March 15, 2009 — Jeffrey Prosser's principal corporate properties should be sold to Prosser's main creditor, the Rural Telephone Finance Cooperative, for a credit bid of a quarter of a billion dollars, court-appointed Trustee Stan Springel has told U.S. bankruptcy Judge Judith Fitzgerald.
Springel suggested the sale in a March 13 filing with the court. Prosser is the former owner and CEO of Innovative Telephone, also called Vitelco.
Springel sought interim judicial approval for the sale, pending the approval of government agencies such as the V.I. Public Services Commission.
The properties in question are the Group I properties that Springel has defined and has been trying to sell for more than a year. They include the local phone and cable companies; cable operations in the British Virgin Islands and on St. Martin; along with Innovative Business Systems, V.I. Powernet, and some smaller ventures. Other one-time Prosser holdings were sold earlier, such as the V.I. Daily News, cable firms in France and in the French islands, and various luxury cars and an executive jet.
Springel reported that while there had been interest shown in the Group I properties, and "In fact, the trustee negotiated, but did not finalize purchase agreements with at least two potential buyers in addition to RTFC … the trustee has determined that the buyer's [i.e., RTFC's] bid is, and will be, the highest and best qualified bid for Group I assets."
The numerous other parties in the bankruptcy case may well have reactions to Springel's proposal. Prosser routinely complains that the price secured by the trustee is too low, whatever is being sold. But none had been filed with the court at press time.
A credit bid is a move by a creditor (such as RTFC) to purchase a debtor's property in bankruptcy proceedings. No cash changes hands, as the creditor simply takes over the property in question — with a judge's blessing — as part of the settlement of the moneys owed. In such cases, it is usually an indication that there is no purchaser on the horizon who is willing to pay a sum that the creditor finds acceptable.
A credit bid is also not one that is negotiated between two parties; beyond the fact that the size of the bid must be less than the amount owed, it is set single-handedly by the creditor.
So what is the significance of the credit bid, assuming that it receives both judicial and regulatory agency approval?
First, there will a change in control. Currently Vitelco and the other Group I holdings are managed, under the court's eye, by Springel, a West-Coast business executive and his team of professional helpers (lawyers and accountants, primarily). Once the takeover is approved, it will be run by a team chosen by RTFC.
RTFC currently owns no operating phone companies but it has extensive experience in the finances of such companies because of its role as a specialty bank to that industry. Its ownership of Vitelco, RTFC officials have said in the past, will be an interim-only operation.
Second, though it is hard to predict what happens in high finance (as Americans generally are discovering of late) the credit bid may offer RTFC a better-looking balance sheet than it could get otherwise. Perhaps RTFC can carry the Group I assets on its books at $250 million for a while, rather than having to "mark them to market" at a lower value because of a sale at less than a quarter of a billion. RTFC, because of the nature of its business (lending to government-regulated rural utilities is less risky than lending to homeowners) does not face the financial pressures that afflicted other such institutions as Bear Stearns or Lehman Brothers.
The third element can best be raised as a question: Will the new owners of Vitelco be able to (or want to) use the size of the credit bid as leverage in future rate-setting activities on the part of the PSC? The rates utility users pay are based on regulatory agency judgments of the costs that the utilities have to pay, and on an appropriate return on investments. If a regulatory agency determines that the investment in the utility was, say $10 million, it will allow the utility to charge higher rates than if it determines the investment in the utility was $5 million.
In another recent development in the bankruptcy case, Prosser's adversaries are resisting two recent assertive legal efforts on the part of the debtor. He has sued the creditors and the trustees for alleged violations of the federal Racketeer Influenced and Corrupt Organizations (RICO) Act and, claiming prejudice on her part, moved that Fitzgerald should recuse herself from the ongoing bankruptcy case.
RTFC's legal team, in response, has moved that the RICO case be taken out of the U.S. District Court in St. Thomas and be placed before Fitzgerald in the U.S. bankruptcy court in Delaware, where she also sits as a visiting judge. The same team has filed a long paper with Fitzgerald calling for her not to recuse herself from the case, stating that she had a duty to continue to handle the matter.
In another development Springel reported to the bankruptcy judge March 13 the successful conclusion of the sale of a residential property once owned by the Prosser interests on St. Croix for a gross payment of $800,000. The judge had previously approved the sale.
The property, at 143 Anna's Hope, was sold to Alexandros and Dilma Koutsakis, with John Foster Real Estate serving as the broker. The property changed hands only after a $2,249 pest treatment.
While the V.I. government has been relatively quiescent in the now three-year old Prosser proceedings, it made a little money on this transaction. The trustee reported that back real estate taxes of $12,944 (covering the years 2006 through early 2009) were paid to the government, along with $9,750 for transfer stamps; these funds were subtracted from the purchase payment.
In another development, U.S. District Judge Curtis Gómez issued yet another denial of a procedural motion brought by Dawn Prosser, the debtor's wife, on March 4.
Gómez, who hears appeals from the bankruptcy judge's rulings, ruled this time against an effort by Dawn Prosser to block the previously approved sale of the Prossers' summer home on Lake Placid, N.Y. Dawn Prosser argued that a failure of her lawyers to meet a court deadline in this matter was not her fault, and that she wanted the New York sale to be reconsidered.
Gómez, citing precedents in other courts, said that Dawn Prosser's appeal for reconsideration in this case was invalid. The judge has frequently ruled against the Prossers on somewhat similar matters.
Back Talk Share your reaction to this news with other Source readers. Please include headline, your name and city and state/country or island where you reside.
