CDA gives CUC ultimatum • Utility corporation told to pay or face legal action

The Commonwealth Utilities Corporation has until next week to come up with a plan of action to deal with its $100 million delinquent loan or it may face legal action, which could strip the current Board of Directors the power over the government-controlled power firm.

This ultimatum was issued last month in light of CUC’s apparent persistence in acknowledging demands for payment from its creditor — the Commonwealth Development Authority.

CDA Executive Director MaryLou S. Ada said the mid-April deadline was part of the conditions set by the government’s lending arm in desperate attempts to collect from CUC over $100 million in total loans.

“We are proceeding with the 30-day deadline for them to come up with a concrete plan of action to resolve once and for all the corporation’s delinquent loan,” Ms. Ada told reporters in an interview yesterday.

She stressed CDA is ready to take legal action against CUC if the public power corporation failed to come up with a concrete debt restructuring plan by middle of the month.

Ms. Ada disclosed CDA is planning to hire a management company which will takeover CUC for the development authority to make the utility corporation a profitable organization.

“If the Board fails to correct the financial concerns that we have raised, especially when it comes to the payment of their more than $100 million loan from us, CDA can takeover to make sure CUC becomes a profitable corporation,” she pointed out.

The Special Representatives Agreement reached between CDA and CUC gives the government-controlled lending agency the power to investigate the utility corporation’s financial management.

The same agreement allows CDA to remove officials who cannot properly operate the utility corporation and relegate the responsibility to CDA’s appointees, according to a legal opinion earlier aired by the lending agency’s counsel Vicente Salas.

According to Ms. Ada, a CDA takeover of the utility corporation could ensure smoother relationship and guaranteed repayment of CUC’s obligation.

CUC and CDA entered into a loan agreement, stipulating the corporation’s obligation to repay the loans plus interest. Such obligation had been acknowledged by CUC and bargained for by CDA.

Ms. Ada emphasized that the government’s lending arm has fiduciary responsibilities, especially the need to safeguard CDA’s assets and preserve its financial vitality.

In order to resolve the issue, officials earlier explored the possibility of converting CUC’s over $100 million debt to equity primarily because it would also serve the financial books of the utility corporation better than merely transferring its credit from the Commonwealth Development Authority to the executive branch.

CDA Board Chairman John S. Tenorio previously said CUC is more likely to easily secure future loans from private financing companies if its $100 million liability is converted into equity.

Equity conversion would also give the government a commanding stake in CUC should plans to privatize the utility firm push through.

However, the Senate has taken steps to legislate the transfer of CUC’s liability from the government’s lending arm to a special account to be created within the Department of Finance.

The Senate’s move will block plans to retire CUC’s financial obligation through equity conversion.

The funds loaned out to CUC came from a bond float that used the Capital Improvement Project grants from the federal government as collateral, with CDA acting only as conduit so that the money would be released.

But Mr. Tenorio said even when the liability is transferred to the executive branch, CUC would still have to consult with the development authority if it intends to secure funding from private financing companies for major power projects.

He said CUC will be forced to make significant reductions in its liability if the corporation intends to borrow money from private financial companies for the new power plant project.

In fact, Burns & McDonnell has recommended that the corporation promptly deal with its outstanding loan.

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, used to purchase power generators and pay for other financial obligations.

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.