CORPORATE PROFILE - LGU Guaranteelgugc.com/download/publications/Corporate Profile 2014.pdfCORPORATE...

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U n i t 2 8 0 1 , 2 8 / F A n t e l C o r p o r a t e C e n t r e

1 2 1 V a l e r o S t . , S a l c e d o V i l l a g e , M a k a t i C i t y

2014

CORPORATE PROFILE

LGU GUARANTEE CORPORATION “Your link to progress.”

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 for local development

financing. 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. Its credit

enhancement facilitated the entry of LGUs with development projects in the capital market.

LGUGC has since extended its guarantee services to water districts, electric cooperatives, state

universities and colleges and renewable energy technology providers.

With proven track record for over a decade, LGUGC is the name to trust in the Philippine financial

guarantee business.

LGUGC’s stockholders are the Bankers Association of the Philippines and Development Bank of the

Philippines.

The company has an authorized capital stock of PhP500 million of which PhP297,587,500 are subscribed

and outstanding. As of December 2013, total stockholder’s equity amounts to PhP500.818 million.

Board of Directors

(2014-2015)

Incorporators

Gil A. Buenaventura

Chairman

Lorenzo V. Tan

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

Lilia G. Baun

Director

Lydia N. Orial

Director/President/CEO

Deogracias N. Vistan

Cesar E.A. Virata

Peter B. Favilla

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

Primary Business Contact

Ms. Lydia N. Orial President/CEO

Phone: (02)845-3386

Fax No.: 888-4217

Email: [email protected]/[email protected]

MISSION

To be the recognized private sector link in public-private

partnerships for local development financing.

VISION

We commit to:

Advocate for 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, as a

viable local development financing option; and

Instill values of good governance to enhance the

borrower’s enterprise management and

creditworthiness, especially local governments and

utility companies.

Table of Contents

Corporate Profile ………………………………………………........ 1

Operating Highlights …………………………………………………… 5

Products and Services …………………………………………………… 14

Eligible Projects …………………………………………………… 15

Indicative Terms and Conditions

LGUs …………………………………………………… 16

Water Districts …………………………………………………… 17

Medium and Large Enterprises …………………………………………………… 18

ECPCG Program …………………………………………………… 19

DOE-LGF Program …………………………………………………… 20

Credit Evaluation Process …………………………………………………… 21

LGU Credit and Screening Rating

System

…………………………………………………… 22

LGU Rating Methodology …………………………………………………… 22

Credit Rating for Water Districts …………………………………………………… 23

ECPCG Program …………………………………………………… 24

DOE-LGF Program …………………………………………………… 25

Outstanding Guaranteed Accounts …………………………………………………… 26

Redeemed Accounts …………………………………………………… 28

ECPCG Outstanding Guaranteed

Accounts

…………………………………………………… 30

DOE-LGF Outstanding Accounts …………………………………………………… 30

Institutional Linkages …………………………………………………… 31

Partner Financial Institutions …………………………………………………… 32

1

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 is to provide a viable alternative to local government financing. Its

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. In 1999, LGUGC extended guarantees to the City of Urdaneta and the

Province of Aklan for bond issues of PhP25MM and PhP40MM, respectively. Extensive work advocacy

was done on LGU Leagues, multilateral agencies, Bangko Sentral ng Pilipinas (BSP) and national

government agencies such as the DOF and the Department of Interior and Local Government (DILG).

These efforts paved the way for the development of a municipal bond market in line with LGUGC’s

vision of an active capital market for LGU debts.

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. The effort to liberalize the

trusteeship of LGU bonds then limited only to government banks finally paid off with the BSP’s approval

of the proposal to allow PFIs to serve as trustee agents of any mortgage or bond issuances by LGUs.

This was however not enough to provide a conducive policy environment for LGU bond flotation. The

competitive stance adopted by the government financial institutions (GFIs) after LGUGC

operationalization, threatened as they were by competition, made LGU bond flotation appear costlier with

a more complicated process, and unfavorable alternative for 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. A total of 17 bond issuances have been guaranteed by LGUGC over 15

years, aggregating PhP3.20 billion.

While LGUGC remained steadfast in supporting the capital market for LGU debts, the opportunity to

expand LGUGC’s services to other than the LGU market surfaced 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 is designed to support the Philippine government attain its Millennium

Development Goals for water and sanitation. The PWRF leveraged public resources with private sector

CORPORATE PROFILE

2

financing in the water sector at terms and conditions that were affordable to local utilities. As of end

2013, LGUGC has guaranteed 15 water districts (WDs) aggregating PhP1.64 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 these experiences

to support its venture to other markets, LGUGC further expanded its guarantee coverage to include ECs

and RETPs. An opportunity to entertain state universities and colleges (SUCs) arose with the issuance of

a memorandum by the Commission on Higher Education (CHED) for the establishment of e-laboratories

for all SUCs. This CHED memorandum caused the expansion of LGUGC coverage to such projects on a

Build Lease Transfer (BLT) basis. Notwithstanding the opportunities present for the LGUGC guarantee in

various other markets, the LGUGC Board and Management would still want to promote LGU Bond

Market development and are just waiting for the right time to aggressively advocate for the same. While

bond floats are almost nil presently, LGUGC has entertained applications for guarantee of direct LGU

loans from PFIs.

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

need 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 has terms and conditions that will encourage PFIs to utilize the LGUGC guarantee

when funding 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 developmental objective

has been met which is to provide funding for a period of time until LGUGC achieved commercial

stability and growth.

After only 15 years of operationalization, LGUGC’s credit enhancement has caused the flow of PhP7.687

billion in private sector funds toward critical local development projects of LGUs, WDs, ECs and MLEs.

The total volume of loans guaranteed at PhP6.969 billion is 31x LGUGC’s paid up capital of PhP226

million as of end 2013.

3

Despite the exit of ADB, LGUGC maintained its PRS Aa+ (corp.) issuer credit rating from the Philippine

Rating Services Corporation since November 8, 2010 which enables LGUGC to maintain the 20% risk

weight for its guaranteed debts.

Below is a summary of the results of LGUGC’s continuing pro-active institutional marketing strategy

over a span of 15 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, 2008. 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, 2008.

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.

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 in 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 provides 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.

4

Inclusion of the LGUGC in the JBIC and USAID sponsored PWRF Program, which

institutionalizes the private-public partnership formula in addressing the country’s water supply

millennium development goal. LGUGC plays a major role as the guarantor of LGUGC partner

private banks that will co-finance with DBP loans to water service providers such as LGUs,

water districts and private water suppliers. The Memorandum of Agreement among the PWRF

parties was signed on October 20, 2008.

Signing of a Memorandum of Agreement with Local Water Utilities Administration (LWUA)

on July 31, 2007 to collaborate and provide water districts (WDs) with a funding option that

addresses the need of the WDs for longer term financing at the same time 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.

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 of East West Bank Corporation amounting to P7.5 million.

Capital infusion of Robinsons Banking Corporation amounting to P7.5 million.

Exit of ADB as LGUGC shareholder on December 2, 2013.

5

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.

1999

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 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 co-guarantee

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.

2000

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)

completed the pilot-testing of its internal LCSRS, (3) institutionalization of a Project Monitoring Board

(PMB) for each guaranteed LGU bond issue, (4) entered into escrow arrangement with DBP-Trust to ring-

fence a guarantee fund that may be used only for payment of claims, and (4) 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.

OPERATING HIGHLIGHTS

6

2001 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.

2002

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 LGU rating 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 21st Century, and as one of the Six Best Practices of USAID/DCA.

2003

2003 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.

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 and determination of actuarially-sound leveraging ratio

and the 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.

7

2004

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.

2004 marked the beginning of a new 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- 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 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 2006. The MWLFI was the

precursor of the PWRF that will be proposed by JBIC and USAID in 2006.

2005

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 and not just bond issuances. 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 in loans over bonds.

8

2006

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 for 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.

LGUGC continued to coordinate with its pool of FAs (currently at 10) 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 such 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. Advocacy activities 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.

2007

2007 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 2008. 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.

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

9

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, 2008.

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 2008.

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 Board (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.

In 2007, 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.

2008

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

PhP782.48 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 public market were being processed. LGUGC likewise

increased its number of PFIs from 12 in 2007 to 15 in 2008. In September 2008, a new five-year co-

guarantee agreement was signed by LGUGC and USAID, specifically for water projects of LGUs, WDs

and private water suppliers.

LGUGC remained an active participant of the PWRF, a collaborative effort of the USAID, Japan

International Cooperation Agency (formerly JBIC), the DOF, Municipal Development Fund Office

(MDFO), the DBP and LGUGC.

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.

2009

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 year-end 2009 for a leverage ratio of

10

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.

The LGUGC Board and Management continued to advocate for policy reforms in support of local

development financing. The company actively participated in conferences, forums and workshops with

public-private partnership opportunities as the private sector representative. It was in 2009 that LGUGC

proposed to BSP and got approval for the reduction of the risk weight of LGUGC-guaranteed LGU loans,

water district loans and bond issuances from 100% to 50%.

2010

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 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.

The ECPCG Program finally booked two accounts with an aggregate loan amount of PhP228

million. Four approved accounts with loan requirements totaling PhP448.11 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, 2010. 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. 538.

2011

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 P553.339MM from P509.374MM in 2010. Total Assets

increased by 11% to P590.219MM. 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 P880.600MM target.

11

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%.

To sustain its growth in portfolio, LGUGC continued to market its guarantee services to LGUs,

WDs and MLEs that are into local infrastructure and other developmental projects. 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 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 $10MM EC-PCG program up to December 31,

2013 as a result thereof.

DOE likewise indefinitely extended its agreement with LGUGC to manage the $1.607MM

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.

2012


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 P597.651MM from P553.339MM in 2011. Total Assets

increased by 11% to P590.219MM. LGUGC once again showed its operating profitability in 2012 by

covering total expenses with operating income by 176%.

LGUGC booked 11 accounts in 2012 aggregating P911.737MM in loan amount and

P753.077MM in guarantee coverage, consisting of 3 LGUs, 4 MLEs and 4 ECs. Of the 11 accounts, 2

were approved in 2011 and 9 in 2012. 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 P787.154MM. 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.

To sustain its growth in portfolio, LGUGC continued to be aggressive in marketing its guarantee

services to LGUs, WDs, ECs and MLEs that are into local infrastructure and other developmental

projects. This strategy established a pipeline of accounts with potential investment requirement of

P500MM.

LGUGC booked 8 accounts under the managed ECPCG program aggregating P1.162 billion in

loan amount and P929.303MM in guarantee coverage. Of the 8 accounts, 3 were approved in 2011 and 5

in 2012. Total contingent liability under ECPCG as of December 31, 2012 is P890.574MM consisting of

13 accounts, for a leverage ratio of 1.4x the ECPCG Guarantee Reserve and Interest Income Accounts.

In anticipation of the phase out of ECPCG by yearend 2013, the World Bank is 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, 2013. A workshop among LGUGC, DOE, NEA and PFIs was sponsored by the World Bank

12

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 has proven and continues to prove its strong presence in the industry. In its fourteen

years of operation, it has enhanced 65 projects nationwide amounting to P7.184 billion, consisting of

developmental projects of LGUs, WDs, MLEs and ECs which include, but are not limited to, construction

of water supply system, reduction in non-revenue water, public markets, slaughterhouses, public

terminals, commercial centers, tertiary hospitals and system loss reduction projects of ECs. LGUGC’s

strong affiliation with its PFIs greatly contributed to its continuing volume growth. To date, LGUGC has

12 AFIs consisting of 2 government banks and 10 private financial institutions which have aggressively

referred accounts to LGUGC. LGUGC will definitely further strengthen this effective alliance in years to

come.

Finally, 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.

2013


P149.910MM 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 P657.726MM from P590.219MM in 2012 (restated). LGUGC once again showed its operating

profitability in 2013 by covering total expenses with operating income by as much as 189%.

To sustain its portfolio growth, LGUGC continued to be aggressive in marketing its guarantee

services to LGUs, WDs, ECs and MLEs that are into local infrastructure and other developmental

projects. This strategy resulted in the increase in year-end contingent liability 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. A pipeline of accounts with potential investment requirement of P1.5

billion was also established.

LGUGC booked 6 accounts under the managed ECPCG program aggregating P917.740MM in

loan amount and P734.192MM 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, 2013. 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 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

semi-annual principal installments plus interest equivalent to the “91-day t-bill peso rate” plus 2.5%

13

points in accordance with the terms and conditions set out in the Repayment Agreement. LGUGC Net

Worth declined by 16.4% to P499.377MM from 597.651MM in 2012 as a result of the ADB redemption.

However, the share redemption will not have a significant impact on LGUGC’s credit rating which

remain at PRS Aa plus (corp.) as assessed by the Philippine Ratings Services Corporation (PhilRatings).

LGUGC will also retain 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.

Assisting the national and local governments in economic development through the funding of

local infrastructure projects has been and will be LGUGC’s mission. In its fifteen years of operation, it

has enhanced 86 projects nationwide amounting to P7.687 billion in loan amount, consisting of

developmental projects of LGUs, WDs, MLEs and ECs, which include, but are not limited to,

construction of water supply systems, reduction in non-revenue water, public markets, slaughterhouses,

public terminals, commercial centers, tertiary hospitals, bulk water supply, water sanitation system and

EC system loss reduction projects. LGUGC’s strong affiliation with its PFIs greatly contributed to its

continuing volume growth. To date, LGUGC has 13 PFIs consisting of 2 government and 11 private

financial institutions. 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.

14

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.

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 Indian-based

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

The LGUGC offers program management services. Currently, LGUGC is managing the guarantee

funds for ECPCG and DOE-LGF, both supervised by the Department of Energy.

PRODUCT AND SERVICES

16

LGU PROJECTS


Eligible Borrower : LGUs with a rating of at least “BA” or classified as A, B or C after

credit screening under the LCSRS

Eligible

Project/Purpose

: Any revenue and non-revenue generating infrastructure project

Lender : Any LGUGC PFI

Term : Co-terminus with the PFI loan

Single Guarantee

Limit

: 25% of LGUGC Net Worth

Guarantee

Coverage

:

:

Up to 85% of the debt service, with interest subject to the LGUGC

interest rate cap*.

Guarantee coverage will be determined based on PFI request and

Borrower Risk Rating System results

Guarantee Fee : Risk-based reflecting risks associated with specific borrower,

indicative range is 0.5%-1.25%

Collateral :

:

:

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) average of: (i) the weighted average interest rate for

182-day Treasury bills issued by the Philippine National Treasury during the immediately

preceding twenty-four (24) months and (ii) the average Philippine Interbank Offer Rate

(PHIBOR) during the immediately preceding twenty-four (24) months, p.a.

17

WATER PROJECTS


Eligible Borrower : WDs with a rating of at least “BBB” under LGUGC’s internal WD

credit rating system

Eligible

Project/Purpose

: Water source development and protection

Treatment and distribution (Level III)

Sanitation

System upgrading and reduction of water losses

Support facilities

Bulk water supply

Rehabilitation and expansion


Term : Co-terminus with PFI loan

Single Guarantee

Limit


Guarantee

Coverage

:

:

Up to 85% of the debt service, with interest subject to the LGUGC

interest rate cap

Actual guarantee coverage will be determined based on PFI request

and Borrower Risk Rating System results.

Guarantee Fee : Risk-based reflecting risks associated with specific borrower,

indicative range is 0.75%-1.50% p.a.

Collateral :

:

:

Assignment of Debt Service Fund

Assignment of Proceeds of Water Billings

Assignment of Project Assets

18

MEDIUM AND LARGE ENTERPRISES

(MLEs) PROJECTS


Eligible Borrower : MLEs excluding the top 1,000 corporations

Eligible

Project/Purpose

: Short Term Loan

Working Capital Loan

Term Loan

Fixed Asset Loan

Permanent Working Capital Loan


Term : Co-terminus with the PFI loan

Single Guarantee

Limit


Guarantee

Coverage

:

:

Up to 85% of the debt service with interest subject to the LGUGC

interest rate cap.


and internal Borrower Risk Rating System results

Guarantee Fee : 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 is 1% to 1.5% per

annum

Processing Fee : 1/8 of 1% of guaranteed amount; P50,000 to be paid upfront;

negotiable

Collateral :

:

:

:

Assignment of Project Revenues/Receivables

Assignment of Contract with Suppliers

Assignment of Debt Reserve Fund

Other assets that may be required by LGUGC

19

ECPCG


Eligible Borrower : 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

1:1 based on the forecasted cash flow

Eligible

Project/Purpose

: Upgrade of EC power distribution systems to realize energy and

emission savings


Term : Co-terminus with the PFI loan but not to exceed 15 years

Single Guarantee

Limit

: 25% of ECPCG Guarantee Reserve and Interest Income Escrow

Accounts

Guarantee

Coverage

:

:

Up to 80% of the debt service with interest and subject to LGUGC

interest rate cap


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 Reserve Fund

Other assets acceptable to the Lender and LGUGC

20

DOE-LGF


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

: PhP50 Million

Guarantee Fee : 0.25% per annum

Processing Fee : PhP1,000

Collateral :

:

:

Assignment of Project Assets

Assignment of Reserve Fund

Assignment of Proceeds of Power Billings/Receivables

21

CREDIT EVALUATION PROCESS

Submission of Requirements

Pre-Evaluation of Project

Credit rating

Full due-diligence including project site visit

Management credit decision

Preparation of credit memorandum

Board credit decision

22

TENDENCY FOR DEBT REPAYMENT

DEVELOPMENT AND ENDOWMENT RISK

Credit Groups

1

Economic and Political Endowment Risk

B Development

Risk

A

C

D

2

Risk of Unilateral Restriction

of Debt Payments

Credit Screening

1.A

1.B

1.C

1.D

2.A

2.B

2.C

2.D

OPERATING AND FINANCIAL CONDITION

RISK

MANAGEMENT RISK

Preliminary Credit Rating

Final Credit Rating

Operating

Financial

Management Ba

Aaa

Aa

A

B

C

Credit Rating

LGU CREDIT SCREENING AND RATING SYSTEM

LCSRS RATING METHODOLOGY

23

CREDIT RATING FOR WATER DISTRICTS (CRWD)

24

ELECTRIC COOPERATIVE – PARTIAL CREDIT

GUARANTEE PROGRAM

25

DEPARTMENT OF ENERGY-LOAN GUARANTEE FUND

PROGRAM

26

BORROWER PROJECT LOAN

AMOUNT

(P MM)

TERM PARTICIPATING

FINANCIAL

INSTITUTIONS

LOCAL GOVERNMENT UNITS

1. Agoo, La Union Public Market 110.00 10 BPI

Agoo Hypermarket Ph. II 49.00 10 BPI

2. Binalonan, Pangasinan University of Eastern Pangasinan

Building

45.00 BPI

Refinancing of Outstanding Loan with

LBP

25.00 BPI

3. Rosario, La Union Ph. II of New Public Market and

Slaughterhouse

70.00 10 BPI

35.50 10

4. Province of Aklan Renovation of Caticlan Passenger

Terminal, Enhancement of old Caticlan

Coastline; Reclamation of Foreshore

portion

260.00 10 PNB

5. Alfonso Lista, Ifugao Water Supply and Distribution System 72.50 10 PNB

6. Infanta, Pangasinan Water Supply and Distribution System 50.00 10 DBP

7. Anda, Pangasinan Two-Storey New Anda Wet Market

Building

30.00 7 PNB

8. Bongabon, Nueva Ecija New Slaughterhouse Building 21.53 10 East West Bank

9. Roxas, Palawan Public Market and Integrated Public

Terminal

101.00 10 PNB

10. San Francisco, Quezon Acquisition of Heavy Equipment 44.74 7 East West Bank

Subtotal 914.27

MEDIUM AND LARGE ENTERPRISES

1. AM Gatbonton Bulk Water Supply Facilities under

TCWD and CFSWD

13.50 5 Allied Bank

36.25 5 Allied Bank

2. Amertech Industrial

Ventures, Inc.

2 Steam Boiler plants for Coca-Cola

Bottlers Phils,Inc.

70.00 7 BPI

35.00 7 BPI

3. Healthserv Los Banos,

Inc.

Completion of 4-storey, 80-bed tertiary

hospital

50.00 10 BPI

Working Capital 30.00 1(RPN) BPI

Purchase of a CT Scan 20.00 5 BPI

4. Twin Rivers Corporation. BWS Project with DWD 120.00 10 Allied Bank

5. PAPISSS, Inc. Slaughterhouse for Lemery, Batangas 20.00 7 BPI

Working Capital for continues supply

aggregates to DMCI

50.00 5 East West Bank

6. Worldchem Envirotech ,

Inc.

Bahay Toro Sewage Treatment Plant 65.00 1 BPI

Subtotal 509.75

WATER DISTRICTS (WDs)

1. Cabanatuan City WD Rehabilitation and Expansion of Water

System

250.00 10 BPI/MBTC

2. Indang WD Expansion of Water System 15.00 10 BPI

16.00 10 BPI

Mabalacat WD Ground Reservoir and Existing Water

System upgrade

135.00 10 Allied Bank

Water Filtration System Facilities 50.00 10 Allied Bank

3. Norzagaray WD Bulk Water Supply 70.00 7 MBTC

4. Puerto Princesa City WD Expansion and rehabilitation of water

system

120.66 10 BPI

OUTSTANDING GUARANTEED - REGULAR ACCOUNTS

(As of December 31, 2013)

27

5. City of San Fernando

WD

Rehabilitation and expansion of water

system

226.00 10 BPI/Allied Bank

6. San Pedro WD Office Building and water facilities and

acquisition of a lot

150.00 10 BPI

7. Tarlac City WD Expansion of water system 116.00 10 BPI

Subtotal 1,148.66

AUTOMATIC GUARANTEE LINE

1. City of Angeles,

Pampanga

Construction of Angeles City Sports

Coliseum

250.00 12 PVB-Assignor

BPI-Assignee

2. City of Toledo, Cebu Construction and site development of

Toledo City Hotel

58.44 7 PVB-Assignor

BPI-Assignee

3. Caraga, Davao Oriental Caraga Public

Market//Terminal/Commercial Complex

88.81 4 PVB

4. San Miguel, Bulacan Purchase of various heavy equipment 40.09 7 PVB

5. San Pedro, Laguna New Municipal Hall Building and

renovation of Jose L. Amante Hospital

149.94 12 PVB

6. Trece Martirez, Cavite Slaughterhouse and 13-Towers Bldg. 72.66 7 PVB

7. Province of Palawan Refinancing of outstanding loan with

LBP and financing various priority

projects

144.10 T 1: 8

T 2:10

PVB

8. Province of Zamboanga

Sibugay

Medical equipment and rehabilitation of

Satellite Center

50.00 9 PVB

Subtotal 854.04

ELECTRIC COOPERATIVES

1. Camiguin Electric

Cooperative, Inc.

(CAMELCO)

System loss reduction and enhance power

distribution operation

80.00 10 BPI

2. Davao del Norte Electric

Cooperative, Inc.

(DANECO)



153.48 10 UCPB

3. La Union Electric

Cooperative, Inc.

(LUELCO)

Capital expenditure projects 82.36 10 Allied Bank

4. Misamis Oriental II Rural

Electric Services

Cooperative, Inc.

(MORESCO II)



80.00 10 BPI

5. Bukidnon Second Electric

Cooperative, Inc.

(BUSECO)

Installation of substation, line

rehabilitation and relocation of

transformers

170.39 10 PNB

Subtotal 566.23

TOTAL 3,992.95

28


AMOUNT

(P MM)

TERM PARTICIPATING

FINANCIAL

INSTITUTIONS

LOCAL GOVERNMENT UNITS

1. Boracay-Aklan Jetty Port and Terminal Building 40.00 7 LBP-Trustee

RCBC Cap-Underwriter

2. Bayambang, Pangasinan Public market 42.00 7 PNB-Trustee

MIB-Underwriter

3. Caloocan City Public market 185.00 7 PNB-Trustee


PCI Cap-Underwriter Commercial area with toll parking 225.00 7

General hospital 210.00 7

4. Carmona, Cavite Housing 150.00 7 DBP-Trustee

ICCP-Underwriter

PCI Cap-Underwriter

5. Daraga, Albay Public market 75.00 7 PNB-Trustee


6. Iloilo City Employees housing 130.00 3 PNB-Trustee


7. Imus, Cavite Slaughterhouse 47.00 7 DBP-Trustee

Unicapital-Underwriter

8. Leyte Academic Center 205.00 7 RCBC Cap-Underwriter

PCI Cap-Underwriter

9. City of Pasay Public market and commercial center 500.00 7 PNB-Trustee

PCI Cap-Underwriter

PNB Cap-Underwriter

10. Puerto Princesa City Low-cost housing 320.00 7 PNB-Trustee


11. San Juan City Multipurpose gym, commercial building

and toll parking

390.00 7 PNB-Trustee

Allied Bank-Underwriter

PCI Cap-Underwriter

12. Tagaytay City Convention center with lodging facility 220.00 7 PNB-Trustee


13. Urdaneta City Slaughterhouse 25.00 5 PNB-Trustee

SolidBank-Underwriter

14. Baliwag, Bulacan Integrated Solid Waste Management Sys. 50.00 7 PNB-Trustee

PNB Cap - Underwriter

15. Imus, Cavite Multi-purpose Cadastral Survey 23.00 5 BPI

Subtotal 2,837.00

WATER DISTRICTS (WDs)

1. Calamba WD Repair and rehabilitation of water lines

and distribution system

40.00 5 BPI

1. Laguna WD Expansion of water system and

refinancing of LWUA loans

99.49 10 BPI

2. Silang WD Repair and expansion of water system 189.00 10 PNB

3. Legazpi City WD Bulk Water Supply 105.00 7 BPI

4. Metro Iloilo WD Rehabilitation of Water System and

Refinancing of LWUA loans

38.13 7 PNB

5. Zamboanga City WD Rehabilitation and expansion of water system 200.00 10 Security Bank

Subtotal 671.62 MEDIUM AND LARGE ENTERPRISE

1. Worldchem EnviroTech,

Inc.

Pinagsama Sewage Treatment Plant 50.00 2 BPI

Bahay Toro Sewage Treatment Plant 115.00 10 Allied Bank

Subtotal 165.00

REDEEMED ACCOUNTS


29

ELECTRIC COOPERATIVE

1. Isabela I Electric

Cooperative, Inc.

(ISELCO I)

Additional working capital 20.00 1 MBTC

Subtotal 20.00

TOTAL 3,693.62

TOTAL OUTSTANDING AND REDEEMED ACCOUNTS 7,686.57

30


AMOUNT

(P MM)

TERM PARTICIPATING

FINANCIAL

INSTITUTIONS

1. Bohol I Electric Cooperative, Inc.

(BOHECO I)

System loss reduction and

enhancement of power


109.62 15 DBP

2. Bukidnon Second Electric

Cooperative, Inc. (BUSECO)

Capital expenditures 135.90 10 BPI

3. Camiguin Electric Cooperative, Inc.

(CAMELCO)




220.00 10 BPI

4. Camarines Norte Electric

Cooperative, Inc. (CANORECO)




133.25 10 BPI

5. Davao Electric Cooperative, Inc.

(DANECO)




325.85 10 UCPB

6. First Bukidnon Electric Cooperative,

Inc. (FIBECO)

Capital expenditures 143.00 10 Allied Bank

7. La Union Electric Cooperative, Inc.

(LUELCO)

Capital expenditures 173.13 10 Allied Bank

8. Misamis Occidental I Electric

Cooperative, Inc. (MOELCI I)




167.73 10 UCPB

9. Misamis Oriental I Rural Services

Electric Cooperative, Inc.

(MORESCO I)

Capital expenditures 115.00 10 Security Bank

10. Misamis Oriental II Rural Services

Electric Cooperative, Inc.

(MORESCO II)



distribution system

215.49 10 BPI

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)

Capital expenditures 85.00 10 UCPB

14. Benguet Electric Cooperative, Inc.

(BENECO)

Capital Expenditures 163.50 10 BPI

15. First Catanduanes Electric

Cooperative, Inc. (FICELCO)

Capital Expenditures 106.10 10 Security Bank

16. Nueva Ecija I Electric Cooperative,

Inc. (NEECO I)

Capital Expenditures 173.54 10 Allied Bank

TOTAL 2,482.53


AMOUNT

(P MM)

TERM PARTICIPATING

FINANCIAL

INSTITUTIONS

1. Gerphil Renewable Energy, Inc. Panoon Falls Mini-Hydro

Power Plant

9.20 10 Allied Bank

OUTSTANDING DOE-LGF ACCOUNT


OUTSTANDING GUARANTEED - ECPCG


31

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. The USAID reinsurance of up to 50% of LGUGC’s

enrolled portfolio is intended to strengthen LGUGC’s ability to mobilize private

capital lending for water supply and sanitation facilities.

USAID Technical Assistance

USAID support of LGUGC’s mission is evident through its provision of a number of

technical assistance to LGUGC, as follows:

2000 - final review of the LGUGC internal LCSRS after the pilot testing of the first

six LGUs;

2001- expansion of the LCSRS database from 120 to 500 LGUs;

2002- support from legal specialists on policy issues pertinent to bond market

development and review of LGUGC’s capital adequacy with regard to leverage;

2003- portfolio risk management and determination of actuarially-sound leveraging

ratio for LGUGC; and

2008- guarantee pricing methodology and WD Credit Rating System.

AusAid-PAGF Activity Agreement

LGUGC was the first private sector recipient of a technical assistance from the

PAGF of AusAid. The activity agreement between LGUGC and PAGF in 2001

involved the computerization of the LCSRS and Portfolio Management System to

enhance its credit evaluation and account monitoring processes.

World Bank-Global Environment Facility

LGUGC had a project agreement with the World Bank-Global Environment Facility

(WB-GEF) until December 31, 2013 to manage the USD10 million WB-GEF partial

credit guarantee facility for eligible system loss reduction projects of rural electric

cooperatives.

UNDP – Global Environment Facility

LGUGC was the Guarantee Program Manager (GPM) of the USD1.606 Million

CBRED-LGF program, funded by the GEF through the United Nations Development

Programme, up to May 31, 2011. The project was intended to provide partial credit

guarantee to proponents of renewable energy projects on a credit risk or collateral

short basis.

INSTITUTIONAL LINKAGES

32

Regular Guarantee Program

Financial Institution Contact Person/s

Bank of the Philippine Islands 6768 Ayala Avenue cor Pase de Roxas, Makati City

Contact No: 845-5374/845-5360

Jo Ann B. Eala VP, Specialized Lending Unit

Julius R. Respicio Manager, Specialized Lending Unit

Banco de Oro Universal Bank BDO South Tower

Makati Ave., cor. H.V. Dela Costa St.,

Makati City Contact No.: 878-4572/840-7914

Vivian De Chavez Senior Manager, Wholesale Funding

Development Bank of the Philippines DBP Bldg. Makati Ave., Cor. Sen. Gil Puyat Ave.,

Makati City

Contact No.: 818-9511/840-3435

Paul D. Lazaro Vice President, Program Development

Rustico Noli D. Cruz Manager, Program Development

East West Banking Corporation

3/F, Beaufort Tower, 5th

Avenue corner 23rd

Street

Bonifacio Global City

Contact No.: 813-9772

Ferdinand E. Yap Vice President

Corporate Banking Group II

PARTNER FINANCIAL INSTITUTIONS

33

Metropolitan Bank and Trust Company Metrobank Plaza, Sen. Gil J. Puyat Ave.,

Makati City

Contact No.: 898-9049/818-5673/818-6228

Marilen Trinidad AVP-Relationship Manager

Large Corporate Division, Corporate

Banking Group

Philippine National Bank PNB Financial Center, Pres. Diosdado Macapagal Blvd., 1300

Pasay City

Contact No.: 891-6040 to 70/526-3131 to 70/526-3245

Erwin Rommel S. Nonato First Vice President

GBD-GOCCs/NGAs

Philippine Veterans Bank PVB Bldg., 101 V.A. Rufino cor. Dela Rosa Sts., Legaspi

Village, Makati City

Contact No.: 902-1600/857-3800

Plato C. Tirol

Asst. Vice President/OIC

Investment Banking Division

Rizal Commercial Banking Corp. 11/F RCBC Head Office, Yuchengco Tower, RCBC Plaza,

6819 Ayala Ave., Makati City

Contact No.: 894-9553/894-9821

Ma. Angela V. Tinio First Vice President

Commercial and SME Banking Division

Corporate Banking Group

Robinsons Banking Corporation

17/F Galleria Corporate Center

EDSA cor. Ortigas Ave., Quezon City

Contact No.: 702-9514/702-9500

Chepps C. Marcelo

Vice President

Head- Commercial Lending II

34

Security Bank Security Bank Centre, 6776 Ayala Ave.,

Makati City


Zenaida L. Tan Vice President/Team Head

Sylda T. Teves

Relationship Manager

Product Development Group

Union Bank 22/F UnionBank Plaza, Meralco Ave. cor. Onyx & Sapphire Roads,

Ortigas Center,

PasigCity

Contact no.: 638-0139/667-6388

Efrenilo L. Cayanga, Jr.

Group Head – Commercial Banking

Center

United Coconut Planters Bank (UCPB) UCPB Executive Bldg., Makati Ave.,

Makati City

Contact No.: 810-2842/811-9421

Higinio O. Macadaeg, Jr. Executive Vice President

Head-Corporate & Commercial Banking

Group

Managed Programs

Financial Institution Contact Person/s

Bank of the Philippine Islands 6768 Ayala Avenue cor Pase de Roxas, Makati City

Contact No: 845-5374/845-5360

Jo Ann B. Eala VP, Specialized Lending Unit

Julius R. Respicio Manager, Specialized Lending Unit

Banco de Oro Universal Bank BDO South Tower

Makati Ave., cor. H.V. Dela Costa St.,

Makati City Contact No.: 878-4572/840-7914

Vivian De Chavez Senior Manager, Wholesale Funding

35

Development Bank of the Philippines DBP Bldg. Makati Ave., Cor. Sen. Gil Puyat Ave.,

Makati City

Contact No.: 818-9511/840-3435

Paul D. Lazaro Vice President, Program Development

Rustico Noli D. Cruz Manager, Program Development

East West Banking Corporation 3/F, Beaufort Tower, 5

th Avenue corner 23

rd Street

Bonifacio Global City


Ferdinand E. Yap Vice President

Corporate Banking Group II

Land Bank of the Philippines

Land Bank Plaza, 1598 M.H. del Pilar cor. Dr. J. Quintos

Streets, Malate, 1004 Manila

Contact No.: 522-0000/551-2200/4507-001

Cressida M. Alday-Mendoza ADM, PMD

Melinda C. Cruz Department Manager, PMD

Metropolitan Bank and Trust Company Metrobank Plaza, Sen. Gil J. Puyat Ave.,

Makati City

Contact No.: 898-9049/818-5673/818-6228

Marilen Trinidad AVP-Relationship Manager

Large Corporate Division, Corporate

Banking Group

Philippine National Bank PNB Financial Center, Pres. Diosdado Macapagal Blvd., 1300

Pasay City

Contact No.: 891-6040 to 70/526-3131 to 70/526-3245

Erwin Rommel S. Nonato First Vice President

GBD-GOCCs/NGAs

36

Philippine Veterans Bank PVB Bldg., 101 V.A. Rufino cor. Dela Rosa Sts., Legaspi

Village, Makati City

Contact No.: 902-1600/857-3800

Plato C. Tirol Asst. Vice President/OIC

Investment Banking Division

Rizal Commercial Banking Corp. 11/F RCBC Head Office, Yuchengco Tower, RCBC Plaza,

6819 Ayala Ave., Makati City

Contact No.: 894-9553/894-9821

Ma. Angela V. Tinio First Vice President

Commercial and SME Banking Division

Corporate Banking Group

Robinsons Banking Corporation

17/F Galleria Corporate Center

EDSA cor. Ortigas Ave., Quezon City

Contact No.: 702-9514/702-9500

Chepps C. Marcelo

Vice President

Head- Commercial Lending II

Security Bank Security Bank Centre, 6776 Ayala Ave.,

Makati City


Zenaida L. Tan Vice President/Team Head

Sylda T. Teves

Relationship Manager

Product Development Group

Union Bank 22/F UnionBank Plaza, Meralco Ave. cor. Onyx & Sapphire

Roads, Ortigas Center,

PasigCity

Contact no.: 638-0139/667-6388

Efrenilo L. Cayanga, Jr.

Group Head – Commercial Banking

Center

37

United Coconut Planters Bank (UCPB) UCPB Executive Bldg., Makati Ave.,

Makati City

Contact No.: 810-2842/811-9421

Higinio O. Macadaeg, Jr. Executive Vice President

Head-Corporate & Commercial Banking

Group

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