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ICC Creditor Moves To Acquire Vitelco

Jan. 31, 2009 — The anticipated auction of the local Vitelco phone company took a new twist Friday when the biggest creditor to Vitelco parent ICC announced it would credit bid.
The National Rural Utilities Cooperative Finance Corporation (National Rural) has announced it is "prepared to make a credit bid" as the first step in acquiring Vitelco and other Innovative Communication Corporation (ICC) assets. National Rural’s affiliate, Rural Telephone Finance Cooperative (RTFC), is the lender to ICC and holds a $525 million judgment against ICC, which has been in bankruptcy since July 2006. A credit bid is when a creditor bids for a property at auction, offering not cash, but the value of the debt owed it.
“After examining the condition of these companies and recognizing the condition of the credit markets, National Rural believes it must be prepared to credit bid to acquire and rehabilitate Vitelco and other ICC assets in order to improve the opportunity to maximize recovery,” said National Rural CFO Steven Lilly in the company's public statement.
“National Rural fully understands the responsibility that this bid entails and, if successful, is prepared to meet all obligations associated with the ownership of these assets. We are preparing a comprehensive plan to enhance the success of this endeavor.”
The sale of Vitelco and other ICC assets must first be approved by the bankruptcy court and all appropriate regulatory authorities, including the V.I. Public Services Commission.
The move by RTFC affiliate National Rural to credit bid will be unwelcome news to competing bidders because it allows National Rural to keep Vitelco from being sold below a minimum price — thus limiting the size of RTFC's paper losses and forcing other bidders to match the credit bid.
As the largest creditor, holding more than half a billion in ICC debt, most of the Vitelco sale proceeds would likely flow to RTFC regardless of who buys it or at what price. But the neglected state of Vitelco's system and deteriorating economic conditions have depressed estimates of the likely sale price to $185 million or possibly less. (See: "Consultants Paint Grim Picture of Vitelco's Infrastructure.")
If it sold for that amount, RTFC would have to write off hundreds of millions of dollars in losses. But if National Rural can cause other bidders to pay more for Vitelco, it reduces its losses. And if National Rural ends up owning Vitelco, a future rise in the value of the company could also cushion its losses.
National Rural is a not-for-profit finance cooperative with more than $20 billion in assets that serves the nation’s rural utility systems, the majority of which are electric cooperatives and their subsidiaries. Its affiliate RTFC serves the financial needs of the rural telecommunications industry and has approximately $1.7 billion in credit outstanding — ICC being a large part of that.
Both National Rural and RTFC are headquartered in Herndon, Va.
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