Oct. 5, 2006 – In a stunning development to the Prosser bankruptcy saga, the Source has learned that Jeffrey Prosser proposes to use the Virgin Islands Telephone Corp., also known as Vitelco, to finance his bankruptcy settlement; and that the Public Services Commission (PSC) has signed off on the plan.
Documents filed in District Court this week reveal that Prosser and two of his companies are seeking to use Vitelco's assets to secure a $470 million investment to be used to settle lawsuits with three of Prosser's creditors The Rural Telephone Finance Cooperative (RTFC), the Cooperative Finance Corporation (CFC), and the Greenlight entities.
In support of this arrangement, the documents state: "The largest and most significant source of revenue for the Innovative Communications Group is the telecommunications operation of non-debtor Virgin Islands Telephone Corp, dba Innovative Telephone (Vitelco)."
Earlier this year, Greenlight and RTFC attempted to force Prosser, Innovative Communication Company (hereafter refer to as ICC; not to be confused with Innovative Communication Corp., the direct parent of Vitelco), and Emerging Communications Inc. into involuntary bankruptcy.
At that point, ICC and Prosser sought to reach a settlement with the creditors to avoid involuntary bankruptcy.
However, when the financing for the settlement fell through, ICC and Prosser filed for voluntary bankruptcy on July 31. ( See "ICC, Prosser File for Bankruptcy").
Along with petitioning the court this week to accept the settlement agreement, the papers also ask that the terms of the agreement be kept secret.
Meanwhile, an attorney acting on behalf of a local ratepayer has filed a motion with the PSC to stop the financing from going forward without a public hearing on the matter, or without scrutiny.
Attorney Maria Tankenson Hodge, acting on behalf of Justine Flashman, a V.I. resident and Vitelco ratepayer, also questioned the PSC's right to support Prosser's plan in secret.
To date, no hearing has been held on the matter. In fact, PSC Chairwoman Alecia Wells made it clear in a letter she sent to the parities involved in the various lawsuits between the phone company and its creditors that the PSC was going to take a hands-off approach where Vitelco's litigation was concerned. And in a meeting held to brief new commissioners on utility matters, Jeffrey Moorhead, recently hired PSC counsel on Vitelco matters, said because of the ongoing litigation it would not be prudent for the commission to get involved.
(See "PSC Workshop Makes Short Shrift of Vitelco Legal Woes"
However, Moorhead was versed on the pending settlement. He said at the workshop that the company "has succeeded in obtaining financing to pay its debt and it looks very promising." Moorhead said it was the board's position to "support any settlement that is offered … to avoid receivership."
However, Hodge, who served as the PSC counsel on Vitelco matters for 22 years, said in her motion, "Vitelco, itself, has no debt involved in this matter, but … it is being called upon to provide the financial resources to satisfy the debts of others."
Since the bankruptcy proceedings, Vitelco officials have been adamant that the proceedings had nothing to do with Vitelco and that Vitelco (also known as Innovative Telephone) would in no way be affected by the bankruptcy.
But Hodge sees that matter differently. "There is good reason to suspect that the secret agreement has been developed to permit the stockholder [i.e., Prosser] to extract from the utility, capital, resources, or credit, for the sole benefit of the shareholder, to the detriment of the phone company, and in turn, to the detriment of its customers, the ratepayers of the Virgin Islands," Hodge wrote. "Without reviewing the settlement agreement, at least insofar as it impacts Vitelco, it is not possible for the public to determine how severe this detriment is likely to be."
Hodge also took exception to the shroud of secrecy involving the settlement and the PSC's support of it: " The suggestion that the PSC has already secretly approved the secret settlement agreement is highly objectionable."
She said that if the court documents are correct, the PSC's decision was made without public notice or input.
"The PSC is subject to requirements for giving notice to the public of its proceedings, under the formal published regulations of the PSC," Hodge wrote. However, the court documents state: " the PSC of the U.S. Virgin Islands has confirmed in writing its non-objection to and support for the financing and the debtors assumption of the settlement agreement."
"There is no indication when or how this decision of the PSC was made, or whether there was a meeting, a quorum, or any proper proceedings involved," Hodge wrote.
On the matter of the phone company's ability to support the financing, Hodge wrote, "It appears the utility is earning so large a return that it can finance the salvation of its stockholder [Prosser] from bankruptcy. If that is so, it strongly suggests that the utility is over-earning and that the ratepayers are overpaying."
It is not the first time Prosser has used the phone company to secure millions in investment dollars. The issuance of $85 million in preferred stock a few years ago set off the argument between RTFC and Prosser in the first place. The money was to be used for infrastructure improvements for the utility but was instead used to purchase the Belize Telephone Company — another Prosser matter that is making its way through the courts systems of three countries [Belize, United States and Canada].
The preferred shareholders have initiated two lawsuits against Innovative Communications Corp. (See "New Suit Against Prosser's ICC Calls Company's Conduct 'Evil'").
The documents filed this week propose to use a portion of the $470 million loan, to be secured by Vitelco assets, to pay off the preferred shareholders as well.
The court documents show that RTFC's claim alone is $525 million, which includes legal fees of nearly $12 million that RTFC expects to recoup from Vitelco.
The Source has repeatedly petitioned the PSC for access to the audited financials of the phone company a regulated utility. The most recent request is pending, having been tabled at a PSC meeting a year ago.
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