In late January, the Public Services Commission (PSC) will discuss transfer of the Vitelco telephone and Innovative Cable TV companies to the financial arm of the companies’ biggest lender—a transfer whose terms will impact telephone and cable TV service and rates for years to come.
The parent companies of Vitelco and Innovative, ICC and New ICC (formerly the property of bankrupt mogul Jeffrey Prosser), are deeply indebted and have been in bankruptcy since 2006.
The Rural Telephone Finance Cooperative (RTFC), a private, nonprofit lender to rural utilities, is the largest single lender to ICC and holds a $525 million judgment against it and a separate $100 million judgment against Prosser personally. Efforts by the court-appointed Chapter 11 trustee to auction the component companies were hampered in part by the global financial crisis. In January 2009, RTFC’s financial arm, National Rural Utilities Cooperative Finance Corporation (CFC), announced it would make a credit bid to acquire the outstanding stock of BVI Cable and the other ICC-owned companies.
A credit bid occurs when a creditor bids for a property at auction, offering not cash but part or all of the value of the debt owed it. In this case, the credit bid is conditioned on approval of regulatory authorities in the jurisdictions where ICC’s businesses operate. Along with the U.S.V.I. companies and BVI Cable, ICC also owns several other small Caribbean cable television and communications companies, including St. Martin Mobile, Martinique TV Cable and others.
The telephone and cable television operations in the U.S. Virgin Islands are regulated by the PSC, which, by V.I. statute, must grant approval before a sale or transfer of control is enacted over a utility.
PSC Hearing Examiner Ronald Belfon held hearings in November, gathering testimony and information for his report to the PSC. Belfon’s report had originally been expected by early December. That timeframe was pushed back to Jan. 19 because briefs from some of the parties in negotiations were not going to be submitted to him until late December, Belfon told the PSC at its Dec. 16 meeting.
In his interim report, Belfon said that while the delay was perhaps inconvenient for CFC and ICC management, the bankruptcy court had not imposed any time pressure on the proceedings.
"From my experiences in bankruptcy matters … and from my attendance at one status hearing before the court, the court respects the need of the local regulatory agency to examine thoroughly and make good decisions without interference or influence from the court," Belfon wrote.
One sticking point may be how CFC treats $85 million in Vitelco preferred stock sold by Prosser. The sale of the preferred stock, which was never approved by the PSC, undercut the value of RTFC’s collateral for its loans, triggering a default which led to the bankruptcy of the parent companies. The stock guarantees dividends of 10 percent annually, among other benefits, making it potentially very expensive for the company.
CFC purchased all the preferred stock at a discounted price of $30 million earlier in the bankruptcy. It is offering to transfer only $30 million of the hypothetical value of $85 million in debt onto Vitelco and have the remainder be counted on the books as "common equity" stock held by Vitelco itself.
Georgetown Consultants, which advises the PSC on telecommunications issues, argued at the hearings it was not clear the obligation to pay, according to the terms of the preferred stock, should be on Vitelco’s books in any form—even at the discounted value of $30 million cash.
If it is on Vitelco’s books as a debt, then phone customers might wind up paying off the debt out of their bills while still guaranteeing a set rate of return to the new owners. If it is not, CFC may have to pay it off out of its guaranteed rate of return, which is determined by the PSC in its rate-setting capacity. Hence, if it is on the books as a debt, phone rates might be slightly higher than if it is not.
In late October, the British Virgin Islands approved CFC’s application to acquire BVI Cable; and at the beginning of December, the Federal Communications Commission approved CFC’s bid to acquire the U.S.V.I. companies. Similar approvals must be secured from the Dutch island government for the transfer of cable properties on St. Maarten, and from the PSC before it goes back, one last time, to U.S. Bankruptcy Judge Fitzgerald, for final approval.
