The V.I. Government Employees Retirement System voted to amend its loan to Seaborne Airlines Thursday, reducing the interest rate, changing some of the terms, and lending an additional $1.5 million to the carrier to help it expand its operations.
In 2009, GERS loaned Seaborne Airlines $3.3 million, with $1.3 million in the form of an ordinary loan, and $2 million in a convertible loan; GERS had the option of converting the loan to a 40-percent ownership stake in the company, GERS board member Edgar Ross explained Friday.
As of the end of August, GERS had received $340,000 in principal and $913,000 in interest, and had not missed any payments, GERS Administrator Austin Nibbs told the Senate during budget hearings last month.
Seaborne requested the modification hoping to expand and take advantage of the departure of American Eagle from the territory, GERS board member Edgar Ross said Friday, echoing what Nibbs told the Senate.
Seaborne approached GERS to modify the loan several months ago, and Thursday the board agreed to:
- change $1 million of the convertible loan to a regular loan, so GERS would have the option to convert the remaining portion to a 20 percent stake in the company;
- lend it an additional $1.5 million to buy more planes, baggage systems and other equipment, to expand its operations;
- reduce the interest rate on the outstanding loan amounts from the current 8.25 percent, down to 6.23 percent, and lend the new funds at the lower rate.
Before reviewing the request, the board hired an investment analyst to look at Seaborne's operations, and the advisor determined Seaborne was currently "in a very good financial position," and poised to expand, Ross said Friday. That analysis and the fact that Seaborne had never missed or been late on a payment both played heavily in the decision, Ross said.
Friday, Ross expanded on and clarified comments he made during Thursday's meeting regarding legislation approved by the Senate during session Tuesday directing GERS to take $2.5 million ostensibly remaining from a $6 million appropriation for pension contributions and distribute it among existing government employees.
"The information the legislation is based on is incorrect," Ross said Friday. First, the numbers in the Legislation are not accurate and the sum remaining is closer to $1.4 million, not $2.5 million. Ross said.
Second, the money in question was allocated to GERS to pay both employer and employee pension contributions for government employees who were receiving retroactive salary payments, he said.
"As to retired members, it is correct we should return the portion due," Ross said. But employer and employee contributions for salary payments to currently active employees properly belong in the system until the employee retires and begins receiving an annuity, he said.
The difficulty may have arisen out of a miscommunication over how the funds were allocated, Ross suggested. During budget hearings in August, GERS officials told the Senate $4.6 million of the aforementioned $6 million would pay the employer share of pension contributions for employees receiving retroactive salary payments. But that sum included both current employees and retirees.
"What the Legislature or GERS in talking to the Legislature failed to do is subtract the government's contribution for active members from that $4.6 million," Ross said. "When you subtract the active employee share of the $4.6 million, that portion belongs to GERS."
If employee pension contributions for retro salary payments they received are not kept in the system, it sets a bad precedent, Ross suggested.
"If it is allowed to remain unchallenged, it amounts to another pension holiday for the government, using GERS money to fund benefits it should pay for," Ross said.