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WHO WE ARE

WHO WE ARE. BOARD OF DIRECTORS. WHAT WE DO. CREDIT GUARANTEE. GUARANTEE PROGRAM MANAGEMENT. CREDIT RATING. COLLABORATION WITH NATIONALGOVERNMENT. RELATIONSHIP MANAGEMENT WITH FINANCIAL INSTITUTIONS. Guarantees FIs against LGU default

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WHO WE ARE

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  1. WHO WE ARE

  2. BOARD OF DIRECTORS

  3. WHAT WE DO CREDIT GUARANTEE GUARANTEE PROGRAM MANAGEMENT CREDIT RATING COLLABORATION WITH NATIONALGOVERNMENT RELATIONSHIP MANAGEMENT WITH FINANCIAL INSTITUTIONS

  4. Guarantees FIs against LGU default • Pays FIs in case of default according to original schedule • Provides loans • Underwrites bond issues Due Diligence / Credit Rating AAA LGUs/WDs Financial Institutions • Calls on guarantee if LGU defaults • Pays loans / bond amortization GUARANTEE SYSTEM

  5. WHAT WE’VE DONE

  6. WHAT WE’VE DONE

  7. WHAT WE DO CREDIT GUARANTEE

  8. LEGAL BASIS FOR BOND ISSUANCE Section 295 of Republic Act 7160, the Local Government Code of 1991, states that local government units (LGUs) shall have the power to create indebtedness and enter into credit and other financial transactions. A. Power to Create Indebtedness LGUs are authorized to source funds to finance identified development projects. Section 296. (a)“It shall be the basic policy that any local government unit may create indebtedness, and avail of credit facilities to finance local infrastructure and other socio-economic development projects in accordance with the approved local development plan and public investment program.”

  9. LEGAL BASIS FOR BOND ISSUANCE LGUs are authorized to secure loans, credits and other forms of indebtedness from banks and lending institution for the establishment, development or expansion of identified projects. Section 297 (a).“A local government unit may contract loans, credits, and other forms of indebtedness with any government or domestic private bank and other lending institutions to finance the construction, installation, improvement, expansion, operation or maintenance of public facilities, infrastructure facilities, housing projects, the acquisition of real property and the implementation of other capital investment projects, subject to such terms and conditions as maybe agreed upon by the local government unit and the lender.”

  10. LEGAL BASIS FOR BOND ISSUANCE B. Bonds and Other Long-Term Liabilities LGUs are authorized to issue bonds and other long-term securities as an alternative financing source to fund income-generating projects. Section 299.“Subject to the rules and regulations of the Central Bank and the Securities and Exchange Commission, provinces, cities and municipalities are hereby authorized to issue bonds, debentures, securities, collateral, notes and other obligations to finance self-liquidating, income-producing development or livelihood projects pursuant to the priorities established in the approved local development plan or the public investment program.”

  11. LEGAL BASIS FOR BOND ISSUANCE C. Debt Service LGU budgets must be capable to support debt service repayments and other requirements incurred from the contract of loans and other forms of indebtedness Section 303.“Local government units shall appropriate in their respective annual budgets such amounts as are sufficient to pay the loans and other indebtedness incurred or redeem or retire bonds, debentures, securities, notes and other obligations issued under this title: Provided, that failure to provide the appropriations herein shall render their annual budgets inoperative.”

  12. LEGAL BASIS FOR BOND ISSUANCE LGC IMPLEMENTING RULES AND REGULATIONS Article 401 “… LGUs shall appropriate in their respective annual budgets such amounts as are sufficient to pay the loans and other indebtedness incurred or redeem or retire bonds…” “…failure to provide the appropriations herein required shall render their annual budgets inoperative.” “Any LGU… may authorize the National Government to deduct or withhold a portion of its IRA share for the payment of its contractual obligation.” “…the resolution of the sanggunian shall clearly state the name of the creditor, the nature of the indebtedness, the amount to be withheld, and a period of time that such withholding of IRA shares shall be made.”

  13. PRIMER ON MUNICIPAL BONDS PROCESS LGU Project Investors/Bondholders • Revenue-generating • Part of the development plan • Approved by the Sanggunian • Fixed Income Exchange- will provide the secondary market trading • Managing Underwriter- will design the features of the bond covering the structure, issue size, interest rate and payment schedule, maturity date, etc. • LGUGC/Guarantor- will guarantee the bond subject to the issuer’s & issue’s creditworthiness • Trustee- will act as the custodian of the funds; manage the project’s sinking fund; and as registry, paying and transfer agent • Counsel - will review the legal aspects of the bond, special concern is Sec. 303 of 1991 LGC • Financial Advisor- will have to establish the feasibility of the project (I.e. present positive cashflow projections) • Liquidity...? • Profitability • Safety • Public obligations or liabilities • Debt-servicing capacity • Project’s income generation Financial Advisor B I T • Prepares the project feasibility • Secure Sanggunian Ordinance Authorizing the Issuance of Bond to Finance the Project • Secure Pertinent legal requirement to issue the bonds (e.g., BSP Opinion, BLGF Approval, etc.) • Identify members of the Bond Issuance Team • Secure Sanggunian Ordinance Authorizing the Mayor to Engage the Services of the Bond • Issuance Team Local Chief Executive • Sanggunian Ordinance Approving the Final Municipal Bond Terms • Sanggunian Ordinance Appropriating Funds Thereof to Support the Project LGU/Issuer/Borrower

  14. Timetable in Months 1st 2nd 3rd 4th 5th 6th 1. Project Development, Feasibility Study Preparation, and Hiring of a Financial Advisor, BLGF and DAR/DENR Certification The bond issuance process shall not include this period but will commence after the completion of this activity. 2. Sanggunian Ordinance Approving the Project 3. Selection and Appointment of a Bond Issuance team 4. Designing the Features of the Municipal Bond 5. Securing the Guarantee for the Municipal Bonds 6. Sanggunian Ordinance Approving Final Bond Terms 7. Sanggunian Panlalawigan’s Validation of the Ordinance of the Municipal Bond Issuance by a Component City or Municipality 8. Bangko Sentral ng Pilipinas (BSP) Favorable Opinion 9. Preparation of the OS, Primer and Bond Docs. 10. Municipal Bond Offering and Issuance 11. Debt Servicing and Payment of the Principal This period shall cover the date of issue up to the maturity date. BOND ISSUANCE PROCESS TIMETABLE

  15. LOAN VS BONDS

  16. INTEREST RATES DIFFERENTIAL 1/as of March 8, 2007 2/Ave. lending rates of DBP and Land Bank as of March 8, 2007

  17. LGU DEBT PORTFOLIO

  18. Trust Fund Project Construction Fund Project Revenue Fund THE LGUGC ADVANTAGE Debt Proceeds Project Revenue LGU Sinking Fund IRA Deposit (Trustee) Guarantor (LGUGC) Project Operating Expenses Fees & Other Expenses Debt Servicing Project Development

  19. UNDERWRITER THE LGUGC ADVANTAGE LGUGC heads the Project Monitoring Board TRUSTOR (LGU) TRUSTEE

  20. WHAT WE DO CREDIT GUARANTEE CREDIT RATING

  21. CREDIT RATING LGUGC’s internal LGU credit rating system aims to promote LGUs as viable borrowers for private financial institutions and issuers of debt instruments, to facilitate their access to capital markets through a structured information base on their overall creditworthiness • Factors considered: • Political Risks • Economic Risks • Operating and Management Risks • Financial Risks

  22. LGU CREDIT SCREENING AND RATING Short-term Indicators CREDIT RATING Long- term Indicators CREDIT SCREENING Management Operating Performance Financial Condition Development Capacity and Socio-Economic Endowment Tendency for Efficient Debt Repayment

  23. CREDIT RATINGS Aaa - highest credit standing Aa - high credit standing A - good credit standing Ba - average credit standing B- below-average credit standing C - poor credit standing

  24. RATED LGUs

  25. RATED LGUs

  26. WHAT WE DO CREDIT GUARANTEE CREDIT RATING COLLABORATION WITH NATIONALGOVERNMENT & DONOR AGENCIES

  27. COLLABORATION WITH NGAs 1. Bangko Sentral ng Pilipinas • BSP Circular No. 190 Series of 1999 - Allowing LGU debt instruments as eligible alternative for agri-agra (PD 717) compliance • BSP Circular No. 310 Series of 2001 - Reducing risk weight of LGU bonds guaranteed by LGUGC and against IRA assignment from 100% to 50% • BSP Circular No. 462 Series of 2004 – Allowing private banks to act as trustee for bond flotation of LGUs 2. Insurance Commission • Declaring LGUGC-enhanced bonds eligible reserves for insurance companies 3. MOAs with DILG & DOF-BLGF • Info exchange and advocacy

  28. WHAT WE DO CREDIT GUARANTEE CREDIT RATING COLLABORATION WITH NATIONALGOVERNMENT & DONOR AGENCIES RELATIONSHIP MANAGEMENT WITH FINANCIAL INSTITUTIONS

  29. RELATIONSHIP MANAGEMENT ACCREDITED FINANCIAL ADVISORS • AYN Resource Management Group • Censeo Financial Solutions, Inc. • FinAcc, Inc. • Investment and Capital Corporation of the Philippines • Multinational Investment Bancorporation • Preferred Ventures Corp. • The Structured Financial Group, Inc. • Transaction Advisory Services, Inc.

  30. RELATIONSHIP MANAGEMENT PARTNER FINANCIAL INSTITUTIONS • Allied Bank • Banco de Oro • Bank of Commerce • Equitable PCI • First Metro Investment Corporation • Investments and Capital Corporations of the Phils. • Maybank • Multinational Investment Bancorporation • Philippine Veterans Bank • PNB • RCBC Capital • Security Bank • UCPB Savings Bank • Unicapital

  31. WHAT WE DO CREDIT GUARANTEE GUARANTEE PROGRAM MANAGEMENT CREDIT RATING COLLABORATION WITH NATIONALGOVERNMENT & DONOR AGENCIES RELATIONSHIP MANAGEMENT WITH FINANCIAL INSTITUTIONS

  32. PROGRAM MANAGEMENT • Electric Cooperative System Loss Reduction Project – Partial Credit Guarantee Program (EC-PCG) II. Capacity Building to Remove Barriers to Renewable Energy Development – Loan Guarantee Fund (CBRED-LGF) III. Rural Power Project for Photovoltaic Systems – Loan Guarantee Fund (CBRED-LGF)

  33. Thank you! AILEEN B. CASTRO Head, Relationship Management Department Email: abcastro@lgugc.bayandsl.ph Tel: (02) 751-8764 to 68 Fax: (02) 888-4217 Website: www.lgugc.com

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