81.4 F
Cruz Bay
Tuesday, September 27, 2022
HomeNewsArchivesSuit Seeks More from ICC; Loan Details Made Known

Suit Seeks More from ICC; Loan Details Made Known

Aug. 2, 2004 – Last week, differing financial omens emerged for Innovative Communication Corp. from different sides of the Potomac River.
On the south side of the river, in federal District Court in Alexandria, Va., ICC's longtime lender, the Rural Telephone Finance Cooperative, raised the ante in its civil suit against ICC, seeking at least $550 million, rather than the at least $530 million it sought initially.
demanding repayment of money lent to ICC.
(See "Cooperative Sues ICC and Says it Owes $530 Million" and, for ICC's reply, "ICC Cites '89 Agreement in Lender Lawsuit Response".) RTFC made the change in an amended complaint to its initial suit demanding repayment of money lent to ICC.
RTFC also added a long laundry list of alleged ICC actions, such as lending money to a telephone company in Belize and having undisclosed federal tax liens against ICC subsidiaries as "events of default" which, according to the lender, should trigger rapid repayment of the outstanding funds.
ICC gets large loans at low interest from federal agencies
On the other side of the Potomac, in Washington, D.C., it was learned that two federal agencies, the U.S. Department of Agriculture's Rural Utilities Service and an obscure arm of the Department of the Treasury, the Federal Financing Bank, had, in a series of actions, lent ICC more than $66 million last winter with an initial interest rate of less than 1 percent (which has since increased slightly).
These loans are part of a larger line of credit of more than $161 million, most of which has not yet been used. The full line of credit is designed, according to the loan documents, for Innovative Telephone, a subsidiary of ICC, to:
– Connect 13,865 new subscribers.
– Deploy 250 new route miles of fiber and copper cable.
– Upgrade switching systems.
– Make several other upgrades.
The loan document, on file at the Rural Utilities Service, does not include any repayments to RTFC as part of the loan rationale.
There were three Rural Utilities Service-Federal Financing Bank transactions in all.
First, on Dec. 19, 2003, there was a RUS-guaranteed loan from FFB for $64,655,000 expiring on March 31, 2004. This loan was subsequently rolled over for the period April-July 2004 and then again for July-September 2004. The annual interest rates were 0.893 percent for the first period and 0.995 percent and 1.384 percent, respectively, for the latter two.
In addition, the Rural Utilities Service directly made two other smaller loans at higher rates of interest to ICC, one for $20,000 last Jan. 2 at 4.4975 percent, and the other for $1,616,876 on Feb. 12 at 4.2875 percent.
While few entities can borrow funds at less than 1 percent a year under any circumstances, ICC was not the only beneficiary of these rates; the Federal Financing Bank routinely lends funds to the U.S. Postal Service at very favorable rates and also has done so for a number of other rural utilities when the loans are guaranteed by RUS.
However, of the 184 loans to utilities announced by the FFB last December, ICC's was by far the largest, with East Kentucky Power coming in second at $27 million. In fact, most of the other loans to rural utilities were for less than $2 million. And only three of the 183 other loan recipients had interest rates lower than ICC's.
According to the Federal Financing Bank Lending Policy (a document that can be viewed on the Internet), "it is the policy of the bank to charge a rate 1/88 above the new issue curve of marketable U.S. Treasury Securities …" Until recently the federal government was able to borrow short-term funds on very favorable terms; interest rates have been rising of late.
Although the Federal Financing Bank's Web site contains a monthly listing of its loans, it is nonetheless one of the most obscure, yet significant, organizations in Washington. It is not listed in either the District of Columbia telephone directory or the generally comprehensive Congressional Directory.
Amended suit alleges breaches of lending agreements
Meanwhile, the RTFC's amended complaint alleges 11 specific "breaches" of its lending agreements with ICC as supporting its claim for repayment of at least $550 million. In some cases a single act by ICC was said to have violated more than one section of the prevailing loan agreement, most recently signed in 2003, while in others multiple actions were lumped into a single breach.
The loan agreement is quite detailed; it forbids ICC from taking certain actions and from taking certain others without RTFC approval. The general thrust of RTFC's position appears to be that all of ICC's assets are to be regarded as security for the $550 million or so line of credit extended to ICC.
In its complaint, the RTFC alleges, among other things:
– The issuance of Vitelco preferred stock, without turning the $81,859,500 in proceeds over to RTFC.
– Failure of ICC to notify RTFC of a federal tax lien against Vitelco (the V.I. Telephone Corp., now Innovative Telephone) in 2001 and a similar failure to notify the lender of three U.S.V.I. tax liens in 1992 and other undescribed liens against Innovative Cable TV-St. Thomas and St. John, and The Daily News Publishing Co., both ICC subsidiaries. (The amended complaint is silent on whether these liens are still outstanding.)
– The purchase of equity in and the issuance of a loan of $28.5 million by Vitelco to Belize Communications without RTFC approval.
– Failure to disclose the existence of two ICC subsidiaries — Communications Systems & Services, and Executive Security Services Inc.
– The borrowing of $3 million from the Global Bank of Commerce against the assets of SMB Boatphone Holdings Ltd., another ICC subsidiary.
– The dissolution of another subsidiary, Pinnacle Ltd.
– Breach by ICC of Section 8.6(ii) of the loan agreement "resulting from the filing, if any, of a voluntary case under applicable bankruptcy, insolvency or similar law in Martinique."
RTFC general counsel John List, whose name and telephone number appear on a brief release about the filing of the amended complaint, refused to discuss any aspect of the complaint with the Source; so, no information could be obtained from him about either the reference to the Belize transaction or the reference to Martinique.
In ICC's response to the initial complaint, it argued that a 1989 agreement among Vitelco, Atlantic Tele-Network (ICC's predecessor owner of the telephone company, now a separate and unrelated company), RTFC, Vitelcom and the V.I. Public Services Commission contained provisions that allowed ICC to issue the preferred stock and to retain the proceeds therefrom.
In the amended complaint RTFC does not address the significance of that agreement directly, but states: "To the extent that ICC maintains that the 1989 settlement agreement renders certain provisions of the loan agreement unenforceable and/or constitutes a defense to any of the events of default set forth above, then ICC, by its own admission, is in breach of various of its representations and warranties to RTFC contained in Section 4 of the loan agreement."
Then the amended complaint provides a full page of quotations from Section 4 including the following:
"4.3 Binding Agreement. This agreement has been duly and property executed by [ICC], constitutes the valid and legally binding obligations of [ICC] and is fully enforceable against [ICC] in accordance with its terms …"
The significance of the 1989 agreement will likely be argued by both sides throughout this case. ICC had until July 30, or Friday, to respond to the amended complaint, and when that response becomes available the Source will report on it.
Meantime, on July 12, Claude M. Hilton, chief judge for the Eastern District of Virginia
and the presiding judge in this matter, laid down a tight schedule for the completion of the case. There will be a pretrial conference before a federal magistrate on Aug. 4. The discovery process (an exchange of documents between the parties) must be completed by Nov. 12. And a final pretrial conference will be held on Nov. 18. If there is no settlement, Hilton said, the case will go to trial on a date "within four to eight weeks of the final pretrial conference."
The Eastern District has adopted a set of procedures commonly called "the rocket docket" by lawyers to provide rapid disposition of cases before it. Hilton's timetable is consistent with that concept. The judge also has ordered a limit on the number of interrogatories and "non-party, non-expert" witnesses to be used by either side.

Back Talk

Share your reaction to this news with other Source readers. Please include headline, your name, and the city and state/country or island where you reside.

Publisher's note : Like the St. John Source now? Find out how you can love us twice as much — and show your support for the islands' free and independent news voice … click here.

Print Friendly, PDF & Email
Keeping our community informed is our top priority.
If you have a news tip to share, please call or text us at 340-228-8784.




Support local + independent journalism in the U.S. Virgin Islands

Unlike many news organizations, we haven't put up a paywall – we want to keep our journalism as accessible as we can. Our independent journalism costs time, money and hard work to keep you informed, but we do it because we believe that it matters. We know that informed communities are empowered ones. If you appreciate our reporting and want to help make our future more secure, please consider donating.