Retirement of CUC debts to CDA nears

Only $65 million of the approximately $107 million loan obtained by the Commonwealth Utilities Corporation from the government’s major lending arm is expected to be retired within the 30-day period agreed by both parties last month.

Development Authority Board Chair John S. Tenorio disclosed an agreement is being initially worked out between CDA and CUC to convert the principal loan secured by the utilities corporation in June 1997 into equity.

The 30-day deadline for the debt-to-equity conversion is approaching, but CDA and CUC boards of directors are yet to convene to decide on the planned retirement of the corporation’s entire $107 million loan.

However, Mr. Tenorio emphasized that CUC will have to settle its outstanding account with CDA before it can carry out a big project, including the construction of a new power plant on Saipan.

“In order for any financial institution to really look into any power plant project, they have to work with CDA first. I think CUC is more familiar now why CDA is pushing equity conversion,” he told reporters.

Should the CUC loan be finally wiped out, it will be easier for the utilities corporation to borrow money from private companies in the open market for its future power plant project.

The corporation has been unable to pay its $107 million loan from CDA, which includes the $65 million in principal and interests, that was used to purchase power generators and pay for other financial obligations.

“CUC could not make any payment for the last two and a half years. By converting their loan into equity, the corporation will have better chances at obtaining loans in the open market. We can’t do it in 30 days but we have agreed on the principal at least,” said Mr. Tenorio.

CDA and CUC have completed ironing out technical disagreements that have blocked the smooth conversion of the utilities corporation’s debt into equity. Officials are expected to forge a deal in the next few weeks.

Once agreed, CDA would own between 70 and 80 percent of CUC although it does not intend to run the corporation. Mr. Tenorio said, however, the lending institution will monitor CUC’s financial situation including spending and future borrowings.

CDA has been proposing the debt-to-equity conversion scheme since 1998 in which it will get guaranteed dividends of $2 million to $3 million each year.

Mr. Tenorio assured CUC board will maintain operation and control of the corporation even when its assets are transferred to CDA under the conversion plan. The Development Authority will only look after CUC’s finances.

Discussions are also underway whether to invest the assets into either preferred or common stocks although CDA has virtually ruled out common stocks since it is not interested in obtaining voting rights in the CUC board.

“We are not interested in the common stocks although it would give us voting rights. We don’t care whether we are given the authority to vote. Our concern is to make sure that every dollar borrowed by CUC must be paid back,” he added.