Aug. 31, 2004 – The Rural Telephone Finance Cooperative, the not-for-profit lending institution owed more than half a billion dollars by Innovative Communication Corp., has gone public with some information about its complex relations with ICC.
The Virginia-based cooperative's annual financial statement, filed recently with the Securities and Exchange Commission as a Form 10-K, for the first time in years, if ever, mentions ICC by name. And it briefly recounts, on pages 132 and 133, RTFC's lawsuit filed on June 1 against ICC.
In the suit, as amended, the wholesale bank for rural utilities claims that ICC and its subsidiaries violated various provisions of loan agreements, notably in issuing $81 million in Innovative Telephone preferred stock without turning the money over to RTFC. (For the most recent coverage, see "ICC Responds to Amended Lawsuit Filed by Lender" and "Suit Seeks More from ICC; Loan Details Made Known".) In the amended pleadings RTFC demands expedited payment by ICC of the entire $552 million it says is owed the bank.
On page 6 of the 143-page, small-print document filed with the SEC, the finance cooperative lists the levels of borrowing by state or other jurisdiction. Since ICC is the only RTFC member/borrower in the Virgin Islands, the totals given for the territory also are the totals of ICC's debts.
According to the financial statement, these totals rose from nearly $615.6 million on May 31, 2002, to a little over $623 million a year later, and then dropped by about $70 million to almost $552.7 million as of May 31 this year.
In the meantime, last winter, Innovative Telephone borrowed more than $66 million from two federal agencies.
Following the issuance of the 10-K, Steven Lilly, RTFC's chief financial officer, hosted a telephone conference call last Friday for investors, financial analysts and reporters. Such conference calls are a routine operation for major corporations.
Most of the half dozen or so people posing questions after Lilly's briefing asked about the bank's relations with ICC.
The person from Merrill Lynch, the brokerage house, wondered if the $81 million raised through the stock sale had "not already been spent," possibly in reference to the purchase by a new ICC spinoff of a Belize telephone company.
(Lilly had asked Innovative Telephone's president, David Sharp, on Aug. 25 at a V.I. Public Services Commission meeting if ICC would take more money from the stock-sale proceeds to fund the $57 million acquisition of Belize Telecommunications. Sharp refused to answer.)
In response to the Merrill Lynch query, Lilly replied that he thought some of that money was still available. He also expressed the belief that the funds owed the bank by ICC would be recaptured either by litigation or an out-of-court settlement.
Regarding the pending litigation in Federal District Court in Alexandria, Va., Lilly said that ICC and RTFC had signed an agreement calling for the normal periodic payment of moneys due the bank while the dispute is before the court. He predicted that the case will go to trial next January.
Another analyst asked if RTFC had taken adequate steps to secure ICC's assets outside the United States, if need be. Lilly replied that the bank had taken prudent steps in that direction.
A third person asked if the status of the Virgin Islands was such that it would create impediments to the recapture of assets by the bank, if need be.
"You don't need a passport to fly to the Virgin Islands," Lilly explained. Assuring the questioner of his confidence in the judicial system, he added: "They operate under U.S. law and are covered by the 3rd Circuit Court of Appeals. As a matter of fact, the judges are from Western Pennsylvania."
The Source then asked Lilly about the following statements concerning the ICC-RTFC relationship that appeared in succession in the Aug. 26 issue of V.I. Daily News, a publication owned by ICC:
"RTFC's lawsuit also claimed that ICC owed it more than $550 million.
"ICC disputed those claims and enumerated signed and notarized documents showing that Innovative Telephone already has repaid all its loans from RTFC."
Lilly was asked: "Does this mean that ICC has paid off its debts?"
He said there were two different entities involved. Innovative Telephone is no longer in debt to RTFC, he said, but the parent company, ICC, owes $522 million.
Lilly also was asked about another lawsuit against ICC, one filed by Greenlight Securities, minority stockholders in ICC's predecessor firm Emerging Communications. In that case in Delaware state court, the judge's decision, which has not yet been converted to a judgment, was that ICC had understated the value of the stock owned by the minority (Greenlight) by tens of millions of dollars. (See "Prosser Ordered to Pay Millions to Ex-shareholders".)
In partial response to the judge's decision, ICC's vice president for corporate affairs, Holland L. Redfield II, said on June 21 that "for several years RTFC has had an obligation to advance a large amount of money on ICC's behalf toward the payment to Greenlight in the transaction which gave rise to the Delaware dispute."
Lilly declined to confirm or deny any obligation on the part of RTFC on this point.
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