CDA: Equity conversion is CUC’s only option

Equity conversion of its approximately $107 million delinquent loan from the government’s major lending arm is the only option left for the Commonwealth Utilities Corporation, according to Development Authority Board Chair John S. Tenorio.

Legal counsels for the government financial institution and the utility corporation are now polishing minor the details of the debt-to-equity conversion agreement, which has been proposed by the CDA to hasten CUC’s ability to retire its unpaid and overdue loan.

Mr. Tenorio explained that discussions are already underway between CDA and CUC officials to clarify crucial elements of the proposed conversion pact such as whether or not to include the corporation’s water and sewer operations.

Unless CUC settles its more than $107 million loan from CDA, it would be difficult for the government-owned corporation to obtain financing from private financial institutions.

According to Mr. Tenorio, any power plant construction project that will be undertaken by the utility corporation hinges on the retirement of its CDA debt, which has been overdue since more than three years ago.

“Conversion of their liability to equity is the only solution left for CUC in order for the corporation to re-build its financial condition. Our proposal will definitely give CUC a more sound fiscal house,” he said.

Although the CUC Board of Directors continue to delay action on the proposed debt-to-equity conversion, Mr. Tenorio remains confident an agreement will be signed soon considering the fact that the corporation is looking at a new 60-megawatt power plant project.

CUC would be have to retire its debt should it plan to tap fundings from private financial companies. In fact, Burns & McDonnell has recommended that the corporation promptly deal with its outstanding loan.

Under the proposed conversion agreement, CDA will have control over the utility firm’s spending and expenditures while the CUC Board will oversee administration and policies.

The corporation has been unable to pay its $107 million loan from CDA, which includes the $65 million principal secured in June 1997 and interests. The money was used to purchase power generators and pay for other financial obligations.

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

Once agreed, CDA would own between 70 and 80 percent of CUC. 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.

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 to obtain voting rights in the CUC board.