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Special Purpose Vehicle Act – relate this to the present-day pandemic and to the controversial ABS-CBN loan from DBP

Republic Act No. 9182 “The Special Purpose Vehicle (SPV) Act of 2002 has paved the way for financial institutions (FIs) to dispose their bad loans and non-performing assets and help the sector ensure that it remains strong and to contribute to the growth of the domestic economy. It was designed to address the financial system's worrisome non-performing loan (NPL) problem, which has gone from bad to worse. This is the government’s response to provide legal structure wherein banks can transfer the NPAs to a separate entity which is the SPV, a privately-owned asset management company (AMC). A special purpose vehicle, also called a special purpose entity (SPE), is a subsidiary created by a parent company to isolate financial risk. Its legal status as a separate company makes its obligations secure even if the parent company goes bankrupt. A company may form the SPV as a limited partnership, a trust, a corporation, or a limited liability corporation, among other options. It may be designed for independent ownership, management, and funding. In any case, SPVs help companies securitize assets, create joint ventures, isolate corporate assets, or perform other financial transactions. The financials of an SPV may not appear on the parent company's balance sheet as equity or debt. Instead, its assets, liabilities, and equity will be recorded only on its own balance sheet. Thus, the SPV may mask crucial information from investors, who are not getting a full view of a company’s financial situation. Investors need to analyze the balance sheet of the parent company and the SPV before deciding whether to invest in a business. A parent company creates an SPV to isolate or securitize assets in a separate company that is often kept off the balance sheet. It may be created to undertake a risky project while protecting the parent company from the most severe risks of its failure. In other cases, the SPV may be created solely to securitize debt so that investors can be assured of repayment. In any case, the operations of the SPV are limited to the acquisition and financing of specific assets, and the separate company structure serves as a method of isolating the risks of these activities. An SPV may serve as a counterparty for swaps and other credit-sensitive derivative instruments. Relating this Act to the controversial A BS-CBN DBP loan as a company ABS-CBN is not really the one to be referred for the unpaid loans to the DBP but, its major owners, the Lopez Group of Companies – the Lopez’s. It is just like the face of A BS-CBN is being used since the company is known that it is own by the Lopez’s, and it is on the mainstream media and this issue surfaced upon the hearings of the Congress on the franchise issue of the company. With SPV Act of 2002, some banks immediately took advantage of the SPV such as the BPI and RCBC. DBP unload its NPAs in the late 2006 in which it offered to sell its NPAs with a total value of P9.56 billion. Out of the P9.56 billion, it involves 634 NPLs and 2,019 ROPAs, including the major accounts that were/are part of the Lopez Group of Companies with an aggregate book value of P1.67 billion. The major accounts of the Lopez’s that written off as per the document of DBP are the following:

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Maynilad: 710.86M – Loan granted in 2001 and started to default in 2003. The Lopez’s controlled Maynilad until 2006. DMCI and MVP took over in 2007. Bayantel: 591.81M - Loan granted in 1995 and started to default in 2001. The Lopez’s controlled Bayantel until Globe Telecom took over in 2012. Skycable: 207.1M – Loan granted in 1997 and started to default in 2001. The Lopez’s controls Skycable also known as Central CATV Inc. up to this day. Lopez Group: 157.95M - Then called Benpres Holdings, DBP granted loan in 1996. Default started in 2002. The Lopez group owns the firm to this day, also ABS-CBN, and among others. Total – P1.667+ billion

These accounts of the Lopez’s are said that it comprises the 17.5% of the total NPLs sold. According to the COO Edgardo F. Garcia, in the report to the Board of DBP on 2010 of October, the write-off amounted to P5.391 billion from 2004-2009, 90% or P4.850 billion of these amounts was due to the disposal of NPLs and ROPAs through the SPV in 2006 to avail tax incentives and other benefits of SPV law. The DBP’s sale of NPLs and ROPAs was not fully consummated due to the bankruptcy of Lehman Brothers in 2008. With this, some of the assets were returned to the bank and an amount of P750 million losses was reversed and booked as part of income in 2008. In the case of the ‘written-off’ loans of Lopez’s affiliated and controlled companies, the DBP firmly denies this condonation. According to them it is a true sale in pursuant to RA 9182 and where due public bidding was conducted that resulted in payment of P3.83 billion in favor of DBP. DBP also asserts that COA went over on the sale and transfer of NPLs and NPAs where no negative findings were found. Lopez Group also stand firm that they have paid all their loans including the interest. However, it is on the controversial state today because there is evidence surfaced that condonation of Lopez’s loans really happen in favor of the Lopez Group and resulted to losses on the part of the government. According to the report, nearly P1 billion is the loss of the DBP, the government, on the disposal of the Lopez’s loan. Because it is said that DBP sell Lopez Group’s loans for an amount between P688 million to P1.069 billion to Lehman Brothers under the SPV law. And it is claimed that after the sale, the Lopez Group bought it back at a lower price, allegedly about P1.250 billion to P1.4 billion. Thus, possible that the loss is between P598 million to P999 million and Lopez Group have earned P250 million to P417 million. It is on the hot issue because the government needs funds to procure COVID vaccines and to aid and support all the sectors affected by the pandemic. The investigation with regards to this written off loans of Lopez and other companies who are also involved with this is ongoing. Such investigation also must determine if the said condoned loans through SPV is equitable and there was no conflicting interest involve with the transaction. With this pandemic, all sectors are greatly affected. Many businesses have stopped their operations and was forced to closed due to inability to meet financial requirements and a big amount of loss was experienced. SPV is truly relevant to this present crisis to aid in the rehabilitation of distressed businesses that is caused by the pandemic. With the collective effort and response of the government, an improved version of SPV called Financial Institutions

Strategic Transfer (FIST) Act is recently passed to enable FIs to efficiently dispose their NPLs and NPAs amid the global economic recession induced by the pandemic. This will enable the asset quality of banking institutions to be preserved, ensuring the continued strength of the financial sector and, in turn, allowing the economy to recover more rapidly from the global health and economic crisis. This is created to protect the financial sector from any severe damage from the unprecedented economic crisis by ensuring a stable source of credit for the sectors that are greatly affected by the pandemic while also providing protection for consumers/customers. This will provide tax incentives to defray the transaction and to transfer to AMCs the costs of NPAs. This law will also allow to expand the amount of risk that the bank can take. In a recession, where lending to businesses is more costly but also more immediately needed, this advantage should not be undervalued. Ultimately, this would boost the financial system and keep it secure and stable for the challenging task of rehabilitation of the economy....