CDA aims to meet with CUC over debt suspension request

The Commonwealth Development Authority board authorized their executive director on Wednesday to set up a meeting with leaders of the CNMI’s public utility over their request to suspend debt obligation payments to CDA.

The CDA board voted unanimously, aiming for a meeting on the week of Aug. 13. They want to meet with CUC management, board, and counsel to see where the utility agency stands financially.

In June, the Commonwealth Utilities Corp. asked CDA to suspend “all payments, accrual of dividends, and any associated liability” for debt payments owed to CDA for a period of five years.

But just two months before—in April—the CUC board voted to pursue a renewal of a 2.1-cent per kilowatt-hour surcharge for its CDA debt obligations.

CUC owes some $4.32 million in deferred debt by October 2016. They have deferred payments since 2010. In total, CUC has to pay $1.08 million to CDA per year, after paying this debt.

This quick change of position on the debt obligation has drawn concerns from CDA.

“When they came to us recently there was a solution that they proposed,” said CDA executive director Manuel Sablan in an interview after the board meeting on Wednesday.

“And I thought there was really no need to amend [the stock agreement] because the proposed arrangement would bring them up to date on their arrears. But something happened. That did not materialize. So they came back and now are asking the board to provide them some kind of suspension of the dividend payment” plus accruals, he said.

Sablan said that CDA has “a fiduciary responsibility to collect, to receive those” payments. “This is not a debt, this is a preferred stock. This is an equity position.”

“This is an active obligation. Are they suggesting that we are going to be writing these things off?” Sablan went on to say.

He explained that CUC owed CDA in excess of $100 million in principal debt and accrued interest, but that CUC and CDA agreed to let CDA take an equity position in CUC by converting the obligations into a preferred stock to the tune of $35 million for potential offset of $16 some million if CUC could demonstrate they could spend their own internally generated money to finance capital improvement projects in a “revolving fund.”

“Because CDA is obligated to make sure this money is revolving, the payment for this so-called dividend payment…is not CDA’s revenue,” Sablan said. “It will be available to finance other [capital improvements]. It is a revolving fund to finance other CIP related projects involving income-producing government agencies like” the local ports authority and public utility.

Sablan said when CUC and CDA agreed to convert the millions owed to an equity position, it improved the balance almost overnight.

“It moved that liability to the equity side of the balances. My thinking is by doing that they should be able to move now further and [have] them able to leverage their resources, because now they are not saddled with a hundred million-dollar loan. They are saddled now with an equity stakeholder. All the equity stakeholder is asking is to pay an agreed upon dividend on equity in the form of a preferred stock.”

CUC’s debt stretches decades back to 1985, when CDA loaned CUC $200 million from a federal grant pledge agreement they received so CUC could build its infrastructure. CUC hasn’t paid much back. A legal battle in 2001 over the money was resolved in a memorandum of agreement the next year, which was revised in 2004 to turn that debt into equity for CDA. In 2009, the agreement was executed, effectively turning that total debt of about $200 million and the total interest debt of $138,672 into equity, or $45 million in preferred stock held by CDA. CUC’s dividend payment was set at 2 percent, or $900,000 a year of that amount. The deferred payment of three years is amortized over 15 years, for $180,000 a year.