Learning of Seaborne Airline’s decision to move its headquarters to Puerto Rico while renegotiating millions in V.I. Government Employee Retirement System loans, GERS demanded Thursday Seaborne Airlines repay more than $4 million by the end of the day, and Seaborne has apparently complied.

In 2009 GERS loaned Seaborne Airlines $3.3 million, with a five-year term, under the GERS Alternative Investment Program. The program allows GERS to invest a small portion of its overall portfolio in loans to local businesses and other nonstandard investment mechanisms. With no payments missed, GERS negotiated new terms with Seaborne and lent it another $1.5 million in late 2012.

At the end of the process, Seaborne held two loans: one for $2.3 million at 6.25 percent interest and one for $1 million at 8.25 percent, and two seats on Seaborne’s newly constituted five-member board of directors. Since then, payments ceased, Seaborne changed management, Seaborne and GERS began renegotiating the loans again, and then Seaborne suddenly announced it was moving its headquarters to Puerto Rico.

GERS Administrator Austin Nibbs said at the outset of Thursday’s meeting that the move violated the terms of GERS’ agreement with Seaborne, so he had notified Seaborne that he demanded full payment on the loans by the end of the business day.

"Based on our agreements, they are supposed to have the consent of the board to move to Puerto Rico and they have not done so," Nibbs said in response to a question from retired coach Eurman Fahie.

St. Croix resident Betty Wilson asked what the dollar amount would be for Seaborne to pay off the loan.

Nibbs asked the board if he is allowed to disclose the figure and Chairman Vincent Liger said "Yes, it’s public information." Nibbs said the payoff amount to close out the loan would be $4,287,738.79 of which $4,174,028 is principal, and the remainder is reasonable expenses and fees.

Sen. Kenneth Gittens attended the meeting and asked questions about Seaborne and about negotiations with the executive branch over missing employer contributions.

"Are they up to date?" Gittens asked.

"No,” Nibbs said. “They have been in default for quite some time."

"When was the system officially notified of the move?" Gittens asked.

"We were never officially notified of the move," Nibbs said. "We heard about it, we called them and we let them know at that time that we were opposed to it," he added.

"What is your next step?" Gittens asked. "That is the board’s decision. They will discuss it in executive session," Nibbs replied.

The board later went into executive session and, when it came out, Liger reported that the board discussed Seaborne but had made no decisions yet.

Seaborne sent out a statement Thursday afternoon, while the GERS meeting was ongoing, asserting it "has wired in excess of $4M to the Government Employee Retirement System of the U.S.V.I. in settlement of its loan obligations."

When Nibbs and board members were asked for comment on Seaborne’s payment at the end of the meeting, some took it as plainly good news for GERS.

"Problem solved," said member Carol Callwood. She said the loan was supposed to be a business investment that would generate income for GERS retirees, so payment in full of the loan meant GERS made money on the investment.

"Well, if it is paid off, we no longer have any relationship with Seaborne," Nibbs said at first. He then qualified the comment, saying it was too soon to comment. First he would have to confirm the funds were transferred and that the amount is correct, and then the board would have to discuss it at its next meeting, he said.

In a related action, the board voted to set a GERS policy that the interest rate on its alternative investment loans would be "tied to the actuarially assumed rate of at least 7.5 percent." This means the actual interest rates must be "tied" – or connected to the level that would generate a total return on investment of at least 7.5 percent. The actual loan rates would likely be a little higher, closer to 8 percent, to pay for the cost of managing the loan while preserving the rate of return.

GERS previously lowered rates to less than 8 percent to accommodate a $13 million loan to the government, Nibbs said. "However, the economic situation has changed and we are making money in some cases at rates of up to 14 percent. What sense does it make to take the money out of investments like that and loan it to businesses with greater risk and make less than 8 percent?" he said.

The board also voted to develop an agreement with the Synergy Development Group to develop GERS property in Estates Nullyberg and Hoffman on St. Thomas. GERS is planning a business center, hotel and convention center in the area, Nibbs said. (See: Public Hearing to Explore Proposed GERS Hotel Development in related links below)

In other business, the board voted to request a $377,000 settlement share in a wide-ranging class action fraud lawsuit against Fusion IO Inc., from the firm of Bernstein Litowitz Berger & Grossmann, which is handling the class action suit. The number represents the cost to GERS investments due to the alleged Fusion IO fraud. And it approved hiring BCA Watson, one of the nation’s largest certified public accounting firms, to consult on policies and procedures at Carambola Beach Resort, which GERS has owned since the prior owners defaulted on GERS loans. The board approved payment of up to $77,890 for the consultant.

All votes were unanimous.