SEC doubts CAP’s ability to nurse itself back to financial health

The Securities and Exchange Commission (SEC) is challenging College Assurance Plan Phils. Inc. (CAP) to show proof why it can still be rehabilitated when its liabilities already exceed its assets.

"I have not seen their basis why they can still be rehabilitated," SEC chairman Fe Barin said when asked whether CAP can still nurse itself back to financial health.

Barin said CAP’s filing of a petition for rehabilitation and suspension of debt payments with the court will not stop the agency from pursuing administrative sanctions against the pre-need firm for alleged violation of rules governing the sale of pre-need plans.

She said the SEC is now reviewing the explanation given by CAP with regard to violations of the rules governing pre-need plans and will take action as warranted by the law.

Senator Manuel Roxas, chairman of the Senate committee on trade and commerce, has also cast doubts whether CAP can still be rehabilitated considering its huge trust deficiency, which has now ballooned to P19 billion based on its financial statements as of Dec. 31, 2004.

Roxas said CAP had been parading several names of supposed investors among them are Green Circle Properties & Resources Inc., Green Square Properties Corp., First American Investment LLC, and International Global Capital Holdings AG but to date, not a single centavo was injected into CAP.

"Obviously, CAP has been engaged in a litany of lies and had been fooling the regulators and the people all along. SEC was correct in suspending CAP’s license to sell. If CAP was allowed to continue selling plans, then more families could have been fooled," Roxas said.

CAP had filed before the Makati Regional Trial Court a petition for suspension of debt payments and rehabilitation owing to tight liquidity problems, which the company blamed on the SEC for failing to renew its dealership license.

In its petition, CAP said it deserves another chance at getting rehabilitated as all it needs is a breathing spell to allow it to come up with a viable recovery program.

"Being the largest in the industry, with about 780,000.00 plan holders, of which 174,720 plan holders are availing of the plan benefits, CAP must be given an opportunity to address the situation in which the industry has been thrust into, to protect the interest of the thousands of its stakeholders," CAP said.

CAP said it continues to pay its maturing obligations to planholders despite its present condition.

In the 8-year business plan filed with the court, CAP said its continued ability to meet its obligations is premised on the following assumptions: its dealership license is renewed, it secures additional equity infusion from foreign and local sources, and it streamlines operations by cutting costs.

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.

CAP also expects to achieve a positive cash flow from 2005 to 2012 with an ending cash balance as of December 2012 of about P289 million. CAP said its capital deficiency will be reduced from P17.57 million to about P9.2 billion in 2012.

CAP said its trust fund presently has an asset value of P6.75 billion while the plan benefits to be paid from 2005 to 2012 amount to about P24.2 billion. About P21 billion are benefits payable to holders of traditional open-ended plans (where the Company guarantees the payment of tuition and other specified fees irrespective of cost at the time of availment) while about P2.5 billion are for the servicing of fixed-value plans.

Fixed-value plans are educational plans where the company’s liability is fixed and determined under the plans.

Based on the plan, CAP expects to secure $20-million equity infusion from St. Augustine Humanitarian Foundation over a five-year period starting in the last quarter of 2005.

Another $100 million is expected in 2006.

Additional build up of the trust fund equity will come from accretion of discounts on MRT bonds. The discounts are expected to increase the value of the trust fund by P2.5 billion by 2012, CAP said.