WHO WE ARE
2
BOARD OF DIRECTORS
DBP
BPI
MBTC
PVB
ADB
Reynaldo G. David
Armando O. Samia
Edgardo F. Garcia
Rolando S.C. Geronimo
Aurelio R. Montinola III
Antonio S. Abacan, Jr.
Ricardo A. Balbido, Jr.
Stephen Edwards
C. Genalin C. Uy
3
WHAT WE DO
CREDIT GUARANTEE
GUARANTEE
PROGRAM
MANAGEMENT
CREDIT RATING
RELATIONSHIP MANAGEMENT
WITH FINANCIAL INSTITUTIONS
COLLABORATION WITH
NATIONALGOVERNMENT
4
GUARANTEE SYSTEM
• Guarantees FIs against LGU default
• Pays FIs in case of default according to original schedule
Due Diligence / Credit Rating
• Provides loans
• Underwrites bond issues
AAA
LGUs/WDs
Financial Institutions
• Pays loans / bond amortization
• Calls on guarantee if LGU defaults
5
WHAT WE’VE DONE
Borrower
Amount
(PhP)
Project
Urdaneta City
25 MM
Slaughterhouse
Province of Aklan
40 MM
Jetty Port and Terminal Building
Puerto Princesa City
320 MM
Socialized Housing
Caloocan City
185 MM
Public Market
225 MM
Commercial Complex with Toll Parking
210 MM
General Hospital
Tagaytay City
220 MM
Convention Center with Lodging Facility
Iloilo City
130 MM
Housing
Municipality of Daraga
75 MM
Public Market
6
WHAT WE’VE DONE
Borrower
Amount
(PhP)
Project
Municipality of Bayambang
42 MM
Public Market
Province of Leyte
205 MM
Academic Center
Municipality of San Juan
390 MM
Gymnasium, Commercial Area and
Toll Parking
Municipality of Carmona
150 MM
Housing
Pasay City
500 MM
Public Market and Commercial
Center
Municipality of Imus
47 MM
Slaughterhouse
Metro Iloilo Water District
46 MM
Water System Rehabilitation
Municipality of Baliwag
50 MM
Integrated Solid Waste Management
7
WHAT WE DO
CREDIT GUARANTEE
8
LEGAL BASIS FOR BOND ISSUANCE
Section 295 of Republic Act 7160, the Local Government Code of
1991, states that local government units (LGUs) shall have the
power to create indebtedness and enter into credit and other
financial transactions.
A. Power to Create Indebtedness
LGUs are authorized to source funds to finance identified
development projects.
Section 296. (a) “It shall be the basic policy that any local
government unit may create indebtedness, and avail of credit
facilities to finance local infrastructure and other socio-economic
development projects in accordance with the approved local
development plan and public investment program.”
9
LEGAL BASIS FOR BOND ISSUANCE
LGUs are authorized to secure loans, credits and other forms of
indebtedness from banks and lending institution for the
establishment, development or expansion of identified projects.
Section 297 (a). “A local government unit may contract loans,
credits, and other forms of indebtedness with any government or
domestic private bank and other lending institutions to finance the
construction, installation, improvement, expansion, operation or
maintenance of public facilities, infrastructure facilities, housing
projects, the acquisition of real property and the implementation of
other capital investment projects, subject to such terms and
conditions as maybe agreed upon by the local government unit and
the lender.”
10
LEGAL BASIS FOR BOND ISSUANCE
B. Bonds and Other Long-Term Liabilities
LGUs are authorized to issue bonds and other long-term securities
as an alternative financing source to fund income-generating
projects.
Section 299. “Subject to the rules and regulations of the Central
Bank and the Securities and Exchange Commission, provinces,
cities and municipalities are hereby authorized to issue bonds,
debentures, securities, collateral, notes and other obligations to
finance self-liquidating, income-producing development or
livelihood projects pursuant to the priorities established in the
approved local development plan or the public investment
program.”
11
LEGAL BASIS FOR BOND ISSUANCE
C. Debt Service
LGU budgets must be capable to support debt service repayments
and other requirements incurred from the contract of loans and
other forms of indebtedness
Section 303. “Local government units shall appropriate in their
respective annual budgets such amounts as are sufficient to pay the
loans and other indebtedness incurred or redeem or retire bonds,
debentures, securities, notes and other obligations issued under this
title: Provided, that failure to provide the appropriations herein
shall render their annual budgets inoperative.”
12
LEGAL BASIS FOR BOND ISSUANCE
LGC IMPLEMENTING RULES AND REGULATIONS
Article 401
“… LGUs shall appropriate in their respective annual budgets such
amounts as are sufficient to pay the loans and other indebtedness
incurred or redeem or retire bonds…”
“…failure to provide the appropriations herein required shall render
their annual budgets inoperative.”
“Any LGU… may authorize the National Government to deduct or
withhold a portion of its IRA share for the payment of its
contractual obligation.” “…the resolution of the sanggunian shall
clearly state the name of the creditor, the nature of the indebtedness, the
amount to be withheld, and a period of time that such withholding of
IRA shares shall be made.”
13
PRIMER ON MUNICIPAL BONDS PROCESS
LGU Project
•
•
•
Investors/Bondholders
Revenue-generating
Part of the development plan
Approved by the Sanggunian
 Fixed Income Exchange - will provide the
secondary market trading
 Managing Underwriter - will design the
features of the bond covering the structure,
issue size, interest rate and payment
schedule, maturity date, etc.
Financial Advisor
•
•
•
•
•
Prepares the project feasibility
Secure Sanggunian Ordinance Authorizing the
Issuance of Bond to Finance the Project
Secure Pertinent legal requirement to issue the
bonds (e.g., BSP Opinion, BLGF Approval, etc.)
Identify members of the Bond Issuance Team
Secure Sanggunian Ordinance Authorizing the
Mayor to Engage the Services of the Bond
Issuance Team
Local Chief Executive
•
Sanggunian Ordinance Approving the Final
Municipal Bond Terms
•
Sanggunian Ordinance Appropriating Funds
Thereof to Support the Project
B
LGUGC/Guarantor - will guarantee the bond
subject to the issuer’s & issue’s
creditworthiness
 Liquidity...?
 Profitability
Safety
I
 Trustee - will act as the custodian of the
funds; manage the project’s sinking fund;
and as registry, paying and transfer agent
 Public obligations or
T
 Counsel - will review the legal aspects of
the bond, special concern is Sec. 303 of
1991 LGC
 Debt-servicing
 Financial Advisor - will have to establish the
feasibility of the project (I.e. present
positive cashflow projections)
 Project’s income
liabilities
capacity
generation
LGU/Issuer/Borrower
14
BOND ISSUANCE PROCESS TIMETABLE
Timetable in Months
1. Project Development, Feasibility Study Preparation, and
Hiring of a Financial Advisor, BLGF and DAR/DENR
Certification
1st
2nd
3rd
4th
5th
6th
The bond issuance process shall not include
this period but will commence after the
completion of this activity.
2. Sanggunian Ordinance Approving the Project
3. Selection and Appointment of a Bond Issuance team
4. Designing the Features of the Municipal Bond
5. Securing the Guarantee for the Municipal Bonds
6. Sanggunian Ordinance Approving Final Bond Terms
7. Sanggunian Panlalawigan’s Validation of the Ordinance of
the Municipal Bond Issuance by a Component City or
Municipality
8. Bangko Sentral ng Pilipinas (BSP) Favorable Opinion
9. Preparation of the OS, Primer and Bond Docs.
10. Municipal Bond Offering and Issuance
11. Debt Servicing and Payment of the Principal
This period shall cover the date of issue up
to the maturity date.
15
LOAN VS BONDS
DIRECT LOAN
BOND FLOTATION
• Pricing is based on the FI’s
transfer pool rate
• Earning opportunity limited
to the lending institution
• Dependence on IRA
deposits as direct collateral
which oftentimes acts as
disincentives to FI’s looking
seriously at project
feasibility
• Limited to FI’s internal
credit review process
• Pricing is market-driven
• Promotes constituents’ participation in local
development and allows them to earn in the
process
• Allows LGUs to access Capital Market
• IRA used only as second way out
• Enhances the project management capability
of LGUs due to responsibility to investors
• Stricter credit evaluation and project
monitoring standards
• Encourages transparency and development
of a proactive rating system
16
INTEREST RATES DIFFERENTIAL
LOANS
1
Reference Rate (6-Month MART1)
Lending Rate (Actual)2
Add On Rate
Trustee Fee
Guarantee Fee
Total Annual Fees
Commitment Fee
Handling Fee
Underwriting Fee
Total Up-front Fees
Total Annual Fees
Total Up-front Fees (over 7 years)
TOTAL FEES (Blended)
BONDS
4.5768%
7.9350%
7.9350%
0.50%
0.75%
1.25%
7.9350%
0.18%
8.11%
3.00%
0.50%
1.18%
9.2568%
1.00%
1.00%
9.2568%
0.14%
9.40%
1/as
of March 8, 2007
2/Ave. lending rates of DBP and Land Bank as of March 8, 2007
17
LGU DEBT PORTFOLIO
As of September 30, 2006
Approved Amount
A. Loans
Land Bank of the Philippines
Philippine Veterans Bank
Municipal Development Fund Office
Philippine National Bank
Development Bank of the Philippines
P
P
47,873,150,000.00
941,071,829.42
4,661,419,347.76
6,597,485,000.00
9,073,318,755.04
69,146,444,932.22
%
66.35%
1.30%
6.46%
9.14%
12.58%
Bond Amount
B. Bonds*
Philippine Veterans Bank
LGU Guarantee Corporation
Total
P
Availment Amount
40,014,450,000.00
741,452,385.83
4,661,419,347.76
5,817,086,000.00
6,900,544,771.76
58,134,952,505.35
%
66.53%
1.23%
7.75%
9.67%
11.47%
Amount Disbursed
0.26%
3.90%
P
190,000,000.00
2,814,000,000.00
3,004,000,000.00
110,457,120.69
1,903,250,000.00
2,013,707,120.69
P
72,150,444,932.22
100.00%
60,148,659,626.04
0.18%
3.16%
100.00%
Source: BLGF
*Covers only LGU Bonds guaranteed by mentioned institutions
18
THE LGUGC ADVANTAGE
Debt
Proceeds
Project
Revenue
LGU
Trust Fund
Sinking
Fund
Project
Project
Construction Revenue
Fund
Fund
IRA
Deposit
(Trustee)
Guarantor
(LGUGC)
Project
Development
Project
Operating
Expenses
Fees &
Other
Expenses
Debt
Servicing
19
THE LGUGC ADVANTAGE
TRUSTOR (LGU)
LGUGC heads the
Project Monitoring Board
UNDERWRITER
TRUSTEE
20
WHAT WE DO
CREDIT GUARANTEE
CREDIT RATING
21
CREDIT RATING
LGUGC’s internal LGU credit rating system aims to promote
LGUs as viable borrowers for private financial institutions and
issuers of debt instruments, to facilitate their access to capital
markets through a structured information base on their overall
creditworthiness
Factors considered:
• Political Risks
• Economic Risks
• Operating and Management Risks
• Financial Risks
22
LGU CREDIT SCREENING AND RATING
CREDIT
RATING
Management
Short-term
Indicators
Operating
Financial
Performance Condition
CREDIT
SCREENING
Development Capacity and
Socio-Economic Endowment
Longterm
Indicators
Tendency for Efficient Debt Repayment
23
CREDIT RATINGS
Aaa - highest credit standing
Aa - high credit standing
A - good credit standing
Ba - average credit standing
B - below-average credit standing
C - poor credit standing
24
RATED LGUs
LGU
Rating
LGU
Rating
1. Urdaneta City
Ba
11. Daraga, Albay
Ba
2. Aklan Province
Ba
12. Bayambang, Pangasinan
Ba
3. Puerto Princesa City
Ba
13. Taytay, Rizal
A
4. Tagaytay City
A
14. Antipolo City
Ba
5. Caloocan City
Ba
15. San Vicente, Palawan
B
6. Alfonso Lista
Ba
16. Lucena City, Cagayan
A
7. Taguig
A
17. Leyte Province
Ba
8. Iloilo City
Ba
18. Masbate City
Ba
9. Orani, Bataan
Ba
19. San Juan, MM
Aa
10. Baguio City
A
20. Surigao City
Ba
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RATED LGUs
LGU
Rating
LGU
Rating
21. Tabaco City
A
31. Mariveles, Bataan
A
22. Binangonan, Rizal
Ba
32. Santiago City, Isabela
Ba
23. Carmona, Cavite
A
33. Iriga City, Camarines Sur
Ba
24. Imus, Cavite
A
34. Zamboanga del Norte
A
25. Pasay City
Ba
35. Aliaga, Nueva Ecija
B
26. Kawit, Cavite
Ba
36. San Fernando City
Ba
27. Butuan City, Agusan
Ba
37. Baliwag, Bulacan
A
28. Palayan City, Nueva Ecija
B
38. Iloilo Province
A
29. Calbayog City, Samar
B
30. Calasiao, Pangasinan
Ba
26
WHAT WE DO
CREDIT GUARANTEE
CREDIT RATING
COLLABORATION WITH
NATIONALGOVERNMENT
& DONOR AGENCIES
27
COLLABORATION WITH NGAs
1. Bangko Sentral ng Pilipinas
• BSP Circular No. 190 Series of 1999 - Allowing LGU debt instruments
as eligible alternative for agri-agra (PD 717) compliance
• BSP Circular No. 310 Series of 2001 - Reducing risk weight of LGU
bonds guaranteed by LGUGC and against IRA assignment from 100% to
50%
• BSP Circular No. 462 Series of 2004 – Allowing private banks to act as
trustee for bond flotation of LGUs
2. Insurance Commission
• Declaring LGUGC-enhanced bonds eligible reserves for insurance
companies
3. MOAs with DILG & DOF-BLGF
• Info exchange and advocacy
28
WHAT WE DO
CREDIT GUARANTEE
CREDIT RATING
RELATIONSHIP MANAGEMENT
WITH FINANCIAL INSTITUTIONS
COLLABORATION WITH
NATIONALGOVERNMENT
& DONOR AGENCIES
29
RELATIONSHIP MANAGEMENT
ACCREDITED FINANCIAL ADVISORS
•
•
•
•
•
•
•
•
AYN Resource Management Group
Censeo Financial Solutions, Inc.
FinAcc, Inc.
Investment and Capital Corporation of the Philippines
Multinational Investment Bancorporation
Preferred Ventures Corp.
The Structured Financial Group, Inc.
Transaction Advisory Services, Inc.
30
RELATIONSHIP MANAGEMENT
PARTNER FINANCIAL INSTITUTIONS
•
•
•
•
•
•
•
•
•
•
•
•
•
•
Allied Bank
Banco de Oro
Bank of Commerce
Equitable PCI
First Metro Investment Corporation
Investments and Capital Corporations of the Phils.
Maybank
Multinational Investment Bancorporation
Philippine Veterans Bank
PNB
RCBC Capital
Security Bank
UCPB Savings Bank
Unicapital
31
WHAT WE DO
CREDIT GUARANTEE
GUARANTEE
PROGRAM
MANAGEMENT
CREDIT RATING
RELATIONSHIP MANAGEMENT
WITH FINANCIAL INSTITUTIONS
COLLABORATION WITH
NATIONALGOVERNMENT
& DONOR AGENCIES
32
PROGRAM MANAGEMENT
I.
Electric Cooperative System Loss Reduction Project –
Partial Credit Guarantee Program (EC-PCG)
II.
Capacity Building to Remove Barriers to Renewable
Energy Development – Loan Guarantee Fund
(CBRED-LGF)
III.
Rural Power Project for Photovoltaic Systems – Loan
Guarantee Fund (CBRED-LGF)
33
Thank
you!
AILEEN B. CASTRO
Head, Relationship Management Department
Email: abcastro@lgugc.bayandsl.ph
Tel: (02) 751-8764 to 68
Fax: (02) 888-4217
Website: www.lgugc.com