiring an experienced telecommunications professional will help the project run much more smoothly

12. Foster Hildreth:Orcas Power & Light Cooperative (OPALCO), WA • OPALCO provides broadband services to a chain of islands in Washington state • The national incumbent carrier had a failure of an undersea cable in 2013 that left the government, schools, emergency management, and businesses without a connection for 10 days • OPALCO acquired Rock Island Communications, a locally owned ISP, in 2015 to deliver broadband services to the islands • OPALCO/Rock Island partnered with T-Mobile to deliver fiber and wireless solutions • Funding - In addition to multi-million investments in infrastructure by OPALCO and T-Mobile, the project was funded with a loan from CoBank and direct investments for construction from property owners • Lessons learned: • Having subscribers contribute toward last mile construction was helpful • The partnership with a wireless provider has delivered massive benefits

13. Thank You Gloria Hancock ghancock@cobank.com Office: 770-618-3212 Cell: 404-395-4441