On Appeal From the United States District Court of the Virgin Islands (St. Thomas), D.C. Civil No. 87-257.
Gibbons, Chief Judge, Stapleton and Mansmann, Circuit Judge.
STAPLETON, Circuit Judge:
Atlantic Tele-Network Company (ATN) here challenges the authority of the Public Service Commission of the Virgin Islands (PSC) to regulate the sale of the stock of the Virgin Islands Telephone Corporation (Vitelco) to ATN. The district court held that the PSC did not have authority to impose conditions on the sale under its original enabling statute and that the application to this sale of a statutory amendment explicitly granting such authority would violate the Contract Clause. Because we find that the statute prior to its amendment gave the PSC the authority to impose the disputed conditions, we will reverse.
Vitelco is the sole telephone company in the Virgin Islands. It was created in 1959 as a wholly owned subsidiary of the International Telephone and Telegraph Company (ITT) pursuant to an agreement between the Government of the Virgin Islands and ITT. The 1959 agreement prohibited the transfer of Vitelco's stock for a period of five years,*fn1 and required Vitelco to sign a franchise agreement that included a prohibition against transfer of the franchise without the consent of the PSC.
On January 9, 1987, ITT entered a Stock Purchase and Sale Agreement in which it agreed to sell all the shares of Vitelco's capital stock to ATN, a corporation that had been formed by a group of investors for the purpose of acquiring and controlling Vitelco.
The PSC learned of this agreement and attempted to exercise its regulatory authority over Vitelco by imposing conditions on the terms of the stock sale. The PSC held several hearings beginning in January, 1987, and entered several orders setting forth its conditions for approving the sale. ATN decided to participate voluntarily in all of the PSC proceedings and attempted to accommodate the PSC's concerns by modifying the agreement. ATN maintained throughout, however, that the PSC had no power to disapprove the sale or impose conditions.
On April 23, 1987, following its fourth hearing on the matter, the PSC issued the order contested in this case, No. 22-1987. In this order, the PSC concluded that certain terms of the sale relating to financing threatened the economic viability of Vitelco, and directed that the sale not be consummated unless certain conditions were satisfied. The primary difficulty identified by the PSC was that the purchase price of approximately $98 million, ATN was to put up only $15.5 million in equity and borrow the remaining $82.5 million from its principal stockholder using the assets of Vitelco as collateral.
In order to insure that ATN would be able to pay its indebtedness to its principal stockholder, the agreement of sale called for the imposition of several restrictions on Vitelco. First, there was to be a "negative pledge of assets," under which Vitelco, for the duration of ATN's loan, would be foreclosed from pledging any of its assets to obtain additional capital, with the sole exception that Vitelco could execute purchase money mortgages in connection with purchases of new equipment. Second, for the duration of the loan, Vitelco was to take no action that would restrict Vitelco's ability to pay dividends to ATN. These restrictions led the PSC to conclude that
inasmuch as Vitelco will be ATN's sole source of repayment of its $80 million debt, as well as its mandatory 12 % annual dividend to preferred shareholders, there will be an unavoidable financial harm to Vitelco, including an immediate negative effect on retained earnings, and a negative cash flow by 1994, with a consequent upsurge in pressure to sacrifice reasonable capital investment requirements and prudent maintenance and operation expense obligations. Further, since the Vitelco stock is pledged as security for the debt, default would result in a chaotic situation for the utility.
App. at A-100. The PSC ordered that the sale not take place unless the negative pledge of assets and the restriction on dividends were removed. The PSC also required that ATN's principal stockholder provide Vitelco with a $15 million irrevocable letter of credit, and stated several other conditions of its approval.
On May 18, 1987 the Virgin Islands legislature enacted Act No. 5258, which was signed into law the next ...