The $600 million that it seeks to be converted into bonded indebtedness will be used to fund its capital projects for 2004-2006, refinance all its existing long-term unsecured loans, and convert existing unsecured short-term debts to long-term secured debts.
The form of security being proposed is for Meralco to issue bonds credited against its mortgage trust indenture (MTI) as collateral for the proposed loans to be termed out.
The credit facilities proposed to be secured are the $220-million worth of syndicated loans with ING Barings and Citibank; and the $110-million short-term loans with Citibank, Bank of the Philippine Islands Equitable-PCI Bank and Banco de Oro.
At present, only the company’s long-term debts with multilateral lenders, such as the Asian Development Bank, World Bank and Kreditanstalt fur Weideraufbau (KFW), are covered by MTI.
Of the $600-million bonded indebtedness approved by the Meralco board, $400 million would have to be secured, with the proposed conversion of short-term into long-term loans. The other $200 million is treated as a buffer, so the management would not need to go back to its stockholders for approval, if it would need to secure additional loans in the near future.
The bonds, which will bear different interest rates and terms of maturity, will be issued to lending institutions, equipment suppliers and other foreign and local creditors.
The indenture provides a first mortgage lien on all property, real, personal and mixed, necessary or appropriate to the public utility plant and business of the company and to its operation as a going concern.
According to the SEC, Meralco has bondable value of mortgaged property issuable in the amount of $1.01 million which is sufficient to cover the additional $600- million bonded indebtedness to be created.
Among lending institutions, MTI is being offered as a traditional standard product by several banking institutions. It has gained wide business acceptance as a practical means to answer the needs of creditors who would pool resources to fund debtors. It is an indenture by which property is transferred to a trust.