$45M in preferred stocks deal cancels CUC debt to CDA

The Commonwealth Utilities Corp. and the Commonwealth Development Authority yesterday signed an agreement converting CUC’s $45 million debt to CDA into preferred stocks that CDA will own.

As of the date of CUC’s issuance of the preferred stock certificate, the agreement cancels and discharges CUC’s indebtedness to CDA under any and all loan agreements, promissory notes or other evidence of indebtedness now existing between the two.

CUC originally owed CDA $45 million but the amount reached over $176 million due to interests and late charges.

CDA board chair Pedro I. Itibus, CDA executive director Manuel A. Sablan and CUC executive director signed the preferred stock agreement, along with Gov. Benigno R. Fitial as witness.

“This makes us [CUC] a viable entity,” Muna said during the brief signing ceremony, witnessed also by Lt. Gov. Eloy Inos and counsels for CUC and CDA.

Under the six-page agreement, CUC is required to issue CDA shares of cumulative, non-convertible and non-transferable preferred stock amounting to $45 million.

The preferred stock shall yield guaranteed annual dividends fixed at 2 percent per annum of the total aggregate value, payable quarterly in advance.

CDA has all the rights of a preferred stockholder consistent with CNMI law.

“This is a preferred stock, not a common stock. So there is payment on dividend that’s forthcoming, under this agreement, to us. And for the first three years, there’s deferment of that dividend. The idea really is to assist CUC in its financial posture…”Sablan said.

Dividend payments will be paid to CDA beginning Oct. 1, 2012.

The agreement takes effect upon approval by CDA and CUC, and by the Commonwealth Public Utilities Corp.

Fitial said the signing of the preferred stock agreement is “a move in the right direction.”

Sablan and Itibus said the agreement shows CDA and CUC’s commitment to work together to protect ratepayers.

“Our next move is to assist CUC in looking at other financial means to enhance its power generation…,” said Itibus.

Besides the fixed 2 percent in annual dividends, the agreement states the preferred stock to be issued shall contain, at a minimum, buy-back provisions, default provisions, preferred shareholder rights; and consistent with CNMI law, such other rights and remedies as are typically found in shareholder and stock purchase agreements.

Under the deal, CUC shall, within 30 days after the approval of the agreement by the Commonwealth Public Utilities Commission, issue cumulative, non-convertible and non-transferable preferred stock naming CDA as the legal and beneficial owner. The total aggregate par value shall be $45 million.

CUC also has the option, at any time, to buy in whole or from time to time in part, such preferred stock from CDA at par value, plus unpaid dividends.

Under the agreement, CUC has the right to buy up to $16.2 million of the $45 million preferred stock issued to CDA through a dollar for dollar offset against CUC’s future, internally funded capital improvement projects.

Subject to this CUC purchase exception, CDA shall not transfer by sale or assignment any of its rights, title or interest to such preferred stock.

Dividend payments are to be deferred for the first three years after issuance with such deferred dividend payments being amortized, interest free, over a 15-year period to allow ample time for CUC’s fiscal recovery.

As an integral part of the deal, CUC is to provide CDA with an annual audited financial statement no later than nine months after the end of each fiscal year which reflects the amortization of such deferred dividend payments.

In the event CUC initiates privatization of all or portion of its utilities, it is required to notify CDA in writing of its intention to advertise for privatization.