The saying “You know who your true friends are when you’re down” will be put to the test when broadcast giant ABS-CBN Corp. meet with its creditors to discuss its outstanding loan obligations.
With the non-renewal of its franchise by Congress and, at the same time, the cessation of its lucrative radio and television shows, ABS-CBN faces the difficult task of managing its loan portfolio. have repayment periods up to 2027. If the debts of its subsidiaries are included, its consolidated liabilities would reach P26.5 billion.
This debt represents about 2.5% of the approximately 8.4 trillion pesos in existing loans from the country’s banks.
Assuming that the ABS-CBN does not repay these loans, the Bankers Association of the Philippines believes that the banking sector can absorb the losses that could result from such a default.
There is a good chance that these loans are ‘own loans’ meaning that they are not secured by shares or real estate and have been granted on the basis of the excellent creditworthiness of the company and of his track record as a debtor-payer. Keep in mind that ABS-CBN is owned by the Lopez family which has other businesses, for example power generation and commercial rental, which have substantial and steady income streams.
Closing the ABS-CBN is going to hurt the family’s pockets, but it won’t send it to the doghouse.
With the family’s considerable financial resources, filing for bankruptcy to avoid paying debts can be far-fetched if only to keep its reputation for credit that dates back to the 1900s intact.
It is doubtful that the banks (notably Bank of the Philippine Islands and Union Bank of the Philippines, which are the main creditors) will recall loans in the event that ABS-CBN defaults in the payment of any scheduled amortization.
Banks think and plan for the long term.
In the absence of fraud or bad faith, banks try as much as possible to accommodate borrowers who may experience temporary or unforeseen financial problems that prevent them from meeting their credit obligations. Some borrowers may be declining now, but they may rise and grow in the future and remain on the banks’ trusted list of borrowers. And knowing the utang na loob (or feeling of gratitude) attitude of Filipinos, favors bestowed in times of need will not be forgotten.
Likewise, banks that take a hard line in paying off loan obligations and immediately foreclose on the borrower’s mortgage in the event of default remain on the borrower’s mental blacklist forever. In the late 1980s, when the Philippines was negotiating its loan restructuring with foreign banks, Central Bank Governor Jobo Fernandez faced the problem of banks demanding harsh concessions as a condition for them to agree to the restructuring. Exasperated by the unreasonable stance, Fernandez reportedly told these banks that if they didn’t withdraw their demands, they will be blacklisted for doing business in the Philippines once the country recovers from its economic woes.
Puzzled by this threat, the recalcitrant banks withdrew and joined in the restructuring.
For strategic reasons, it is reasonable to expect banks to restructure ABS-CBN’s loans, among other things, giving it a grace period in amortization and extending the loan term.
Where possible, the parties may consider entering into dacion en pago agreements (the property is delivered as part payment for a loan) on ABS-CBN real estate properties in provinces suitable for residential development or commercial by the bank’s subsidiary or affiliates. .
Whatever form the restructuring of the loan may take, however, it is inevitable that its interest rate will be adjusted upwards to compensate for the losses that the bank might incur as a result of the restructuring.
This would be a small price to pay given the adverse consequences that could arise, especially on the Lopez family’s credit reputation, if ABS-CBN defaults on its loans. It will be interesting to know who among the company’s creditors will be his true friends at this time of crisis. INQ
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