HAS PROSSER'S PROWESS PEAKED?
By David S. North
Jeffrey's Prosser's remarkable fund-raising powers in Washington, D.C. may have peaked — but not before he secured more than half a billion dollars from an obscure national financial institution.
I made the point a year ago in this space that Prosser has been much more successful than the governor and the delegate during their respective trips to Washington. While the latter two struggle to get a million or two, now and then, from the federal government for clearly defined public sector activities in the U.S. Virgin Islands, Prosser counts his private-sector intake from Washington, for ill-defined activities, in the hundreds of millions.
This comparison is still appropriate, but perhaps the Prosser fund-raising ability is ebbing in the nation's capital.
As noted earlier, Prosser's biggest source of money appears to be an obscure, federally-chartered and blessed entity, a cooperative financial institution created by the nation's rural electric and telephone co-ops to borrow private money on their behalf.
Prosser's Innovative Communication Corporation, because it owns Vitelco, is a member of this non-profit, the National Rural Utilities Cooperative Finance Corporation (usually called CFC); CFC was created with the encouragement of the U.S. Department of Agriculture 30 years ago, and most of its members are squeaky clean rural electric cooperatives, mostly in the West.
There are, however, some for-profit members, including Vitelco; while all members may seek to borrow from CFC, few have done it as aggressively as Vitelco.
Signs of a Slowdown
Why do I say the Prosser fund-raising ability is slowing down? While multiple layers of secrecy cover both Prosser's activities and those of CFC, there are the following tell-tale signs of a slowdown.
1. The pace by which Prosser has raised money from CFC has slowed in the past ten months.
2. CFC, in turn, is getting unusually bad reviews from financial analysts, largely because it has lent too much, they say, to companies with many of the same characteristics as Prosser's firm.
3. Presumably as a result of worries within CFC, the agency has changed its rules to make it harder for its six biggest loan recipients to secure more money from CFC. Prosser's company is one of the six targeted CFC recipients, but that can be gleaned only indirectly.
4. CFC has dropped a curtain of secrecy over the whole business.
A Look in Detail
Let's look a little further at each of these items.
1. The pace of Prosser's fund-raising: Here's how much Vitelco owed CFC at five recent points in time in numbers rounded to the closest million:
May 30, 1997 $52,000,000
May 30, 1998 $214,000,000
May 30, 1999 $376,000,000
May 30, 2000 $549,000,000
March, 2001 nearly $600,000,000 (estimated)
These figures show (1) that Prosser's Vitelco increased its debt to CFC tenfold in a period of three years, a remarkable development, and (2) that the rate of increase slowed from a full gallop to a slow walk in recent months.
The first four numbers are from a close reading of CFC's dense annual reports. The fifth, the estimate, came from a mainland financial guru. All data gathered for this piece, incidentally, are from mainland sources.
2. CFC's bad reviews:
CFC, though a spin-off from the New Deal's successful efforts to extend electrical power to America's farms, uses its base among the rural power and phone companies to secure relatively low-cost capital on Wall Street, and then to lend these funds to member agencies at a slight mark-up.
Incidentally, CFC, although it does not use taxpayer money, is physically closer to the Congress and the Agriculture Department than it is to Wall Street; its headquarters is a sleek, black-glass enclosed office building, valued at $52,000,000, near Washington's Dulles Airport.
Central to CFC's ability to borrow billions on Wall Street are the ratings it gets from the three independent financial rating services that cover it:
Moody's, Standard and Poor's and Fitch's. When those ratings go down, the cost of money rises, an affliction visited on the Kansan co-ops and on Prosser's privately-held company alike.
In recent months two of these rating services, Moody's and Fitch's, have downgraded CFC's prospects from stable to negative, while the third, Standard & Poor's, retained the stable rating "despite some erosion in asset quality and an increase in loan concentration."
A central theme discernable in these three ratings — none of which mentioned Vitelco or Innovative Communication by name — is that CFC is concentrating too much of its lending on a few recipients, that it is lending more to the relatively vulnerable telephone (as opposed to power) companies, and that it is lending money to firms that have invested beyond their financial bases. Vitelco is, of course, a phone company, one of the really big borrowers and probably investing much of its borrowed funds in something other than mere wires and connections for its phone customers.
3. CFC changes the rules:
A careful reading of a couple of CFC documents filed with the U.S. Securities and Exchange Commission reveal that in the three-month period, March-May, 2000, CFC apparently became aware it had lent a lot of money to six of its members; in fact, it had lent more than 25% of its net worth to each of the six. CFC decided, apparently, that this was a troublesome situation.
At the top of the list was Deseret Generating, an electrical co-op in Utah that briefly overbuilt its generating capacity (but is now making out like a bandit with the power shortage in California). Second, I think, is Prosser's Vitelco, followed by four others.
During the March-May, 2000 period (perhaps coincidentally, shortly after the Wall Street Journal's long, devastating investigative reporting article on Prosser) CFC decided that no more loans would be made to the big six borrowers unless the decision was ratified by the CFC board of directors.
That meant an extra layer of review for future loans to Vitelco and five others; as noted earlier, the flow of funds to Vitelco has slowed considerably in the period since that decision.
4. Recent CFC secrecy: Securing information on CFC operations generally, not to mention its dealings with Vitelco, now is about as rewarding as asking the Russian government about the location of its missile sites.
There is, for instance, the story of the suppressed annual report on CFC's telephone-related subsidiary, the Rural Telephone Finance Cooperative (RTFC).
A year ago I called the CFC's publicist, and hours later a messenger brought me a copy of the most recent RTFC report, a 20-page, lushly-printed cheerful report, a typical corporate public relations product.
Last month, assuming that this was still a public document, I called CFC's PR people and asked them to fax me a page that was comparable to page 17 of the previous year's report, which laid out the RTFC's state-by-state distribution of loans. The next day I was told that this was no longer a public document, and had been distributed only to members.
I suspect that one line of the telephone affiliate document (on page 17) was the problem, because while the extent of loans to individual recipients was not shown, state totals are published. Since Vitelco is the only USVI member of the organization, and the total lent within the USVI is shown, then the amount lent to Vitelco is clearly visible.
In another communications blockage — and there are too many to recount — no one at CFC, and I tried several members of the board of directors, the agency publicist, and the CEO, would talk about its basic lending policy.
"What are the rules for the use of money borrowed from CFC?" I asked. This was a general question, and could not relate to the situation of any member borrower, but no one would answer.
"What is the current level of bo
rrowing by Vitelco?" No replies.
"Has any single entity, without naming names, ever borrowed as much money per capita as Vitelco?" No answer.
I asked the last question because I had done a little basic math, which I have not seen elsewhere. I had noticed that the telephone subsidiary of CFC has about $2.7 billion in loans outstanding, spread around a nation with about 270 million people, or about $10 per head. The mainland state that seems to have the largest per capita set of loans (made to several rural phone companies) is Montana, where the per capita rate recently was about $119.
In contrast, the CFC's loan exposure to Prosser's operation is $4,566 per head; that is, if you take the last published total of money lent to Prosser's Vitelco, $549,000,000, and divide it by the population of the USVI, you get a remarkable $4,566.
I suppose I can understand a non-profit organization's unwillingness to talk about that large an investment made to a firm controlled by a capitalist adventurer whose audacity attracted the not-very-friendly attention of the Wall Street Journal.
So those are signs suggesting that perhaps Prosser's fund-raising prowess has faded at CFC.
But, who knows, perhaps he has found other prospects elsewhere?
Editor's Note: David S. North, a retired federal employee lving in Arlington, Virginia, is a private researcher who often writes about government and economics.
