LGU GUARANTEE CORPORATION

Transcription

1 CORPORATE PROFILE LGU GUARANTEE CORPORATION Your link to progress. Unit 2801, 28/F Antel Corporate Centre, 121 Valero St., Salcedo Village, Makati City Trunkline to 68 Fax No

2 The LGU Guarantee Corporation or LGUGC is the first private corporation to go into the financial guarantee business in the Philippines. It is the recognized private sector link in public-private partnerships (PPPs) for local development financing, and is in fact one of the most successful models of PPP in the country. Anchored on good governance values, LGUGC mobilizes the resources of private sector financial institutions toward funding local development projects. LGUGC was incorporated in March 1998 with the primary mandate of granting local government units (LGUs) access to private sources of capital by providing credit enhancement to LGU debts. This facilitated the entry of LGUs with development projects in the capital market. LGUGC has since extended its guarantee services to water districts (WDs), electric cooperatives (ECs), state universities and colleges (SUCs), renewable energy technology providers (RETPs) and medium and large enterprises (MLEs) in infrastructure development and support business. With proven track record for almost two decades, LGUGC is the name to trust in the Philippine financial guarantee business. LGUGC s major stockholders are the Bankers Association of the Philippines in trust for 14 investor commercial banks (45.5%) and Development Bank of the Philippines (45.8%). The company has an authorized capital stock of PhP500 million of which PhP297,587,500 are subscribed and outstanding. As of December 31, 2015, total stockholder s equity amounts to PhP million. 1

3 BOARD OF DIRECTORS ( ) Lorenzo V. Tan Chairman Gil A. Buenaventura Vice Chairman Antonio S. Abacan, Jr. Director/Treasurer/Secretary Cezar P. Consing Director Alberto S. Villarosa Director Benel D. Lagua Director Ma. Teresa M. Jesudason Director INCORPORATORS Deogracias N. Vistan Cesar E.A. Virata Peter B. Favila Tirso D. Antiporda, Jr. Renato T. De Guzman Leonilo G. Coronel Alfredo C. Antonio Francisco F. Del Rosario, Jr. Ruben O. Fruto Cesar M. Drilon, Jr. Palermo L. Soriano Lilia G. Baun Director Lydia N. Orial Director/President/CEO PRIMARY BUSINESS CONTACT Ms. Lydia N. Orial President/CEO Phone (02) Fax / 2

4 VISION To be the recognized private sector link in public private partnerships for local development financing MISSIONS Advocate for policy reforms that will mobilize resources of the private sector toward financing local development projects Continue to advocate for policy reforms for LGU debts, whether bond floatation or direct loans Instill values of good governance to enhance borrowers enterprise management and creditworthiness, especially local governments and utility companies CREDO We believe that the key to strong national economy is local development We commit to stimulate private sector participation in local development through credit enhancement and capacity building We uphold the values of integrity and professionalism in the conduct of our business with the public we serve and in the prudent management of resources entrusted to us 3

5 Our History LGUGC is a pioneering institution, the first to introduce a guarantee mechanism for local government unit (LGU) borrowings and the first private corporation to go into the guarantee business in the country. The company s goal is to provide a viable alternative to local government financing. Its initial operations were in line with the provision for fiscal autonomy specified in the Local Government Code of 1991, which expanded the local government s fiscal authority by allowing LGUs to borrow from private financial institutions (PFIs) and float debt instruments even without prior approval from the Department of Finance (DOF). The first mandate of LGUGC was to open up private banks to direct lending to LGUs, but due to the available bond issuances planned for some LGUs in 1999, LGUGC shifted strategy immediately from slowly opening up PFIs to the LGU debt market thru direct loans to guarantees of bond issues and LGU bond market development. Extensive advocacy work was done on LGU Leagues, multilateral agencies, Bangko Sentral ng Pilipinas (BSP) and national government agencies (NGAs) such as the DOF, the Department of Interior and Local Government (DILG) and Commission on Audit (COA). LGUGC s efforts, with the support of United States Agency for International Development (USAID), Financial Executives of the Philippines (FINEX) and the NGAs, paved the way for the birth of a municipal bond market in the country. LGUGC extended its first guarantees in 1999 to the City of Urdaneta and the Province of Aklan for bond issues of PhP25MM and PhP40MM, respectively. A total of 17 bond issuances have been guaranteed by LGUGC over 17 years, aggregating PhP3.20 billion. Unfortunately, competition from the government financial institutions (GFIs) after LGUGC operationalization made LGU bond flotation appear costlier and more complicated, thus becoming unpopular among Local Chief Executives (LCEs). GFIs, especially Land Bank of the Philippines (LBP), adjusted loan terms and conditions from off-market to prime market after LGUGC made its presence felt. After the PhP50 million Baliuag Star Bonds were issued on June 19, 2006, there was a three and a half year lull until the next LGU bond issuances guaranteed by LGUGC, those of the Province of Aklan and Municipality of Alfonso Lista, Ifugao in 2009 and Infanta Water Bonds in 2011, the last municipal bond guaranteed by LGUGC. Through the years, LGUGC remains unwavering in its advocacy to obtain an open declaration of national government support for the LGU bond market development in the country. While municipal bond floatation remains unpopular, however, LGUGC entertains applications for direct loans to LGUs. 4

6 The opportunity to expand LGUGC s services to water districts (WDs) came with the signing of a Memorandum of Agreement among the U.S. Agency for International Development (USAID), Japan Bank for International Cooperation (JBIC), Development Bank of the Philippines (DBP) and LGUGC to pilot a financing scheme for water projects, referred to as the Municipal Water Loan Financing Initiative (MWLFI). The MWLFI was aimed at testing the possibility of blending official development assistance (ODA) with private bank financing to make the latter more affordable to water service providers, which otherwise cannot meet pure private sector credit finance terms. The Metro Iloilo Water District was the pilot and only water district assisted under the program. The MWLFI was the precursor of the Philippine Water Revolving Fund (PWRF) of JBIC, the USAID, DBP, Municipal Development Fund Office (MDFO) and LGUGC, which was designed to support the Philippine government attain its Millennium Development Goals for water and sanitation. While the Philippine Water Revolving Fund (PWRF) project ended in 2011, LGUGC s involvement in the project familiarized its Board, management and marketing staff with the water sector and led to the expansion of its guarantee services to WDs. As of end 2015, LGUGC has guaranteed 15 water districts (WDs) aggregating PhP2.09 billion in loan amount. In 2004, LGUGC ventured on a new type of service offering program management. The World Bank (WB), with the full backing of the DOF, tapped LGUGC as its Program Manager for the USD10 million Electric Cooperative System Loss Reduction Project Partial Credit Guarantee Program (ECPCG) executed by the Department of Energy (DOE). This was followed in 2006 by the management of two other DOE executed programs, the Capacity Building to Remove Barriers to Renewable Energy Development-Loan Guarantee Fund (CBRED-LGF), and the RPP- Loan Guarantee Fund (RPP-LGF) for Photovoltaic Systems loans of rural households in off-grid areas. The LGUGC s management of these programs opened LGUGC to opportunities among electric cooperatives (ECs) and renewable energy technology providers (RETPs). With its experiences in these new markets, LGUGC further expanded its regular guarantee coverage to include ECs and RETPs. In January 2005, the Asian Development Bank (ADB) responded to LGUGC s call for additional capitalization to expand its guarantee capacity. ADB purchased 718,969 shares and obtained 25% ownership of the company. Through experience, LGUGC management is aware that as the PFI is exposed to and learns more of a particular borrower sector, the need for the LGUGC guarantee diminishes. There is therefore the constant challenge for LGUGC to develop new markets and be a Market Maker. By being thus will LGUGC continue to be relevant and viable. In January 2010, the Guarantee Facility for Medium and Large Enterprises (MLEs) was launched pursuant to the Board s directive to expand LGUGC guarantee service to sectors other than its existing market. This facility encourages PFIs to fund MLE projects that have risk factors beyond PFI internally acceptable limits. The facility focuses on the middle market engaged in basic infrastructure projects. LGUGC also successfully extended its guarantee services to bulk water suppliers or borrowers that have contracts, joint ventures or build-operate-transfer projects with traditional LGUGC clients. On December 2, 2013, the Asian Development Bank (ADB) exercised its option to redeem its LGUGC shares under its Subscription Agreement with LGUGC. ADB believed that its 5

7 developmental objective has been met which is to provide funding for a period of time until LGUGC achieved commercial stability and growth. Before the end of 2015, LGUGC was appointed as the program manager for Access to Sustainable Energy Programme (ASEP) by the European Union through the World Bank. The project aims to assist RoP through DOE utilize rural network solar and photovoltaic mainstreaming mechanisms to provide electricity to off-grid countryside areas. After only 17 years of operationalization, LGUGC s credit enhancement has caused the flow of PhP9.696 billion in private sector funds toward critical local development projects of LGUs, WDs, ECs, MLEs and RETPs. It only has one non-performing loan, an MLE, which defaulted in Despite the exit of ADB in 2013, LGUGC has maintained its PRS Aa+ (corp.) issuer credit rating from the Philippine Rating Services Corporation since November 8, 2010 which enables LGUGC to keep the 20% risk weight for its guaranteed debts, while EC loans guaranteed under the ECPCG program carry 0% risk weight. Below is a summary of the results of LGUGC s continuing pro-active institutional marketing strategy over a span of 17 years Signing in September 1999 of an agreement with the USAID/Development Credit Authority (DCA) where DCA undertook to guarantee 30% of the risk of qualified borrowers up to an exposure of USD8.55 million. The original five-year agreement was extended for four years and expired on September 30, A second agreement for the USAID/DCA to co-guarantee up to 50% of LGUGC s exposure to LGU water utilities, water districts and private water supply providers up to an exposure of USD12.75 million was signed on September 24, Receipt of various technical assistance from USAID for the (a) design and development of the LGUGC internal LGU Credit Screening and Rating System (LCSRS), (b) computerization of the LCSRS, (c) LCSRS database update, (d) review of and recommendations on the LGUGC guarantee policies and procedures, (e) design of the Water District Credit Rating System, and (f) development of LGUGC guarantee pricing mechanism. Receipt of technical assistance from Australian Aid through the Philippines-Australia Governance Facility for the (a) review and improvement of the LCSRS, and (b) design and computerization of the LGUGC Portfolio Monitoring and Management System. BSP approval of LGUGC s proposal to reduce the risk weight of LGUGC-guaranteed LGU bonds from 100% to 50%. Insurance Commission approval of LGUGC s proposal to make LGUGC-guaranteed LGU bonds automatically qualify as reserve instruments of insurance companies. BSP approval of LGUGC s proposal to allow private banks to serve as trustee agents of LGU bond proceeds. 6

8 Selection of LGUGC by the DOF and the DOE as program manager for the following guarantee funds o EC-PCG Program funded by Global Environment Facility (GEF) through the WB. The program provides 80% guarantee cover for private banks loans to electric cooperatives (ECs) where at least 50% of the loan will be utilized for system loss reduction. o CBRED-LGF Program funded by GEF through the UNDP. The program provides up to 85% guarantee cover for private banks loans to renewable energy proponents. The program has been transferred to the Republic of the Philippines on May 31, 2011 through the DOE and has been renamed as DOE- LGF. o Rural Power Project Loan Guarantee Fund program funded by the GEF through the WB. The program provided automatic guarantee lines of up to PhP5 million to micro finance institutions to cover up to 50% of their loans to rural households for the purchase of solar home systems. The program was terminated on June 30, 2009 in accordance with the DOE-WB RPP Project Agreement. Equity infusion by the Asian Development Bank (ADB) taking up 25% of total LGUGC paid up capital on January 21, Inclusion of the LGUGC in the JBIC and USAID sponsored PWRF Program, which institutionalized the private-public partnership formula in addressing the country s water supply millennium development goal. LGUGC played a major role as the guarantor of LGUGC partner private banks that co-financed with DBP loans to water service providers such as LGUs, water districts and private water suppliers. The PWRF program was active from October 2008 to September Signing of a Memorandum of Agreement with Local Water Utilities Administration (LWUA) on July 31, 2007 to jointly provide water districts (WDs) with a funding option that addresses the need of the WDs for longer term financing at the same time addressing Executive Order No. 279 s intention to eventually graduate WDs to the formal financial system. Invited to the Philippines Development Forum Sub-Working Group on Water Supply and Sanitation, specifically as a member of the Task Force on Financing and Infrastructure Development alongside DOF, Department of Budget and Management, DBP, LBP, LWUA, LGU Leagues, WB, ADB, Japan International Cooperation Agency (JICA) and KfW. Signing of a Memorandum of Understanding with Private Finance Advisory Network (PFAN) to promote clean energy investments in the country. Signing of a Memorandum of Agreement with the National Electrification Administration (NEA) on June 16, 2009 for LGUGC PFIs to co-finance EC capex requirements. 7

9 Invited by the World Bank to present in the Energy Week 2011 Sustainable Energy Low Carbon, Acess and Governance Forum held in Washington D.C. BSP approval of LGUGC s proposal to reduce the risk weight of LGUGC-guaranteed debts from 50% to 20%. Capital infusion by EastWest Bank Corporation amounting to P7.5 million. Capital infusion by Robinsons Banking Corporation amounting to P7.5 million. Exit of ADB as LGUGC shareholder on December 2, BSP confirmation of 0% risk weight for EC loans guaranteed under the ECPCG program Appointed as the Program Manager of the Access to Sustainable Energy Programme of European Union, World Bank and DOEs 8

10 Operating Highlights 1998 LGUGC was formally incorporated on March 2, 1998 with a total paid-up capital of PhP216 million. This was the culmination of more than one year of planning and preparation. Then DBP Chairman Mr. Alfredo C. Antonio invited the Bankers Association of the Philippines (BAP) to join hands and form a guarantee corporation primarily to encourage private banks to lend to LGUs. Considered as a pioneering institution, LGUGC was the first to introduce a guarantee mechanism for LGU borrowings in the Philippines and the first private corporation to go into the guarantee business in the country. The company s vision was to provide a viable alternative to local government financing. Its operations were in keeping with the provision for fiscal autonomy specified in the Local Government Code of 1991, which expanded the local governments fiscal authority by allowing them to borrow from private financial institutions or float debt instruments even without prior approval from the DOF. LGUGC was expected to accelerate the competitive access of LGUs to financial markets and ultimately to pave the way for further development and growth opportunities for both the government and the private banking sector In its first year of operation, LGUGC institutionalized the systems and procedures for an effective guarantee mechanism. It extended its guarantees to the City of Urdaneta and the Province of Aklan for bond issues of PhP25 million and PhP40 million, respectively. Four financial institutions and a financial advisor were involved in the bond issues. The internal LGU Credit Screening and Rating System (LCSRS) was pilot-tested on these two accounts. Extensive advocacy work was done on LGU Leagues, non-government organizations, multilateral agencies and the DILG, and a pro-active marketing stance was developed to hurdle institutional challenges. In September, the USAID/ DCA signed an agreement with LGUGC where DCA undertook to coguarantee 30% of the risk of qualified borrowers up to an aggregate exposure of USD8.55 million. With these efforts, LGUGC laid the groundwork for the development of a municipal bond market in line with its vision of an active capital market for LGU debts In less than three years, LGUGC hit the PhP1 billion mark in guarantee portfolio, with a total of PhP940 million bond issuances guaranteed for the Puerto Princesa Green Bonds and the Caloocan City Katipunan Bonds during the year. Two financial advisors submitted a total of five projects for evaluation during the year and the number of involved financial institutions increased from four to five. To sustain its growth in portfolio and the achievements during its early years of operations, LGUGC worked on the following (1) extension of financial advisory and credit rating services, (2) completion of the pilot-testing of its internal LCSRS, (3) institutionalization of a Project Monitoring Board (PMB) for each 9

11 guaranteed LGU bond issue, (4) escrow arrangement with DBP-Trust to ringfence a guarantee fund that may be used only for payment of claims, and (5) started negotiations for equity infusion with various BAP member banks and bilateral/multilateral institutions. Recognizing LGUGC s thrusts and achievements, the USAID Regional Urban Development Office for South and Southeast Asia chose LGUGC as a model of public-private sector partnership for other Asian developing economies Despite the local elections, LGUGC guaranteed the bond issuances of Tagaytay City for PhP220 million and Iloilo City for PhP130 million. LGUGC took advantage of the lull in guarantee activities to review its internal policies and procedures. Work toward the computerization of its LCSRS and Portfolio Monitoring System (PMS) began with technical assistance from the Philippines-Australia Governance Facility (PAGF) of Australian Aid. USAID, on the other hand, approved a technical assistance for the expansion of the LCSRS database from 120 to 500. LGUGC likewise participated in various presentations, seminars and forums of the DOF, DILG, Department of Budget and Management (DBM) and FINEX. Management s efforts to make LGU bonds attractive investment instruments resulted to two BSP circulars making LGU debts eligible alternative agri-agra compliance and reducing LGUGC-guaranteed LGU bonds risk weight from 100% to 50%. The company evaluated a total of four project feasibility studies during the year, worked with two financial advisors and maintained its close relationship with its existing partner financial institutions Total guarantee portfolio stood at PhP1.231 billion by yearend with two deals aggregating PhP117 million booked for the bond issuances of the municipalities of Daraga and Bayambang for a public market and reconstruction of a dry goods market, respectively. Ten feasibility studies were actually evaluated. The company worked with five private financial advisors and added an investment house to its pool of active partner financial institutions. LGUGC continued to advocate for a policy environment conducive to LGU debt market advancement through the development of strong ties with national government agencies and private financial sectors. LGUGC signed Memoranda of Agreement with DOF/Bureau of Local Government Finance (BLGF) as well as with individual government financial institutions (GFIs) on information exchange regarding LGU debts. LGUGC had a wider pool of private sector partners six financial advisors, seven lead and participating underwriters and two trustees. Complementing these partnerships was the completion of the computerization of the LCSRS and portfolio management systems through the PAGF technical assistance. Noteworthy were the various recognitions accorded to LGUGC cited by the USAID as one of the Successful Development Models for the 21 st Century, and as one of the Six Best Practices of USAID/DCA marked the fifth year of LGUGC as a credit enhancer for LGU debts. LGUGC capped the year with two bond issues of PhP205 million and PhP390 million for an academic center in Leyte and a commercial complex in San Juan, respectively. 10

12 LGUGC advocacy initiatives included (1) tapping insurance companies for possible partnerships which resulted to the Insurance Commission s acceptance of LGUGC-guaranteed bonds as reserve investments of insurance companies, (2) hosting a consultative meeting among technical representatives of national government agencies involved in LGU bonds, (3) conducting an orientation on the mandate and services of LGUGC to the National Economic Development Authority (NEDA) Regional Development Officers, (4) participating in the nationwide advocacy campaigns of FINEX on alternative LGU fund sourcing, and (5) a meeting with JBIC. Moreover, USAID support remained evident with a technical assistance obtained on portfolio risk management, determination of actuarially-sound leveraging ratio, expansion of LGU database from 120 to 500 LGUs, and publication of the screening results of said LGUs. A total of six project feasibility studies were submitted and evaluated. The company added two new financial advisors to its pool of seven and increased the number of its active partner financial institutions from six to eight For the first time since its operationalization, LGUGC covered 100% of its total expenses by operating income consisting of guarantee fee, program management fee and interest income from these fees marked a milestone for LGUGC with its new service offering - program management. World Bank, with the full backing of the DOF, tapped LGUGC as its Guarantee Program Manager for the USD10 million Electric Cooperative System Loss Reduction Project- Partial Credit Guarantee Program (ECPCG) to be conduited through the DOE. At the same time, LGUGC enhanced the bond floatation of three LGUs for infrastructure projects worth PhP697 million. These were extended to the Municipalities of Carmona and Imus and the City of Pasay for middle-income housing subdivision, slaughterhouse and the construction of a two-storey modern public market and commercial center, respectively. Nine project feasibility studies were submitted and evaluated during the year. The company held extensive discussions with ten financial advisors and eight financial institutions for various prospective LGU projects. The institution remained unwavering in its advocacy to obtain an open declaration of national government support for the LGU bond market development in the country. The effort to liberalize the trusteeship of LGU bonds then limited only to government banks finally paid off. BSP approved the proposal and allowed PFIs to serve as trustee agents of any mortgage or bond issuances by LGUs and issued a circular containing the guidelines for PFI eligibility as trustee of LGU debt instruments. Another milestone in 2004 is the signing of Memorandum of Agreement among USAID, JBIC, DBP and LGUGC to pilot a financing scheme for water projects, referred to as the MWLFI. The MWLFI was aimed at testing the possibility of blending official development assistance (ODA) funds (from JBIC via DBP) with 11

13 PFIs loan co-guaranteed by LGUGC and USAID to make it affordable to water service providers, which otherwise cannot meet pure private sector credit finance terms. The MWLFI was eventually pilot tested through Metro Iloilo Water District in The MWLFI was the precursor of the PWRF that will be proposed by JBIC and USAID in The company successfully completed negotiations for additional capital infusion by the ADB. A subscription agreement was entered into between ADB and the LGUGC, whereby ADB formally expressed its desire to subscribe shares equivalent to 25% of the outstanding capital stock of the Company, fully diluted. This further enhanced LGUGC s financial position as a credit guarantee institution in the eyes of the various stakeholders its serves. LGUGC continued to actively pursue a policy environment conducive to the development of the LGU bond market through its various advocacies and involvement in both government and private sector led forums concerning LGU financing. The advocacy activities included 1) eligibility of PFIs as LGU depository bank, 2) adoption of LGUGC FA accreditation system, 3) LGU credit rating as a pre-requisite for bond issuance, 4) amendment of the local government accounting system to introduce separate record-keeping for each economic enterprise, and 5) review and implementation of the 1996 DOF LGU Financing Policy Framework. In late 2005, LGUGC management also reviewed its corporate vision, mission and strategies to maintain its competitive edge. The company expanded its guarantee coverage to include WDs, and opened its services to include direct loans to LGUs. It likewise implemented a more aggressive direct marketing strategy. A total of five project feasibility studies were evaluated for possible bond floatation but nothing materialized. One account was disapproved by the Board. At this time, partner financial advisors cannot get mandates from LGUs primarily due to relatively cheaper cost of funds from loan financing over bonds LGUGC continued to pursue an active marketing campaign in accordance with its revised strategies. This resulted in two closed deals aggregating PhP89 million, one of which is a WD direct loan guarantee. Toward the second half of the year, LGUGC rationalized its organizational structure and enhanced its marketing unit. The year also saw LGUGC sign two more guarantee program management agreements 1) CBRED-LGF Program and 2) RPP-LGF. Moreover, the company further expanded its guarantee coverage to include ECs, RETPs and SUCs. During the fourth quarter of 2006, management started its aggressive marketing campaign particularly among private banks. Advocacy with PFIs was a strategy implemented to allow LGUGC to piggy back on PFI s branch networks. While a total of 11 financial institutions participated in the past 15 projects of LGUGC, only PNB, Allied Bank and Maybank were still actively marketing the LGUGC guarantee. As a result of initial presentations to PFIs, BPI, MetroBank and Union Bank committed to market the LGUGC guarantee. 12

14 LGUGC continued to coordinate with its pool of 10 FAs though only three had live mandates for potential LGUGC guarantee extension. Three projects were being reviewed as of year-end, all of which came from LGUGC direct marketing efforts with an LGU and WDs. In 2006, LGUGC was made a member of the Steering Committee that was constituted to design the PWRF. The PWRF Steering Committee was formed in 2005 by the DOF, NEDA, BAP, JBIC and USAID. The Steering Committee and its Technical Working Group have been working to explore options and modalities for a water revolving fund. With LGUGC s continued advocacy, PFIs interest on water sector financing grew as evidenced by their attendance in several PWRF consultation meetings. In February 2006, five PFIs indicated interest to fund the second water project to be reviewed by LGUGC. Given the profile of accounts in the pipeline, it was anticipated that substantial portion of LGUGC s new guarantees for 2007 shall be from water projects. LGUGC management did not slow down on its advocacies for the development of the LGU debt market, which included (1) Proposal to BSP for the application of the 50% risk weight applied on LGU bonds also to LGU loans under the same conditions, with LGUGC guarantee and covered by a deed of assignment of IRA of the LGU, (2) Insurance Commission approval of the request to make LGU bonds guaranteed by LGUGC as automatic reserve eligible for insurance companies, and (3) Proposal to the Office of the President for an Executive Order declaring LGU bonds as a core developmental concern of the National Government being an election year, the management implemented a shift in strategy and focused its marketing efforts on WDs, with encouraging results. It made landmark deals on water projects with eight water district loans totaling PhP1.046 billion approved for 85% guarantee cover during the year. Booked guarantees were, however, only at PhP385 million or 64% of the PhP600 million target due primarily to some borrowers decision to delay loan availments to The loans approved for guarantee were for efficiency improvement, water supply improvement, and expansion projects. To further assist the water sector, LGUGC entered into a Memorandum of Agreement with LWUA on July 31, 2007 where LWUA agreed to co-finance loans to WDs with LGUGC accredited banks, provide a standby liquidity guarantee to co-lender after the latter s maximum loan term expires to allow loan terms to stretch to as long as 25 years, and take over the management and policy making functions of defaulting WDs on behalf of LGUGC and its partner accredited bank. The year also saw the Company venturing into development sectors such as the renewable energy sector and the e-laboratory projects of SUCs, with one project each approved for guarantee aggregating PhP55 million. 13

15 Despite its shift in market focus, LGUGC management continued to keep an eye on opportunities among the LGUs. As of year-end, the guarantee applications of three LGUs were being processed. Due to its aggressive marketing campaign among private banks to avail of its guarantee, LGUGC ended the year 2007 with a total of 12 accredited financial institutions. Advocacy to PFIs was a strategy implemented to allow LGUGC to piggy back on the PFIs branch networks. LGUGC continued to have the support of the USAID through its co-guarantee agreement with USAID/DCA. This partnership has been extended five times since the agreement first expired in September 2004, the final expiry date being September 30, LGUGC was likewise the recipient of two types of technical assistance from USAID. The first was the study on the methodology for pricing its guarantee, and the second, the formulation of a credit rating framework for WDs. Study results were available in The year 2007 saw a major shift in the marketing strategy of LGUGC for the ECPCG Program. Additional services were made available to ECs such as assistance in completing the requirements of lenders, the Energy Regulatory Commission (ERC) and other regulatory agencies; grant for feasibility study on capital expenditures as prescribed by ERC; and grant for tariff rate increase study. The new marketing strategy paid off with six electric cooperatives signing the Memorandum of Understanding to show their commitment to avail of the program before full due diligence is initiated. LGUGC established its RPP-LGF program management office (PMO) and worked closely with the DOE in developing the market base for RPP-LGF. The PMO touched base with a number of network organizations in the microfinance industry to develop linkages and pave the way for partnerships with photovoltaic system providers. As of year-end, three MFIs were accredited under the program. LGUGC management attached the PMO of CBRED-LGF to its Relationship Marketing Department, actively promoted the program to financial institutions (FIs), and encouraged FIs to integrate the program in their regular product lines. As of year-end, the CBRED-LGF had 14 accredited FIs and two approved renewable energy projects LGUGC s marketing efforts were concentrated on WDs and LGUs, specifically for projects involving the improvement of water quality and supply, and efficiency in the delivery of services in the countryside. These resulted to the approval of six projects, four for WDs and two for LGUs, aggregating PhP million in loan amount. LGUGC booked PhP645 million worth of guarantees against its target of PhP605 million. LGUGC management continued to keep an eye on opportunities among the LGUs and other eligible markets. As of year-end, the guarantee applications of three LGUs, two WDs, one EC and one Build-Operate-Transfer (BOT) proponent for a 14

16 public market were being processed. LGUGC likewise increased its number of PFIs from 12 in 2007 to 15 in In September 2008, a new five-year coguarantee agreement was signed by LGUGC and USAID, specifically for water projects of LGUs, WDs and private water suppliers. LGUGC was invited to the Philippines Development Forum Sub Working Group on Water Supply and Sanitation, specifically on Financing and Infrastructure Development, in recognition of its important role in the development of the water sector. The main function of the sub-working group is to serve as the forum of the Philippine government to apprise all stakeholders in the guiding principles and policies for the water supply and sanitation sector s development agenda LGUGC achieved its guarantee volume target, booking PhP647 million from approved guarantees of PhP1.496 billion as of year-end against projection of PhP620 million, making 2009 another fruitful year. Its guarantee and program management fees alone, excluding the interest income on said fees, covered total expenses by 151%, much higher than the 130% target. LGUGC maintained its zero default record, with a Contingent Liability of PhP2.025 billion as of yearend 2009 for a leverage ratio of 4.3x against Net Worth. The company continued its efforts to ensure that private resources are channeled to more local development projects in 2009 by 1) maintaining close linkages with PFIs, financial advisors, associations of target markets, and institutional partners, 2) improving guarantee evaluation and processing system and timeline, and 3) expanding guarantee coverage to include RETPs and private water service providers. LGUGC further strengthened the ECPCG program by signing a Memorandum of Agreement (MOA) with NEA on June 16, 2009 to co-finance EC capital expenditure requirements. With the MOA, the ECPCG program is expected to finally take off. The CBRED-LGF program is being marketed aggressively. A new DOE policy directive issued in November 2009, however, added another eligibility criterion, requiring proponents to be registered under DOE as RE technology providers before they may qualify for the program. The RPP-LGF was terminated on June 30, 2009 in accordance with the DOE-WB RPP Project Agreement. The company was able to deliver the following under the RPP-LGF 1) accredited 5 MFIs with PhP1 million Automatic Guarantee Lines each, 2) a total of 188 PV installations guaranteed, and 3) guaranteed loan portfolio amounting to PhP1.370 million. BSP finally approved the reduction of the risk weight of LGUGC-guaranteed LGU loans, water district loans and bond issuances from 100% to 50% LGUGC successfully covered 100% of its total expenses with pure guarantee fee by 113%. Including interest income on guarantee and program management fees, operating income covered total expenses by as much as 168%. Nine 15

17 accounts aggregating PhP748 million were booked against the PhP612 million target. LGUGC continued to enjoy zero default, ending the year with an outstanding contingent liability of PhP2.154 billion. It posted leverage ratio of 4.3x against Net Worth, Return on Equity of 6.7% and increase in Total Assets of 7.9%. To sustain its growth in portfolio while keeping its focus on infrastructure development, LGUGC extended its guarantee services in the first quarter of 2010 to MLEs that are into local infrastructure and other developmental projects. Its aggressive marketing in this sector yielded three approved accounts aggregating PhP170 million in loan amount and 10 accounts in the pipeline with potential investment requirement of PhP800 million. LGUGC granted Philippine Veterans Bank (PVB) a P1 billion Automatic Guarantee Line (AGL) for LGU debt instruments to attract prospective co-funders. The LGUGC-PVB AGL aimed to enhance the security and risk-rating profile of the LGUs through PVB s IRA-depository bank authority at that time. The ECPCG Program finally booked two accounts with an aggregate loan amount of PhP228 million. Four approved accounts with loan requirements totaling PhP million were in various stages of documentation as of year-end. Through the hard work of LGUGC in moving the ECPCG program, the WB approved the request of the DOE for the release of the second GEF tranche of USD5 million for the ECPCG guarantee fund which will bring the program to its design level of USD10 million. To cap a memorable year, LGUGC obtained a second-highest rating of PRS AA+ (Corp.) from the Philippine Rating Services Corporation on November 8, As a result of the rating, LGUGC received confirmation from the BSP that all LGUGC-guaranteed loans and bonds shall have a risk weight of only 20% pursuant to BSP Circular No LGUGC s audited financial statements as of December 31, 2011 showed Total Revenues of P81.301MM and Net Income of P40.641MM. 22% and 23% higher than year 2010 results of operations, respectively. Total Net Worth rose by 9% to P MM from P MM in Total Assets increased by 11% to P MM. LGUGC proved its operating profitability in 2011 by covering total expenses with operating income by as much as 176%. Seventeen accounts aggregating P1.319 billion were booked against the P MM target. LGUGC continues to enjoy zero default, ending the year with an outstanding contingent liability of P2.491 billion. It posted leverage ratio of 4.5x against Net Worth and Return on Equity of 7.6%. In anticipation of the phase out of the ECPCG program that LGUGC manages for the World Bank and the Republic of the Philippines (RoP). Management entered into a MOA with NEA on July 11, 2011 for the co-financing of ECs funding requirements with LGUGC partner financial institutions under the regular LGUGC guarantee. These moves yielded 18 approved accounts aggregating 16

18 P1.390B in loan amount and 21 accounts in the pipeline with potential investment requirement of P1.751B. The ECPCG Program booked 7 accounts with combined principal guarantee coverage of P707.04MM. Four more accounts aggregating P443.97MM in loan requirements have been approved and are in documentation stage as of yearend. On November 7, 2011, the International Bank for Reconstruction and Development granted a two-year extension to the Electric Cooperative System Loss Reduction Project, including the Partial Credit Guarantee Program, setting December 31, 2013 as the new closing date for the Grant Agreement. The RoP thus extended LGUGC s management of the USD10MM EC-PCG program up to December 31, 2013 as a result thereof. DOE likewise indefinitely extended its agreement with LGUGC to manage the USD1.607MM Capacity Building to Remove Barriers to Renewable Energy Development-Loan Guarantee Fund program which has expired on May 31, 2011 and has since been turned over by the United Nations Development Programme to DOE. The program is now called DOE-Loan Guarantee Fund (DOE-LGF). To cap a memorable year, LGUGC maintained its PRS Aa+ (corp.) issuer credit rating from the Philippine Rating Services Corporation for the period November 2011 to November 2012 which enables LGUGC to maintain the 20% risk weight granted by the BSP to all LGUGC-guaranteed debts LGUGC s audited financial statements as of December 31, 2012 showed Total Revenues of P91.325MM and Net Income of P46.267MM, 12% and 14% higher than year 2011 results of operations, respectively. Total Net Worth rose by 8% to P MM from P MM in Total Assets increased by 11% to P MM, and Operating Income covered Total Expenses by 176%. LGUGC booked 11 accounts in 2012 aggregating P MM in loan amount and P MM in guarantee coverage, consisting of 3 LGUs, 4 MLEs and 4 ECs. Of the 11 accounts, 2 were approved in 2011 and 9 in Philippine Veterans Bank enrolled 1 additional LGU account amounting to P34.077MM under the Automatic Guarantee Line Agreement, increasing the total 2012 new guarantee bookings to P MM. Total contingent liability inclusive of principal and interest as of end 2012 is at 2.4 billion, 4.10x the LGUGC Net Worth and 8.22x its Capital. LGUGC booked 8 accounts under the managed ECPCG program aggregating P1.162 billion in loan amount and P MM in guarantee coverage. Of the 8 accounts, 3 were approved in 2011 and 5 in Total contingent liability under ECPCG as of December 31, 2012 is P MM consisting of 13 accounts, for a leverage ratio of 1.4x the ECPCG Guarantee Reserve and Interest Income Accounts. 17

19 In anticipation of the phase out of ECPCG by yearend 2013, the World Bank started preparing a Philippine Clean Technology Fund (CTF) guarantee program that may replace the former. The CTF will not only cater to ECs but also to private renewable energy developers that have Electricity Sales Agreements with ECs. As the proposed program manager for the CTF, LGUGC developed guarantee design, terms and conditions and presented these to its PFIs for feedback during a dialogue on January 29, A workshop among LGUGC, DOE, NEA and PFIs was sponsored by the World Bank on February 5, 2013 for further discussions and enhancement of the guidelines and procedures of the CTF guarantee program. Another milestone of LGUGC in 2012 was the P7.5MM capital infusion of East West Bank Corporation through subscription of 50,000 common shares from new and unissued shares of LGUGC. With the proven track record of LGUGC, East West Bank trusted that the bank will be able to actively participate in funding developmental projects. LGUGC maintained its PRS Aa+ (corp.) issuer credit rating from the Philippine Rating Services Corporation for the period November 2012 to November 2013 for the third consecutive year. This allows its PFIs to maintain the 20% risk weight granted by the BSP to all LGUGC-guaranteed debts LGUGC s audited financial statements as of December 31, 2013 showed Total Revenues of P MM and Net Income of P83.623MM, 64% and 81% higher than year 2012 results of operations, respectively, due primarily to the sale of investments to realize trading gains. Total Assets increased by 11% to P MM from P MM in 2012 (restated). Operating Income covered Total Expenses by as much as 189%. Year-end contingent liability increased slightly to P2.49 billion from P2.44 billion in 2012 despite 5 maturing accounts and 2 accounts taken-out, equivalent to 4.98x the LGUGC Net Worth and 8.15x its Capital. LGUGC booked 6 accounts under the managed ECPCG program aggregating P MM in loan amount and P MM in guarantee coverage. Total contingent liability under ECPCG as of December 31, 2013 is P1.453B consisting of 18 accounts, for a leverage ratio of 2.3x the ECPCG Guarantee Reserve and Interest Income Accounts fund balances. The ECPCG program under the World Bank (WB) expired last December 31, However, the Republic of the Philippines (RoP), through the Department of Finance, has informed the World Bank of its intent to utilize the proceeds of the $10MM grant in escrow to continue the implementation of the ECPCG program, with LGUGC being retained as the Guarantee Program Manager. This is, however, a transitory arrangement pending RoP approval of the WB-proposed Philippine Renewable Energy Development Project (PHRED) where an additional U$40MM will be made available by the WB for the expansion of the ECPCG Program using Clean Technology Funds (CTF), for the financing of electric power distribution system upgrades, including the purchase of sub-transmission assets 18

20 and emergency capital expenditure requirements of electric cooperatives. Also eligible under the PHRED are renewable energy projects of electric cooperatives (ECs) and renewable energy technology providers with ECs as joint venture partners or ofttakers. On December 2, 2013, the Asian Development Bank (ADB) decided to exercise its option to redeem its LGUGC shares under its Subscription Agreement with LGUGC. ADB believed that its developmental objective has been met which is to provide funding for a period of time until LGUGC achieved commercial stability and growth. The redemption price shall be paid by LGUGC to ADB in 14 semiannual principal installments plus interest equivalent to the 91-day t-bill peso rate plus 2.5% points in accordance with the terms and conditions set out in the Repayment Agreement. LGUGC Net Worth declined by 16.4% to P MM from MM in 2012 as a result of the ADB redemption. However, the share redemption did not have a significant impact on LGUGC s credit rating which remained at PRS Aa plus (corp.) as assessed by the Philippine Ratings Services Corporation (PhilRatings). LGUGC also retained its assigned 20% risk-weight on LGUGC-guaranteed loans. LGUGC welcomed a new member to its family, Robinsons Banking Corporation (Robinsons Bank), which made a capital infusion of P7.5MM through subscription of 50,000 common shares from new and unissued shares of LGUGC LGUGC s audited financial statements as of December 31, 2014 showed Total Revenues of P81.036MM and Net Income of P36.445MM, respectively. Total Assets decreased slightly by 0.4% to P MM from P MM in 2013 due to principal loan repayment to Asian Development Bank for the redeemed Class B Common shares. Operating Income covered Total Expenses by as much as 165%. Year-end contingent liability increased to P2.63 billion from P2.49 billion in 2013, equivalent to 5x the LGUGC Net Worth. LGUGC booked 16 accounts consisting of 3 LGUs, 3 ECs, 2 WDs and 8 MLEs equivalent to P1.23 billion in new guarantees surpassing its P1 billion 2014 target by 23%. Despite the delay in the extension of the implementation of the managed Electric Cooperative Partial Credit Guarantee (ECPCG) program, LGUGC signed 5 accounts under the ECPCG program aggregating P808MM in loan amount and P646MM in guarantee coverage. The program has guaranteed loans totaling P2.83 billion, with contingent liability of P1.45 billion consisting of 21 EC accounts as of December 31, 2014, for a leverage ratio of 2.04x the ECPCG Guarantee Reserve and Interest Income Accounts fund balances. The Republic of the Philippines (RoP) through the Department of Energy and Department of Finance has committed to continue the successful ECPCG program, increase the fund through the Clean Technology Fund, and expand eligibility to renewable energy projects involving electric cooperatives as full or partial proponent/developer and/or offtaker. The extension is currently undergoing the approval process of the RoP. 19

21 LGUGC continues to entertain the EC sector under its regular program to fill the funding gap for the electric cooperatives system modernization projects which remains at a significant level LGUGC s interim financial statements as of December 31, 2015 showed Total Revenues of P67.134MM and Net Income of P26.701MM, respectively. Total Assets decreased slightly by 2% to P MM from P MM in 2014 due to principal loan repayment to Asian Development Bank for the redeemed Class B Common shares. Operating Income covered Total Expenses by as much as 144%. To sustain its portfolio growth, LGUGC continued to be aggressive in marketing its guarantee services to LGUs, WDs, ECs, RETPs and MLEs that are into local infrastructure and other developmental projects. This strategy resulted in the increase in LGUGC s year-end contingent liability to P3.08 billion from P2.63 billion in 2014, equivalent to 5.8x the LGUGC Net Worth. LGUGC booked 19 accounts consisting of 12 MLEs, 4 LGUs, 1 WD, 1 EC and 1 RETP equivalent to P1.51 billion in new guarantees. A pipeline of accounts with potential investment requirement of P2.44 billion was also established. LGUGC enhanced its relationship with existing clients by providing free consultation and reacting fast to client s needs and market movements such as lowering guarantee fees and offering flexible terms of guarantee fee payments. For prospective clients, LGUGC offers loan tenors that match their cash flow requirements, competitive borrowing cost, new guarantee products and valueadded services to keep ahead of competition. LGUGC signed additional five EC accounts aggregating P427MM in loan amount and P342MM in guarantee coverage. These accounts will automatically be transferred to the Electric Cooperative Partial Credit Guarantee (ECPCG) program as soon as the program extension is implemented. A total of P2.86 billion in loan amount has been guaranteed under the ECPCG program, with contingent liability of P1.41 billion. These consist of 19 EC accounts, for a leverage ratio of 1.86x the ECPCG Guarantee Reserve and Interest Income Accounts fund balances. In line with LGUGC s vision to be the recognized private sector link in publicprivate partnerships for local development financing, LGUGC continues to assist the national and local government in economic development through credit enhancement of local infrastructure project loans. In its seventeen years of operations, it has guaranteed 99 projects nationwide amounting to P9.696 billion in loan amount consisting of developmental projects of LGUs, WDs, MLEs and ECs and RETPs which include, but are not limited to, construction of water supply systems, reduction of non-revenue water, public markets, slaughterhouses, public terminals, commercial centers, tertiary hospitals, bulk water supply, water sanitation system, EC system loss reduction projects and renewable energy projects. LGUGC s strong affiliation with its partner financial institutions (PFIs) is a major factor to its continuing volume growth. To date, LGUGC has 13 PFIs consisting of 2 government banks and 11 private financial 20

22 institutions most of which have aggressively referred accounts to LGUGC. LGUGC has likewise maintained its alliance with donor agencies such as USAID and WB, and national government agencies and the Bangko Sentral ng Pilipinas to smoothen the entry of its PFIs in unchartered debt markets. LGUGC has maintained its PRS Aa+ (corp.) credit rating from the Philippine Rating Services Corporation since November 8, 2010, which enables it to keep the 20% risk weight for its guaranteed debts. EC loans guaranteed under the ECPCG program carry 0% risk weight. LGUGC is also awaiting BSP s confirmation of the application of 0% risk weight for loans guaranteed under the LGUGCmanaged DOE-Loan Guarantee Fund program for RETPs. With its proven track record in program management, LGUGC has recently been appointed as the program manager for the Access to Sustainable Energy Programme (ASEP) by the European Union through the World Bank. The program aims to assist the Republic of the Philippines through the Department of Energy to provide electricity to off-grid areas through rural network solar and photovoltaic mainstreaming. The program promotes the developmental and optimal use of the country s renewable energy resources. Lastly, to maintain its competitive edge, LGUGC further strengthened its portfolio risk management systems and procedures and the due diligence expertise of its personnel in various markets to efficiently manage its risks. Products and Services Guarantee LGUGC guarantees the indebtedness of LGUs, WDs, ECs, RETPs, SUCs and MLEs. The guarantee fee is a function of the underlying borrower and project risks. Fees range from 0.5% to 2% per annum. Credit Rating LGUGC implements an internal credit rating system for LGUs, the LCSRS, in the absence of a formal stand-alone entity specializing in risk evaluation of LGUs. The LCSRS adopts internationally-accepted standards fit for due diligence requirements of PFIs and individual investors. The system serves as the primary guide for both the LGUGC and PFIs to identify LGUs that are primed for the commercial credit market. More importantly, the credit rating system establishes the LGU s willingness to honor contractual obligations in addition to its capacity to pay. It is also a tool for LGUs toward better local governance. 21

23 Until such time that an independent and reputable rating agency is established, LGUGC will continue to disseminate screening and rating information to the public on a regular basis. LGUGC also implements an internal credit rating system for WDs designed by the Indianbased firm, CRISIL Ltd. (India), contracted by the USAID-PWRF. The credit rating system serves as a tool for LGUGC to evaluate the creditworthiness of WDs. This determines LGUGC s decision to guarantee loans of water districts. Program Management LGUGC is currently managing the guarantee funds for DOE-LGF supervised by the DOE, and has been tapped to manage the subsidy allocation of Access to Sustainable Energy Programme (ASEP) funded by the European Union and implemented by World Bank. It continues to monitor EC accounts booked under ECPCG. 22

24 23

25 LGU PROJECTS Indicative Terms and Conditions Eligible Borrower LGUs with a rating of at least BA or classified as A, B or C after credit screening under the LCSRS Eligible Any revenue and non-revenue generating infrastructure project Project/Purpose Lender Any LGUGC PFI Term Co-terminus with the PFI loan Single Guarantee Limit Guarantee Coverage 25% of LGUGC Net Worth Up to 85% of the debt service, with interest subject to the LGUGC interest rate cap*. To be determined based on PFI request and Borrower Risk Rating System results Guarantee Fee Collateral Risk-based Indicative range of 0.25% % Assignment of IRA Assignment of Project Revenues and Project Assets Assignment of Debt Service Fund *Interest Rate Cap the guaranteed maximum interest shall not exceed the sum of (a) three percentage (3%) points plus (b) the weighted average interest rate for 182-day Treasury bills issued by the Philippine National Treasury during the immediately preceding twenty-four (24) months. 24

26 WATER PROJECTS Indicative Terms and Conditions Eligible Borrower Eligible Project/Purpose WDs with a rating of at least BBB under LGUGC s internal WD credit rating system Water source development and protection Treatment and Level III distribution Sanitation System upgrading and reduction of NRW Support facilities Bulk water supply Rehabilitation and expansion Lender Any LGUGC PFI Term Co-terminus with PFI loan Single Guarantee Limit Guarantee Coverage Guarantee Fee 25% of LGUGC Net Worth Up to 85% of the debt service, with interest subject to the LGUGC interest rate cap To be determined based on PFI request and Borrower Risk Rating System results. Risk-based Indicative range of 0.65%-1.50% p.a. Collateral Assignment of Debt Service Fund Assignment of Proceeds of Water Billings Assignment of Project Assets 25

27 EC PROJECTS Indicative Terms and Conditions Eligible Borrower Eligible Project/Purpose Creditworthy Electric Cooperatives (ECs) Duly registered with the NEA or the Cooperative Development Authority Has ERC-approved capital investment proposal Must meet the minimum projected Debt Service Coverage Ratio of 11 based on the forecasted cash flow Upgrade of EC power distribution systems to realize energy and emission savings Lender Any LGUGC PFI Term Co-terminus with the PFI loan but not to exceed 15 years Single Guarantee Limit Guarantee Coverage 25% of LGUGC Net Worth Up to 80% of the debt service with interest subject to LGUGC interest rate cap To be determined based on PFI request and internal Borrower Risk Rating System results Guarantee Fee 0.25% per annum Processing Fee One-time fee of up to 1.5% of the guaranteed portion of the principal amount of the loan, exclusive of taxes and collected upfront Collateral Assignment of Proceeds of Power Billings Assignment of Debt Service Fund Other assets acceptable to the Lender and LGUGC 26

28 MEDIUM AND LARGE ENTERPRISES (MLEs) PROJECTS Indicative Terms and Conditions Eligible MLEs excluding the top 1,000 corporations Borrower Eligible Short Term Loan Project/Purpose Working Capital Loan Term Loan Fixed Asset Loan Permanent Working Capital Loan Lender Any LGUGC PFI Term Co-terminus with the PFI loan Single Guarantee Limit Guarantee Coverage 25% of LGUGC Net Worth Up to 85% of the debt service with interest subject to the LGUGC interest rate cap. To be determined based on PFI request and internal Borrower Risk Rating System results Guarantee Fee Processing Fee Collateral Based on the borrower credit rating or risk classification, transaction size and cost, security, project risk and term risk, and applied on the principal and interest coverage; Indicative range of 1% to 2 % per annum 1/8 of 1% of guaranteed amount; Negotiable Assignment of Project Revenues/Receivables Assignment of Contract with Suppliers Assignment of Debt Service Fund Other assets that may be required by LGUGC 27

29 DOE-LGF Indicative Terms and Conditions Eligible Borrower Renewable energy technology proponents/developers/providers/suppliers Eligible Project/Purpose Hydropower (pico, micro, mini) Biomass-based (biogas, power and non-power) Wind (power and non-power) Solar (photovoltaic systems and solar water heaters) Term Up to 10 years with maximum 2 years grace period, but not to exceed the PFI loan term Single Guarantee Limit Guarantee Coverage PhP50 Million Guarantee Fee 0.25% per annum Processing Fee PhP1,000 Up to 80% of the principal amortization To be determined based on PFI request and Borrower Risk Rating results Collateral Assignment of Project Assets Assignment of Debt Service Fund Assignment of Proceeds of Power Billings/Receivables 28

30 Credit Evaluation Process 29

31 LGU Credit Screening and Rating System LCSRS Rating Methodology Credit Screening Credit Rating Credit Groups Preliminary Credit Rating Final Credit Rating A 1.A Aaa Risk of Unilateral Restriction of Debt Payments 1 2 Development Risk Economic and Political Endowment Risk B C D Operating Financial 1.B 1.C 1.D 2.A 2.B 2.C 2.D Management Aa A Ba B C TENDENCY FOR DEBT REPAYMENT DEVELOPMENT AND ENDOWMENT RISK OPERATING AND FINANCIAL CONDITION RISK MANAGEMENT RISK 30

32 Credit Rating for Water Districts (CRWD) WD Rating 31

33 DOE-LGF Program DOE-LGF to market and identify projects eligible under the program Applicant submits LGA, FS and other requirements LGUGC endorses to DOE-REMB accounts for technical review DOE-REMB evaluates technical viability of the project LGUGC notifies the Applicant of Approved/Disapproved LGA LGUGC Board approves/disapproves LGA DOE-LGF Management Committee reviews Credit Memo (CM) and clears LGA for LGUGC Board LGUGC evaluates financial viability of project after passing technical review and prepares CM if project passes financial evaluation LGUGC/PFI approval Loan and Guarantee Documentation Loan Availment PMB Meeting Monitoring 32

34 Outstanding Guaranteed Regular Accounts (As of December 31, 2015) BORROWER PROJECT LOAN AMOUNT (P MM) TERM PARTICIPATING FINANCIAL INSTITUTIONS LOCAL GOVERNMENT UNITS 1. Agoo, La Union Public Market BPI/Allied Bank (PNB) Agoo Hypermarket Ph. II BPI 2. Binalonan, Pangasinan University of Eastern Pangasinan BPI Building 3. Rosario, La Union Ph. II of New Public Market and BPI Slaughterhouse Province of Aklan Renovation of Caticlan Passenger PNB Terminal; Enhancement of old Caticlan Coastline; Reclamation of Foreshore portion 5. Infanta, Pangasinan Water Supply and Distribution System DBP 6. Anda, Pangasinan Two-Storey New Anda Wet Market PNB Building 7. Roxas, Palawan Public Market and Integrated Public DBP Terminal 8. San Francisco, Quezon Acquisition of Heavy Equipment EastWest Bank One-storey Public Market and a Public Terminal Building Allied Bank (PNB) 9. San Antonio, Nueva Ecija Construction of New Slaughterhouse Building and Integrated Terminal Complex EastWest Bank 10. Bongabon, Nueva Ecija Construction of a New DBP Slaughterhouse Building 11. Iba, Zambales New Public Market EastWest Bank 12. Maddela, Quirino New Public Market Phase II EastWest Bank 13. San Isidro, Nueva Ecija New Public Market and New EastWest Bank Slaughterhouse 14. Pantabangan, Nueva Ecija Construction of Terminal 2 and Two- Storey Commercial Complex; and EastWest Bank Construction of Farm-to-Market Roads Subtotal 1, MEDIUM AND LARGE ENTERPRISES 1. AM Gatbonton Bulk Water Supply (BWS) Facilities Allied Bank (PNB) under TCWD and CFSWD BWS with CSJDMWD Allied Bank (PNB) BWS for NAWAD Security Bank 2. Amertech Industrial Ventures, Inc. 2 Steam Boiler plants for Coca-Cola Bottlers Phils,Inc BPI 3. Healthserv Los Banos, Completion of 4-storey, 80-bed BPI Inc. Tertiary Hospital Purchase of a CT Scan BPI 4. Twin Rivers BWS Project with DWD Allied Bank (PNB) Corporation. BWS for Silang WD Security Bank 5. PAPISSS, Inc. Slaughterhouse for Lemery, Batangas BPI 33

35 Construction of Lemery Public Market BPI under a 25-year BLT Scheme 6. Worldchem Envirotech, Bahay Toro Sewage Treatment Plant BPI Inc. 7. Abejo Waters Corp. Water Production, BPI Treatment and Distribution in Panglao, Bohol 8. Aquadata, Inc. Rehabilitation and Improvement of MBTC Bauan Waterworks System Private Water Supply Distribution MBTC within Municipality of San Pascual, Batangas 9. DC Tech Read, Bill and Collect Projects for Security Bank ECs in Visayas and Mindanao 10. Don Bosco Technical Four-storey School Building EastWest Bank Institute (DBTI) Makati 11. DBTI Tarlac Three-storey Building and EastWest Bank Refinancing of DBTI Tarlac Outstanding Loan to Bank of Florida 12. Envirokonsult RCL MBTC Equipment and Services 13. Jelka 5 Star Fishing Acquisition of Fishing Equipment and Security Bank Corp. Machineries 14. Kempal United RCL PNB Corporation 15. Lin Man Power RCL RCBC Technology, Inc. 16. Mater Dei Academy of Four-storey Building with Covered DBP Sta. Maria Bulacan, Inc. Court 17. North Terradev Corp. Commercial Building RCBC 18. See s International Food Expansion and Construction of Davao UCPB Mfg. Corp. City Plant 19. Summa Water Water Treatment Facility for BWS RCBC Resources, Inc. with MARWADIS 20. Texin, Inc. Dampalit River BWS Joint Venture MBTC under Laguna Water District Subtotal 1, WATER DISTRICTS (WDs) 1. Cabanatuan City WD Rehabilitation and Expansion of BPI/MBTC Water System 2. Indang WD Expansion of Water System BPI BPI 3. Puerto Princesa City WD Expansion and Rehabilitation of water system BPI 4. City of San Fernando Rehabilitation and Expansion of BPI/Allied Bank (PNB) WD Water System 5. San Pedro WD Office Building and Water Facilities BPI and Lot Acquisition Continuous Expansion and BPI Improvement of Water Supply System and Construction of Proposed Building 6. Tarlac City WD Expansion of water system BPI 7. San Pablo City WD Various CAPEX under SPCWD Allied Bank (PNB) Business Plan Subtotal 1,

36 PVB AUTOMATIC GUARANTEE LINE 1. City of Angeles, Pampanga Construction of Angeles City Sports Coliseum PVB-Assignor BPI-Assignee 2. City of Toledo, Cebu Construction and Site Development of Toledo City Hotel PVB-Assignor BPI-Assignee 3. Caraga, Davao Oriental Caraga Public PVB Market//Terminal/Commercial Complex 4. San Miguel, Bulacan Purchase of Various Heavy Equipment PVB 5. San Pedro, Laguna New Municipal Hall Building and PVB Renovation of Jose L. Amante Hospital 6. Trece Martirez, Cavite Slaughterhouse and 13-Towers Bldg PVB Subtotal ELECTRIC COOPERATIVES 1. Camiguin Electric System Loss Reduction and BPI Cooperative, Inc. (CAMELCO) Enhancement of Power Distribution Operation 2. La Union Electric Cooperative, Inc. (LUELCO) Capital Expenditure Projects Allied Bank (PNB) 3. Misamis Oriental II Rural Electric Services Cooperative, Inc. (MORESCO II) 4. Bukidnon Second Electric Cooperative, Inc. (BUSECO) System Loss Reduction and Enhancement of Power Distribution Operation BPI Installation of Substation, Line PNB Rehabilitation and Relocation of Transformers Subtotal TOTAL 5,

37 Redeemed Accounts (As of December 31, 2015) BORROWER PROJECT LOAN AMOUNT (P MM) TERM PARTICIPATING FINANCIAL INSTITUTIONS LOCAL GOVERNMENT UNITS 1. Boracay-Aklan Jetty Port and Terminal Building LBP-Trustee RCBC Cap-Underwriter 2. Bayambang, Pangasinan Public Market PNB-Trustee MIB-Underwriter 3. Caloocan City Public Market PNB-Trustee Commercial Area with Toll Parking RCBC Cap-Underwriter General Hospital PCI Cap-Underwriter 4. Carmona, Cavite Housing DBP-Trustee ICCP-Underwriter PCI Cap-Underwriter 5. Daraga, Albay Public Market PNB-Trustee RCBC Cap-Underwriter 6. Iloilo City Employees Housing PNB-Trustee RCBC Cap-Underwriter 7. Imus, Cavite Slaughterhouse DBP-Trustee Unicapital-Underwriter 8. Leyte Academic Center RCBC Cap-Underwriter PCI Cap-Underwriter 9. City of Pasay Public Market and Commercial Center PNB-Trustee PCI Cap-Underwriter PNB Cap-Underwriter 10. Puerto Princesa City Low-cost Housing PNB-Trustee RCBC Cap-Underwriter 11. San Juan City Multipurpose Gym, Commercial Building and Toll Parking PNB-Trustee Allied Bank (PNB)- Underwriter PCI Cap-Underwriter PNB-Trustee RCBC Cap-Underwriter 12. Tagaytay City Convention Center with Lodging Facility 13. Urdaneta City Slaughterhouse PNB-Trustee SolidBank-Underwriter 14. Baliwag, Bulacan Integrated Solid Waste PNB-Trustee Management Sys. PNB Cap - Underwriter 15. Imus, Cavite Multi-purpose Cadastral Survey BPI 16. Alfonso Lista, Ifugao Construction of Water Supply and PNB Distribution System 17. Province of Palawan Priority Projects PVB Refinancing Outstanding Loan with PVB LBP 18. Caraga, Davao Oriental Refinancing Outstanding Loan PVB 19. Province of Zamboanga Sibugay Rehabilitation/Repair of Satellite Centers PVB 36

38 20. Binalonan, Pangasinan Refi BPI nancing of Outstanding Loan with LBP 21. Bongabon, Nueva Ecija Construction of a New EastWest Bank/DBP Slaughterhouse Building Subtotal 3, WATER DISTRICTS (WDs) 1. Calamba WD Repair and Rehabilitation of Water BPI Lines and Distribution System 2. Laguna WD Expansion of Water System and BPI Refinancing of LWUA Loans 3. Silang WD Repair and Expansion of Water PNB System 4. Legazpi City WD Bulk Water Supply BPI 5. Metro Iloilo WD Rehabilitation of Water System and PNB Refinancing of LWUA Loans 6. Zamboanga City WD Rehabilitation and Expansion of Security Bank Water System 7. Norzagaray WD BWS MBTC 8. Mabalacat WD Water Filtration System Facilities Allied Bank (PNB) Construction of Ground Reservoir Allied Bank (PNB) and Upgrading of Existing Water System Subtotal MEDIUM AND LARGE ENTERPRISE 1. Worldchem Pinagsama Sewage Treatment BPI EnviroTech, Inc. Plant Bahay Toro Sewage Treatment Allied Bank (PNB) Plant 2. Amertech Industrial 2 Steam Boiler plants for Coca-Cola BPI Ventures, Inc. Bottlers Phils,Inc. 3. Healthserv Los Banos, Working Capital (RPN) BPI Inc. Subtotal ELECTRIC COOPERATIVE 1. Isabela I Electric Additional Working Capital MBTC Cooperative, Inc. (ISELCO I) Subtotal TOTAL 4, TOTAL OUTSTANDING AND REDEEMED ACCOUNTS 9,

39 Outstanding Guaranteed ECPCG Accounts (As of December 31, 2015) BORROWER PROJECT LOAN AMOUNT (P MM) 1. Bohol I Electric Cooperative, Inc. (BOHECO I) 2. Bukidnon Second Electric Cooperative, Inc. (BUSECO) 3. Camiguin Electric Cooperative, Inc. (CAMELCO) 4. Camarines Norte Electric Cooperative, Inc. (CANORECO) 5. Davao Electric Cooperative, Inc. (DANECO) 6. First Bukidnon Electric Cooperative, Inc. (FIBECO) 7. La Union Electric Cooperative, Inc. (LUELCO) 8. Misamis Occidental I Electric Cooperative, Inc. (MOELCI I) 9. Misamis Oriental I Rural Services Electric Cooperative, Inc. (MORESCO I) 10. Misamis Oriental II Rural Services Electric Cooperative, Inc. (MORESCO II) TERM PARTICIPATING FINANCIAL INSTITUTIONS System Loss Reduction and DBP Enhancement of Power Distribution Operation Installation of Substation, Line Conversions and Procurement of 69 KV DBP Installation of 10MVA BPI Substation Installation of 5 MVA PNB substation at DMPI and Construction of 69 kv Double Circuit line, Rehabilitation of Over-extended Secondary Line, Relocation of 5 MVA Implementation of Security Bank Emergency Capex - Lunocan Substation Construction of 10kms BPI 13.2kV Submarine Cable System Loss Reduction and BPI Enhancement of Power Distribution Operation Uprating of two(2) UCPB Substation from 10MVA to 20 MVA Capital Expenditures Allied Bank Capital Expenditures Allied Bank System Loss Reduction and Enhancement of Power Distribution Operation UCPB Capital Expenditures Security Bank Installation of 5MVA S/S, Reconductoring of Backbone Lines, Procurement of KWH Meters BPI 38

40 11. Pangasinan I Electric Cooperative, Inc. (PANELCO I) 12. South Cotabato I Electric Cooperative, Inc. (SOCOTECO I) 13. Surigao del Norte Electric Cooperative, Inc. (SURNECO) 14. Benguet Electric Cooperative, Inc. (BENECO) 15. First Catanduanes Electric Cooperative, Inc. (FICELCO) 16. Nueva Ecija I Electric Cooperative, Inc. (NEECO I) 17. Bohol II Electric Cooperative, Inc. (BOHECO II) 18. Leyte V Electric Cooperative, Inc. (LEYECO V) 19. Palawan Electric Cooperative, Inc. (PALECO) Capital Expenditures BPI Capital Expenditures BPI Capital Expenditures UCPB Capital Expenditures BPI Capital Expenditures Security Bank Capital Expenditures Allied Bank Installation of 2-5 MVA Substations, Uprating of 2.5 MVA to 5 MVA Substation Security Bank Substation Expansion Projects with 6.9 Kms. 69KV Subtransmission Line and System Security Bank System Loss Reduction PNB TOTAL 2, Outstanding Guaranteed DOE-LGF Accounts (As of December 31, 2015) BORROWER PROJECT LOAN AMOUNT (P MM) 1. DPJ Engineers and 1MW Bulanao Mini- Consultant/Tabuk Hydropower Plant 2. Tubao Mini Hydro Electric Corp. 1.5MW Mini-Hydro Power Plant TOTAL TERM PARTICIPATING FINANCIAL INSTITUTIONS UCPB DBP Restructured DOE-LGF Account (As of December 31, 2015) BORROWER PROJECT LOAN AMOUNT (P MM) 1. Gerphil Renewable Energy, Inc. Panoon Falls Mini-Hydro Power Plant TOTAL 9.20 TERM AND RATE years with 1 year grace 6% p.a. PARTICIPATING FINANCIAL INSTITUTIONS OUTSTANDING BALANCE (P MM) Allied Bank (PNB)

41 Institutional Linkages USAID CO-GUARANTEE LGUGC has a co-guarantee agreement with USAID which effectively expands LGUGC s capacity to cover water projects of LGUs, WDs and private water service providers in the Philippines through USAID reinsurance of up to 50% of LGUGC s enrolled portfolio. USAID Technical Assistance final review of the LGUGC internal LCSRS after the pilot testing of the first six LGUs; expansion of the LCSRS database from 120 to 500 LGUs; support from legal specialists on policy issues pertinent to bond market development and review of LGUGC s capital adequacy with regard to leverage; portfolio risk management and determination of actuarially-sound leveraging ratio for LGUGC; and guarantee pricing methodology and WD Credit Rating System. AusAid-PAGF Activity Agreement Computerization of the LCSRS and Portfolio Management System to enhance LGUGC s credit evaluation and account monitoring processes. 40