PCIB Questions Provisions of PAL Rehab Program

Manila Bulletin

Wednesday, December 23, 1998

The Philippine Commercial International Bank (PCIB) is questioning some provisions of the proposed rehabilitation plan filed by Philippine Airlines (PAL).

In a comment filed with the Securities and Exchange Commission (SEC) yesterday, PCIB said the rehabilitation plan failed to suggest the composition of the permanent rehabilitation receiver (PRR).

Under the plan the PRR will serve as the supervising body over PAL’s board of directors during the rehabilitation period.

The bank wanted to know if the PRR will be a single receiver or one with a chairman and members. It also said that it should be multi-party with the creditors represented by representatives.

PCIB also suggested that the proposed 15-year extension of the maturity for fully or partially secured loans be reduced to 10 years inclusive of the five-year grace period and five-year repayment periods.

They opposed the proposal that partially secured creditors will be required to waive all post-petition interest and default interest since it is open-ended and would be “too onerous” for acceptance.

According to PCIB, the post-petition period should be from June 23, 1998 up to December 31, 1998 only. “Thereafter, interest should begin to accrue,” PCIB’s counsel said.

Since PAL will be downsizing its fleet from 52 planes to 22, PCIB said the resulting excess rotables and airbus engines should be sold to pay PAL’s $60-million domestic syndicated loan facility.

“This suggestion is similar to what (PAL) did with respect to another syndicate secured by airbus planes which, when sold, the proceeds of the sale were applied to the syndicated loan,” PCIB said.

PAL’s rehabilitation plan calls for a $6-billion ($150 million) capital injection from its shareholders, a reduction in capital, and restructuring of its obligations to various types of creditors.

The capital restructuring will be done by reducing the par value of its shares from P5 per share to one centavo apiece. After this, the $6-billion shareholder equity injection will comprise over 90 percent of the new equity ownership of the company.