The National Telecommunications and Information Administration (NTIA) has issued a waiver1 loosening its irrevocable standby letter of credit (LOC) requirements for the $42.45 billion Broadband Equity, Access, and Deployment (BEAD) program.2 The waiver arose from an outcry from broadband service providers, including small and rural providers, arguing that the LOC requirements were burdensome and would prevent them from participating in BEAD and deploying in unserved areas that are most in need of connectivity.
In the BEAD Notice of Funding Opportunity (NOFO), NTIA established as part of the program’s financial capability qualifications a LOC requirement modeled after the one established by the Federal Communications Commission (FCC) in the Rural Digital Opportunity Fund (RDOF). Specifically, BEAD Eligible Entities (namely, all 50 US states plus DC, Puerto Rico, and the US Territories that would be the BEAD grantees and fund administrators) are required to establish a model LOC that is substantially similar to the FCC’s Model RDOF LOC. Broadband providers, who would participate in BEAD as subgrantees, would be required to obtain a LOC from certain eligible banks for at least 25% of their BEAD subaward amount. Additionally (and similar to RDOF), providers would also have been required to obtain and provide a bankruptcy counsel opinion letter stating that, in a bankruptcy proceeding, the bankruptcy court would not treat the provider’s LOC or its proceeds as property of the provider’s bankruptcy estate under Section 541 of the Bankruptcy Code.
Recently, broadband providers and industry trade groups (including Brightspeed, Altafiber, Altice, Consolidated Communications, Windstream, Ziply Fiber, and NTCA–The Rural Broadband Association) have clamored for NTIA to adopt alternatives to its BEAD LOC requirement, arguing that the adopted requirement is burdensome and likely to stifle broadband provider participation, particularly participation by smaller providers serving rural and remote unserved areas.
Changes Arising from the Waiver
The changes to the LOC requirement set forth in NTIA’s waiver include the following:
- Credit Unions. Subgrantee providers will have the option of obtaining LOCs from a credit union, provided that it is insured by the National Credit Union Administration and has a credit union safety rating issued by Weiss of B- or better.
- Performance Bond or Bankruptcy Counsel Opinion Letter. Subgrantee providers may forego the provision of a bankruptcy counsel opinion letter if they obtain a performance bond with a value of at least 100% of the awarded amount. The performance bond must also satisfy the requirements of the State (or other Eligible Entity) administering the BEAD funding.
- Permissible Amount Reductions with Performance Milestones. Subgrantee providers will be allowed to replace their LOCs valued at 25% of project costs with LOCs for lower amounts after achieving certain deployment milestones. Similarly, subgrantee providers that obtain performance bonds (valued at 100% of project costs) will be allowed to replace such bonds with performance bonds valued at lesser amounts after achieving certain deployment milestones. The NTIA waiver does not mandate any specific amount reductions or performance milestones, but rather leaves those to the discretion of the State or other Eligible Entity.
- Alternative Initial LOC or Performance Bond Percentages for Shorter Term Subgrantees. Certain subgrantee providers whose reimbursement periods are for six months or less will be allowed to obtain LOCs or performance bonds for as little as 10%, provided they maintain LOCs or performance bonds of at least 10% of the subaward until buildout completion or the subaward performance period’s end.
Broadband providers planning to participate in BEAD should be aware that the NTIA waiver is only a partial waiver in that it offers some leeway in satisfying the LOC requirement. However, the LOC requirement itself remains firmly intact and the BEAD program’s financial eligibility requirements—including the ability to maintain a LOC valued at 25% of the project’s total costs for some initial funding period—are not insignificant.
If you have questions regarding BEAD, the LOC requirement, or the bankruptcy counsel opinion letter or performance bond requirement, please contact us.
1 National Telecommunications and Information Administration, Notice of Programmatic Waiver, BEAD Letter of Credit Waiver (November 1, 2023).
2 National Telecommunications and Information Administration, Broadband Equity, Access, and Deployment Program, Notice of Funding Opportunity, (May 12, 2022).