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HomeNewsArchivesWashington Post Weighs in on Prosser Bankruptcy

Washington Post Weighs in on Prosser Bankruptcy

April 30, 2007 — The Washington Post published an article Monday about one aspect of the Jeffrey Prosser bankruptcy proceedings: its impact on the National Rural Utilities Cooperative Finance Corporation (CFC), a longtime lender to Prosser's Innovative Telephone Company.
The lead article in Monday’s business section of the Post was headlined: “Defaults Plague Little-Known Big Lender: CFC, Created to Support Rural Utilities, Ran Into Trouble when Member-Borrowers Branched Out.”
Two such members were mentioned: the Prosser firm and the Denton County (Texas) Electric Cooperative, both of which have defaulted on their loans to CFC; Prosser’s firm to the tune of $550 million, and $1 billion in the case of the Texas organization.
These defaults and a critical report from a bond-rating firm “have focused attention on the unusual — and unregulated — lending institution’s struggle over the last five years to keep itself on an even keel despite loan losses, rising interest rates and razor-thin margins,” wrote Post reporter Steven Mufson.
The rating agency, a small and new one, is Egan-Jones Ratings. While it is not one of the big-three credit-rating agencies, its early reports on the problems of Enron and WorldCom gave it credibility. Egan-Jones has placed the CFC obligations in the junk-bond category.
Steven L. Lilley, the CFC’s chief financial officer, replied that CFC’s loss reserves are more than adequate to cover the bad debts. In the article, CFC also called a non-issue Egan-Jones' reporting that the value of its loans are carried at issuance rather than market value, because CFC never sells its loans. Further, virtually all loans — Vitelco’s and the Denton Coop’s being the exceptions — are routinely paid in full.
Three weeks after the Egan-Jones report, a group of 19 big banks extended $2.25 billion in credit to CFC, the Post reported.
Regarding Prosser, the article said, “In highly leveraged transactions, he bought two-thirds of the wireless telephone operations on St. Martin, cable TV operations on Guadeloupe and Martinique and a cable TV company in France.”
The net value of these assets has not yet been reported in the bankruptcy proceedings, but Prosser’s lawyers said some months ago that the Martinique and Guadeloupe holdings were in a nearly completed sale for $70 million. The consummation of the sale has yet to be announced, however.
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