Government in wait-and-see mode on PAL bankruptcy process
THE head of the Department of Finance (DOF) says officials must first see the final outcome of Philippine Airlines Inc.’s (PAL) Chapter 11 bankruptcy proceedings before deciding whether government banks are helping to bail out the standard bearer.
Finance Secretary and former PAL CEO Carlos G. Dominguez III explained the wait-and-see stance on Thursday, noting that “bankruptcy courts don’t necessarily always follow what we want.”
“We will have to wait for the result of the bankruptcy procedure because I do not want Land Bank [of the Philippines] and [the] DBP [Development Bank of the Philippines] come in and fund a company that’s filing for bankruptcy and we don’t know how it’s going to go,” Dominguez told senators during the Cabinet-level Development Budget Coordinating Committee briefing on the proposed national budget. 2022.
Meanwhile, Dominguez said they were already reviewing the bankruptcy filing, which a government financial institution was able to obtain.
“We are monitoring this very closely and, if in the end it looks like it will be a prudent investment of taxpayers’ money, yes, we will participate,” added Dominguez. “But the conditions are there, plus the additional conditions that we have to see the final outcome of the bankruptcy proceedings in New York.”
Besides the condition that the government must await the outcome of the bankruptcy proceedings, Dominguez said other conditions must be met before the government participates in financing the airline.
According to Dominguez, these other conditions were also met in the case of low-cost airline Cebu Pacific, where state lenders provided 18% of the total financing package.
The CFO added that they don’t want to own the companies.
“So I said, what we’re going to need in any restructuring is that, one, the major shareholders bring in adequate additional capital. that local banks participate in the financing,” he said.
“If all these conditions [are met]and that we are happy with the management of the company and only then will the government financial institutions participate, and frankly we did in the case of Cebu Pacific,” he added.
While government banks weren’t the biggest financiers in Cebu Pacific’s case, Dominguez said they were the ones who provided “key funding.”
“You know, the keystone of an arch is the stone without which nothing happens; the ark is not built,” he explained.
PAL last week announced it had filed for Chapter 11 bankruptcy in New York as it developed a “consensual” restructuring plan with creditors, suppliers and shareholders.
PAL said it has entered into “a series of agreements with substantially all of the company’s aircraft and engine lenders, lessors and suppliers, as well as its controlling shareholder, to enable the company to successfully restructure and reorganize its finances to navigate the Covid-19 crisis and emerge as a leaner, better capitalized airline.
The restructuring plan, which is subject to court approval, includes more than $2.0 billion in permanent balance sheet reductions from existing creditors and allows the airline to consensually contract fleet capacity by 25% and includes $505 million in equity and long-term majority debt financing of PAL. shareholder and $150 million in additional debt financing from new investors.
The company said it “voluntarily applied for a pre-arranged restructuring under the United States Chapter 11 process in the Southern District of New York to implement the Consensual Restructuring Plan” with creditors. PAL “will also be filing parallel filing for recognition in the Philippines under the Financial Insolvency and Rehabilitation Act of 2010.”
PAL said it will continue to operate flights in the normal course of business in accordance with safety regulations, “and the company expects to continue to meet its current financial obligations throughout this process to employees, customers, the government and its lessors, lenders, suppliers and other creditors.