REAnet mulls bankruptcy

REAnet mulls bankruptcy

Mar. 29, 2001

By Tom Sluis
Durango Herald Staff Writer

REAnet, the telecommunications company created by two local electric co-ops that helped bring fiber-optics to the Four Corners, is considering filing for bankruptcy, REAnet board members said Wednesday.

As part of the potential bankruptcy proceedings, the co-op's top executives, who were temporarily in charge of the floundering company, were advised by a bankruptcy lawyer to step down to avoid a conflict of interest.

REAnet board member David Sitton, of Cortez, said no decision has been made to begin bankruptcy proceedings. "That's one of the options that is available," Sitton said.

"We're still holding out hope that we can find appropriate financing and suitors, and if that were to take place, bankruptcy wouldn't be the direction we would go," Sitton said. "But barring that, we are financially in a pretty poor cash position."

REAnet was created in 1999 by La Plata Electric Association in Durango and Empire Electric Association in Cortez. The co-ops have invested about $1.5 million in cash and have jointly guaranteed a $15 million line of credit.

Critics say REAnet, a privately held company, has used up the line of credit, which is due Aug. 28, on salaries, trucks, other overhead and the purchase of two Internet companies.

If REAnet can't pay back the $15 million in August, the co-ops will have to pay.

The cash shortage is so bad that the eight-member REAnet board of directors — four each from LPEA and Empire — agreed last month to defer their monthly $200 per diem for 90 days.

Besides the loss of cash, REAnet also lost its chief executive officer. In February, Kelly Bloomer stepped down to lead an effort to buy REAnet.

Bloomer said he has $200 million in financial backing to buy the company, but LPEA and Empire say Bloomer hasn't proven he has the money.

They are looking for other buyers.

Bloomer did not return a call seeking comment Wednesday.

To fill in for Bloomer, LPEA Chief Executive Officer David Potter and Empire Chief Executive Officer Neal Stephens are jointly managing REAnet.

REAnet board member Fay Kautz confirmed that a bankruptcy lawyer advised Potter and Stephens to step down to avoid a conflict of interest if REAnet seeks bankruptcy protection.

It was unclear Wednesday whether they had resigned from the board. LPEA spokesman David Waller declined to comment, saying Potter and Stephens were on vacation.

REAnet board member Sitton said REAnet is looking for a chief executive officer to replace Bloomer. In the meantime, REAnet is being run by Raymond Keith, acting general manager.

When asked Thursday if REAnet was considering filing for bankruptcy, Keith was circumspect. "We're looking at many options," he said.

REAnet was created to bring "last-mile" high-speed telecommunications to homes and businesses in the Four Corners. To do so the company needed access to a fiber-optic line, so it persuaded Tri-State Generation and Transmission to help broker a deal among LPEA, Empire, other co-ops, Public Service of New Mexico and Pathnet.

Under the deal, Pathnet built the fiber-optic line. But REAnet has never been granted access to the line.

The fiber line, from Albuquerque to Grand Junction, was built in 2000 by Pathnet and is expected to be activated today or Friday. Other companies such as Fone.net, Brainstorm Industries and Frontier Internet have signed up for Pathnet services.

Ed Morlan, executive director of the Region 9 Economic Development Council, said LPEA and Empire deserve credit for helping Southwest Colorado bridge the digital divide.

"If LPEA and Empire had not stepped up to the plate, we probably wouldn't have fiber in the area," Morlan said. "Getting connected to the rest of world with high-speed bandwidth has been the major economic-development problem here for years."

By law, co-op rates cannot be affected by REAnet's performance, but the capital refunds allocated to ratepayers each year may be cut.

Sitton, the REAnet director who is also on the Empire board, said REAnet is not considering a fire sale in bankruptcy court.

"We have certainly struggled to get this far," Sitton said. "We would like to see a little bit of upside on the deal."