CAP affiliate incurs P2.28-B trust fund deficieny

Comprehensive Annuity Plans and Pension Corp., an affiliate of College Assurance Plans (CAP), has a P2.28-billion deficit in its trust fund as of end-September this year, according to documents obtained from the Securities and Exchange Commission (SEC).

Comprehensive Annuity’s trust fund stood at P1.84 billion while its actuarial reserve liability amounted to P4.12 billion.

The SEC said the company is insolvent based on its annual financial statement ended Sept. 30, 2005.

"The insolvency ratio is 0:80:1 which indicates that for every P1 of liability there is only P0.80 of asset alloted for its payment. This resulted to a capital deficiency of P1.97 billion," SEC said.

SEC said the company is illiquid as its cash and cash equivalents amounted only to P1 million compared to accounts payable and other liabilities totaling P1.12 billion.

This is in clear violation of pre need rules which requires that no less than 10 percent of the net value of the trust fund shall be set aside as liquidity reserve to cover benefits due to plan holders during the ensuing year, the SEC said.

A group of planholders alleged that the directors of CAP and Comprehensive Annuity breached their fiduciary obligations by using funds of the pre-need companies as their "personal piggy bank to bankroll directly and indirectly the operations of the Fil-Estate Group of Companies."

CAP earlier expressed optimism of securing the approval of the local court of its proposed rehabilitation plan following the favorable rulings obtained by other cash-strapped pre-need firms.

CAP sought a moratorium on the payment of all obligations to planholders and creditors to give it enough breathing room to map out a viable and acceptable rehabilitation plan.

In its proposed rehabilitation plan, CAP is seeking a 10-year restructuring of its P2.9-billion loan obligations to creditors including Fil-Estate Management, Inc., Philippine Veterans Bank, CAP Pension and Pentacapital Investment Corp.

The initial payment is expected to commence not earlier than 2008. Based on its audited financial statements as of Dec. 31, 2004, CAP has P14.6 million in cash and cash equivalents.

In contrast, CAP’s total liabilities which are now due and demandable amount to P4.1 billion, inclusive of its obligations to planholders, amounting to P1.2 billion.

Of the total, P2.9 billion is owed to corporate creditors including Fil-Estate Management Inc. and Smart Share Investment Ltd. (P100 million), Bank of Commerce (P85.5 million), Philippine Veterans Bank (P18.5 million), Red Eagle Eagle Lending Investors (P27.2 illion), and Fil-Estate Land (P5 million).

As of July 31, 2005, CAP’s trust fund is valued at P6.75 billion, P255 million of which or three percent is liquid.

CAP projects a total trust fund build-up of about P13.56 billion by 2012 with the trust fund achieving a positive balance by 2010. At the end of the implementation of the business plan, CAP expects to have a trust fund balance of about P9.115 billion with about P395 million in liquid assets.