PNB Rejects PAL Rehabilitation Plan

Business World

Thursday, December 24, 1998

Maricris C. Carlos

The Philippine National Bank (PNB) is opposing the capital restructuring program Philippine Airlines, Inc. (PAL) proposed in its rehabilitation plan submitted to the Securities and Exchange Commission.

In particular, PNB objected to a proposal to reduce the par value of PAL’s existing common shares to only P0.01 from the current P5 per share, a move which will “substantially dilute” its stake in the flag carrier.

In fact, PAL admitted in its proposed rehabilitation plan that the capital restructuring will reduce to just 5% the holdings of PAL employees, from the existing 20%.

Be that as it may, PAL remains confident its creditors will eventually come around and accept its rehabilitation plan.

Emerging from a closed-door-meeting with top SEC officials yesterday, PAL chief finance officer Jaime Bautista said “most (of PAL creditors) have not accepted” the rehabilitation plan.

“(But) we are confident we will be able to…make the rehabilitation plan acceptable to them,” he told reporters.

He admitted PAL was expecting opposition from its 9,000 creditors considering the plan entails debt and capital restructuring, adding that naturally, the creditors would want better repayment terms.

“We are ready to negotiate with them,” he said, referring in particular to the opposition lodged by European creditors led by Credit Agricole Indosuez and local banks.

PNB, meanwhile, also criticized the pricing used by PAL, saying the “valuation is too low.” It sought clarification how PAL’s interim rehabilitation receiver “arrived at P0.01 valuation of the share.”

In Tranches

Aside from the capital restructuring program, PAL also outlined a $150-million equity infusion and a debt restructuring program seen to affect all creditors.

The first tranche of $90 million will be paid following approval of the rehabilitation plan, while the second tranche of $60 million will be paid on a still-to-be-set date but not later than 180 days following the plan’s implementation date.

The shareholder equity injection will comprise over 90% of the new equity ownership of PAL, according to the plan.

The debt restructuring component of the plan, meanwhile, entails write-off of some PAL’s interest expense and a repayment period extending 15 years.

For fully secured creditors with claims totaling $1.725 billion, PAL wants a three-year extension of the maturity of the credit facilities they extended to a maximum of 15 years.

Secured creditors will be asked to capitalize the interest charges which had accumulated before and after PAL filed a debt-relief petition.

Unsecured creditors, on the other hand, get the rawer end of the deal, as the plan calls for the write-off of the interest charges due them. Unsecured creditors have claims totaling some $329.8 million.

PAL also said the $195 million in claims of trade creditors will be paid 60 equally monthly installments plus 6% interest per annum.

Earlier, the Philippine Commercial International Bank informed SEC about its reservations on the debt restructuring component of the plan.

PCI Bank’s objection concerns the 15-year maturity PAL is seeking from creditors. It instead proposed a maturity period of only 10 years, inclusive of the grace and repayment periods.

PCI Bank also opposed the waiving of interests on all “post-petition” loans including default interest. “The suggestion is open-ended, hence, would be too onerous for acceptance,” the bank said. “Interest should begin to accrue” only after Dec. 31.

The bank also pressed PAL to sell some of its assets and use the proceeds “for partial payment of the $60-million domesticated loan facility” extended by local banks.