In a disclosure to the Philippine Stock Exchange (PSE), Meralco said it would specifically use the proceeds from the borrowing "to refinance its existing secured loan obligations, as well as fund its working capital requirements."
Meralco described the capital raising scheme as the "largest debt capital issue in the Philippines to date that was executed in less than two months’ time."
The power distribution utility said the notes will have a term of seven years and will be secured by a negative pledge, which will take out Meralco’s existing mortgage trust indenture, or real estate assets being used as collateral for loans.
Negative pledge is a covenant in a bond agreement whereby the borrower agrees not to pledge any assets if such pledging would result in less security for the agreement’s bondholders.
The power utility said of the P12-billion total borrowing, P6 billion constitutes the fixed-rate tranche with an interest rate of nine percent per annum.
The other P6 billion, on the other hand, represents the floating-rate tranche which was auctioned off last Dec.4. The auction generated total bid amounts of P12 billion, two times oversubscribed from the offer amount of P6 billion. The floating-rate tranche was eventually priced at 200 basis points over the three-month MART1 rate.
The note facility agreement setting forth the terms and conditions of the notes was signed last Wednesday by and among Meralco, the noteholders, the joint issue managers and underwriters, and the agent. BDO Capital & Investment Corp. acted as financial advisor to Meralco’s issue.
Comprising the participating noteholders/lenders are the Bank of the Philippine Islands and Bank of the Philippine Islands-Asset Management and Trust Group; Banco de Oro Universal Bank and BDO Private; Equitable PCIBank; China Banking Corp.; Philippine National Bank; Development Bank of the Philippines; Rizal Commercial Banking Corp.; and the Union Bank of the Phils.
Equitable PCI Bank Trust Banking is the facility agent, registrar and paying agent for the notes.
The issuance is managed and underwritten by BDO Capital, China Bank, DBP, PCI Capital and PNB Capital.
In August this year, Meralco had indicated plans to increase its yearly budget for its capital expenditure program by as much as P500 million.
Meralco chairman Manuel Lopez said they are convincing their creditor banks to allow them to spend more for its capex so as not to compromise the condition of its electric systems.
Lopez said for the past years, due to limited capex, Meralco was not able to construct more substations and expand electric lines.
He also noted that they have to defer some of its electric projects, particularly the expansion of its Fort Bonifacio lines, due to lack of capital.
According to Lopez, they may be able to convince their creditors to give them leeway on the capex level as they have been able to realize some cash flows over the recent period.
For the second quarter of 2006, Meralco’s capex already increased by 10.08 percent over last year to P1.09 billion. As of June 30, total capex went up by 5.4 percent to P2.15 billion.
In 2004 and 2005, the company set aside only P5.3 billion and P5.75 billion for its capex budget, respectively. This was significantly lower than or about 20 percent below the P6.4 billion capex level in 2003.