Sept. 5, 2007 — With a precedent-breaking two full days of hearings scheduled for Thursday and Friday in a federal court in Pittsburgh, the bankruptcy case of Jeffrey Prosser — owner of Vitelco, also known as Innovative Telephone — may be approaching a climax.
Judge Judith Fitzgerald, who has never scheduled more than a single day for the case, has accepted an agenda in which most of the major issues of the long, drawn-out proceedings will be debated.
Among the matters to be argued: Should the judge's earlier decision denying Prosser a multimillion dollar discount on the amount owed be reversed? Should the substantial amount of financial information now secret be released to the public, as the creditors want? Should the case be converted from debtor-friendly Chapter 11 of the bankruptcy law to less-friendly Chapter 7, as the creditors want? And what should be done to pay — or not pay — the various lawyers, accountants and court-appointed intermediaries?
It will be a full two days.
Meanwhile, Steven L. Lilly, chief financial officer of the Rural Telephone Finance Cooperative, has been on St. Thomas meeting with the RTFC's newly hired local consultant, former Sen. Roosevelt David, and others. RTFC is committed to seeing an orderly transition should the court force an ownership change in Vitelco, Lilly said in an interview this week.
The Prosser-owned V.I. Daily News attempted to discredit RTFC's sister companies in a recent news article, claiming “the cooperative has acknowledged extensive errors in its financial statements during the past three years.” Lilly countered by telling the Source, "We have a stellar record." The non-profit organization has made loans to rural utilities for 40 years and has charged off only $160 million, or $4 million a year, which he characterized as "nothing" in the world of high finance. RTFC's parent organization, the National Rural Utilities Cooperative Finance Corporation, has a portfolio of more than $17 billion in outstanding loans.
RTFC currently has only one borrower that is a "non-performer": Prosser's firms, which owe about half a billion dollars and which "have not paid us a dime since June 2005," Lilly said.
In the event of a court ruling, the court-appointed trustee — West Coast businessman Stan Springel — would be charged with managing the local phone company while he searches for a buyer for Prosser's assets, Lilly explained. If Springel does not find a buyer or buyers, RTFC could conceivably take over management of Vitelco until alternative financing is found.
The “extensive errors” cited in the recent Daily News article relate to the fact that RTFC and CFC borrow money from time to time both in the U.S. and overseas. When it borrows Euros, for instance, it engages in hedge maneuvers to control for currency fluctuations — as do all big banks.
The complexities of the accounting of such matters are such that they would strain the brain of a Harvard economist, but Lilly said that while the wrong currency adjustment accounting system had been used in the past, it had no impact on the organization's cash situation.
As to the dimensions of the problem, Lilly pointed out that in the context of a $17 billion portfolio, the various over-statements and under-statements — in the $13 to $15 million range — were not significant.
Further, the difference in the transparency between RTFC and Prosser's operations is notable. If you want to know about the RTFC-CFC finances, you can read a 100-page-plus 10K report on the Internet filed with the U.S. Securities and Exchange Commission. If you want to read about the secretive finances of Prosser and his firms, you either need to be Fitzgerald or a member of the V.I. Public Service Commission — at least for the time being.
Whatever happens next, RTFC is well positioned to manage Vitelco if necessary, but contrary to what Prosser has claimed, Lilly said, "We have no interest in owning a phone company.”
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