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GERS Negotiating with Seaborne Airlines

The V.I. Government Employee Retirement System’s board of trustees discussed negotiations with Seaborne Airlines over about $3.3 million in outstanding GERS loans during a special meeting called Tuesday afternoon.

The entire meeting was held in executive session. After reporting out of executive session, trustee Vincent Liger said no decisions were made or actions taken during the executive session.

While the details of the discussions in executive session were kept confidential, Seaborne was the one item on the official meeting agenda.

"We are negotiating on a new agreement with them," GERS Investment Officer Bruce Thomas confirmed after the meeting. "As you know, there is new management, and as the new management takes over, they want to negotiate a new contract," he said.

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Asked if GERS had already taken any position for or against new contract terms, Thomas said, "We just want to makes sure that the interests of the system are preserved intact, whatever comes out of that negotiating process."

The company changed its top management in July, with Chief Executive Officer Omer ErSelcuk resigning and Seaborne President Gary Foss becoming president and CEO. (See related links below)

The V.I. Government Employees Retirement System voted to amend its loan to Seaborne Airlines in 2012, 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. The loan had a five-year term.

By August 2012, 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 in September of 2012. In September of 2012 the board voted to modify the terms of the loans and, as a result, in November of that year Seaborne refinanced and received an additional $1.5 million.

The GERS 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.

At the end of the process, Seaborne held two loans: one for $2.3 million at 6.25 percent interest and one for $1 million at 8.25 percent.

Nibbs said in Senate testimony earlier this year that GERS will have two seats on Seaborne’s newly constituted five-member board of directors.

Seaborne Airlines runs more than 350 weekly flights between San Juan, St. Croix, St. Thomas and Vieques, and has been purchasing more planes and expanding into new routes. In 2012, it began flights to Tortola and Virgin Gorda, and it recently announced it will start flying between San Juan, Puerto Rico and Santo Domingo, Dominican Republic in December.

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