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Oct 01, 2012

Vivaro, a Large Scale Bankruptcy

Cards to Stay Active During Restructuring

Arlene Hauben

Prepaid calling cards have become a huge business, steadily gaining in public acceptance and reliability. Many of the kinks from the early days have been worked out, thanks to higher standards of professionalism and government regulations that enforce disclosure of fees. But now a large scale Chapter 11 bankruptcy filing by Vivaro, one of the largest prepaid providers, has stunned the industry, raising questions about the reasons.

Vivaro Corporation and six affiliated companies, including STI Prepaid and STi Telecom, and Kare Distribution, filed chapter 11 bankruptcy petitions in the US Bankruptcy Court in Manhattan on Wednesday, September 5. Based in New York City, Vivaro claimed between $50 million and $100 million in assets and between $100 million and $500 million in liabilities in its bankruptcy petition. It said it expects there to be funds available to distribute to unsecured creditors, according to Dow Jones Daily Bankruptcy Review (Stephanie Gleason, Sept. 7).

Frederick E. Schmidt, Jr., attorney with Herrick, Feinstein LLP, in New York City is representing Vivaro Corporation in US Bankruptcy Court. Schmidt responded to some questions through a publicist. What will happen to the cards during the bankruptcy?

“The cards will remain active and functional and we will continue to distribute the cards through our large network of well-known distributors and independent stores across the country,” Schmidt said on behalf of Vivaro.

Schmidt added, “Vivaro has filed for Chapter 11 bankruptcy and will continue to operate during the process, working to restructure and emerge successfully.”

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Vivaro Products Targeted to Hispanic Consumers

According to the companies’ website, Vivaro “provides innovative telecommunications products to the fast-growing Hispanic community” and have “partnered with leading venture capital funds to build best-in-class products and services targeted to Hispanic consumers.”

Vivaro primarily is focused on prepaid telecommunications and claims to be the “largest provider of voice traffic to Mexico and possess significant market share to other Latin American destinations.” Kare Distribution, a Direct Store Distribution and marketing organization, claims it has built “the largest Hispanic distribution network in the US servicing the hard-to-reach independent grocery, bodegas, tiendas, carnicerias and other locations.”

Gustavo M. de la Garza Ortega, founder and chairman of Grupo Marcatel, a major carrier in Mexico, acquired Epana and STI in 2010, forming Vivaro, along with Kare, and Unidos. De la Garza Ortega stated Vivaro is the largest provider of voice communications services between Mexico and the US. In August of 2011, Vivaro was one of four prepaid calling card providers hit with an FCC Notice of Apparent Liability for $5 million. So far, no reason has been given for entering Chapter 11 in documents filed with the US Bankruptcy Court in Manhattan.



Few Public Comments

Reportedly, the bankruptcy filing has been the subject of conversation within the industry, but few distributors or providers have wanted to speak publicly about the impacts of the pending bankruptcy on STI cards. 

One person who did not want to be identified said that letters have gone out to STI prepaid card distributors ensuring them that the cards will not get shut down. 

Another unnamed source said, “This has happened time and again in prepaid. No matter what the reason for bankruptcy, distributors are the ones to get hurt.” 

“The little people in this huge network are the ones who could get hurt because they paid out thousands of dollars each month for cards,” said John Tarone, a veteran in the prepaid calling industry. 

Tarone estimates that $50 million was paid out by distributors for STI cards that are sitting on shelves in thousands of retail stores.

Vivaro asked the Bankruptcy Court for permission to honor $31.2 million worth of calling card minutes sold prior to its Chapter 11 filing, according to Dow Jones (Stephanie Gleason, September 7).



Red Cherry Takes Over Distribution

We recently learned that Red Cherry/Sigma Prepaid has taken over distribution of Vivaro/STI cards in the New York and New Jersey area.

On September 23, Tony Kumar, owner of Red Cherry/Sigma Prepaid, told us, "Since taking over distribution, we had them [Vivaro] change the rates for better minutes on the major markets on all the cards. So now the cards are not only staying on, they have more minutes with lower fees."  

“In two days since we took over, we got requests for larger orders already,” Kumar added. He said that Mr. Don Gustavo has every intention to stay in business and will surely bounce back.

Another announcement from The American PrePaid Phonecall Association (APPPA) stated that De la Garza has stepped down as chairman of the organization in order to concentrate his efforts on his company.  De la Garza is a founding member of APPPA.

Pete Pattullo, CEO of Network IP, was elected by APPPA’s board of directors to the office of chairman. APPPA recently completed a first draft of industry standards for prepaid phonecall products. The standards are designed to protect the interest of consumers by establishing a set of minimum standards for the disclosure of rates and terms for prepaid calling products. The association has been meeting with federal agency officials to explain how the prepaid industry works and how it helps immigrants.

Everyone in the prepaid telecom business is waiting to see what will happen with Vivaro Corporation and STI phone cards. Hopefully, consumers will not be affected. This is a very large scale bankruptcy - and could have far reaching impact on the industry.  

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