Court approves Pacific Plans rehab plan

Pacific Plans Inc. (PPI), a pre-need firm owned by the family of Ambassador Alfonso Yuchengco, has been given a new lease on life after a Makati court approved its alternative rehabilitation plan.

In an order, Judge Romeo Barza of the Makati Regional Trial Court Branch 61 said the continued operations of PPI is vital in order to provide it with the necessary funds to meet its obligations to planholders.

Barza directed PPI to strictly abide by the terms of the amended recovery program and to submit monthly reports on the implementation thereof. Failure to do so will result in the termination of proceedings and eventual liquidation of the pre-need firm.

The rehabilitation of PPI will allow it to continue servicing its over 400,000 planholders and restore it to financial health. It will also mean a continuation of PPI’s contribution to the Philippine economy.

The alternative rehabilitation plan is based on the percentage of average school fees for school year 2005-2006 with tuition support on every enrollment period until 2009-2010.

Similar to the original plan, the benefits under the PEP Traditional plans will be translated to fixed-value benefits as of Dec. 31, 2004, which will be termed as base yearend 2004 entitlement.

The rehabilitation receiver recommended the alternative rehabilitation plan considering that the segregation of the traditional planholders into thee groups availaing, non-availing or the owners of fully paid plans that are expected to start receiving education benefits between 2005 to 2009, and non-availing group or the owners of fully paid plans that are not expected to start receiving education benefits before 2010, results in a more equitable distribution covering trust fund assets among the remaining planholders.

Also, the payment of tuition support upon every enrollment period until schoolyear 2009-2010, will ease the immediate need of the planholders for cash during enrollment periods.

According to the receiver, the susceptibility of the said alternative rehabilitation plan to foreign exchange fluctuations may be addressed by the proposed Non Deliverable Forward arrangement.

The NDF arrangement will effectively hedge petitioner‚s exposure to foreign exchange rate fluctuations.

The original rehabilitation plan proposed by PPI, while easier to implement as being considered a model for other pre-need companies of exchanging the traditional plans for fixed value plans and providing an interest, is generally viewed with disfavor because of the need for some form of cash every enrollment period.

PPI, before its current problems, was a pioneer in the pre-need industry, having of its business, it sent at least 56,000 students to school.

The bulk of the PEP Traditional Trust Fund is in Napocor bonds. The most important feature of this investment is that it enjoys a government guarantee. Further, they can be traded in the secondary market.

For its part, Pacific Plans said yesterday it will abide by the rehabilitation plan approved by the court providing tuition support for availing open-ended educational planholders for each school year (SY) from 2006 to 2010

PPI president Alfredo J. Non said, "we commit to work with a sense of urgency and rush letters to planholders on a system of tuition support delivery that will be based on the decision in time for the school enrollment. In this regard, an announcement will soon follow."

PPI opted for rehabilitation in order to ensure that it will be able to somehow meet its obligations to its availing open-ended education planholders and at the same time making sure that there will be funds left for its 18,000 or so open-ended traditional education plans who have yet to avail of the plan.

Unlike other companies, he added, PPI has given out P591 million in tuition support last school year to its availing open-ended planholders.

Non said that the sky-rocketing tuition and other school fees put an enormous pressure on the corresponding trust funds of the open-ended education plans. In other words, the return on investment on the trust funds could simply not cope with the staggering increases in tuition and other school fees.

This is the reason why PPI stopped selling open-ended plans way ahead of the Securities and Exchange Commission order, sometime 2002.