Gov't Remains Supportive of PAL Rehab Program, Espiritu Tells 'Junior Lenders'

Philippine Star

Thursday, December 17, 1998

Marianne V. Go

Finance Secretary Edgardo B. Espiritu assured yesterday the so-called “junior lenders” of the Philippine Airlines (PAL) that the Estrada administration is still fully supportive of the rehabilitation plan recently submitted by the financially-troubled airline to the Securities and Exchange Commission (SEC).

Espiritu met yesterday with representatives of the junior lenders of PAL who were seeking assurance that the Estrada government would still support PAL regardless of its plan to get a strategic partner or do a stand-alone rehabilitation.

Espiritu informed the junior lenders representatives that while the National Government cannot directly invest in PAL, it is exploring other options by which it can assist PAL in financing its rehabilitation program.

The junior lenders actually support the rehabilitation program submitted by PAL noting that the plan “is professionally and objectively crafted.” However, the junior lenders do not have a big say on the settlement of PAL’s debts as it is the major lenders or creditors who would have the major say on any decision to accept the rehab plan or not.

The major lenders are the European creditors and the US Eximbank while the junior lenders are smaller US and European financial institutions and lessors.

The junior lenders, however, are trying to cooperate with the government to convince the major lenders to accept the rehab plan submitted by PAL.

Espiritu informed the “junior lenders” that among the options that the government is eyeing is the qualification of PAL as beneficiary borrower under the Japanese Miyazawa Initiative private debt restructuring program.

There are three possible options in which PAL can avail of a $150-million loan under the Miyazawa initiative, Espiritu explained.

One option is for PAL to qualify directly under the private debt restructuring loan program. However, the loan program is supposed to be on a government-to-government basis only.

The second option is for a government financial institution to avail of the $150 million and then lend it to PAL.

The third option is for a government-owned or controlled corporation (GOCC) to avail of a $150 million loan under the Miyazawa initiative and invest it in PAL with a takeout or redemption provision.

This would mean that the GOCC would be given preferred shares which it has the option to convert to common stock if the airline managed to rebound.