March 17, 2009 — Here's a rare bit of good news for Vitelco: The interest rate it is paying on more than $50 million borrowed by its former owner and CEO, Jeffrey Prosser, has declined sharply, an indirect result of the worldwide financial crisis.
A year ago Vitelco was paying a modest 3.197 percent — a little more than $3.19 per hundred annually — on the loan Prosser secured several years ago from the U.S. government.
Currently that rate has dropped to 0.101 percent — that's an eye-popping 10 cents, one thin dime, for every $100 borrowed — again, an annual rate. By contrast, most homeowners are paying $5, $6 and $7 per hundred borrowed in their mortgages.
On the other hand, the continuing bad news for Vitelco is that it has to pay off the $50-plus million debt even though that money has disappeared into the morass of the Prosser bankruptcy, never to be seen again. The phone company is not directly involved in the bankruptcy of what had been Prosser's corporate empire, and the $50-plus million debt to the federal government is in addition to the half billion in Prosser debts now before the U.S. Bankruptcy Court.
Why the Bargain Rate?
Several years ago, at a time when he was in financial trouble but not yet in bankruptcy, Prosser went to the Rural Utilities Service and convinced that division of the U.S. Department of Agriculture to guarantee a loan of more than $60 million to be lent to Vitelco by an obscure arm of the U.S. Treasury, the Federal Financing Bank.
At the time, the people at RUS, then controlled by the George W. Bush Administration, told the Source that no financial information on the loan could be released because of "competitive reasons." The Source's arguments that these were public funds and that Vitelco was a monopoly phone system fell on deaf ears.
Prosser signed up for what, in the housing field, would be called an adjustable-rate mortgage, but this one did not sting the borrower, as that system has hurt many homeowners. Because of the RUS guarantee, and because rural utilities are treated very favorably generally, the interest rate for the Vitelco loan was set at the rate that the U.S. government has to pay when it borrows money. Several other rural utilities have similar loans at similar rates.
In recent months, the stock-market crash has led many investors to place their money in government bonds, thus driving down the interest rates paid by the government to historic lows. And since these rates are reflected in the Vitelco loan, the phone company has a remarkable bargain — at least for the moment.
The Vitelco loan is a revolving one, which is automatically renewed every three months as long as principal payments are being paid. When the interest rate paid by the government for short-term loans (it is called the Treasury Rate Curve) changes, the rate charged to Vitelco will also change. It is highly likely to increase in the future.
Unlike other Prosser debt obligations, this one has been met faithfully, first when Prosser controlled Vitelco and later when the court-appointed trustee, Stan Springel, was in charge, as he is at the moment. In addition to paying the interest every three months, there has been a regular payback of principal; there was a $1.1 million payment in the last three months of 2008.
The level of the debt, on Dec. 31, 2008, was $52 million. The current interest payment, for the first three months of 2009, is all of $13,126.
No one announced this news; it can, however, be gleaned from long columns of figures in the monthly reports found in the website of the Federal Financing Bank.
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