Vol. XXII, No. 80 [ BusinessWorld Online ]
Friday, November 14, 2008 | MANILA, PHILIPPINES
BY MARITES S. VILLAMOR, Visayas Bureau Chief
MACTAN, Cebu — Waterfront Philippines, Inc. and its two subsidiaries are working for an amicable settlement with major creditor Philippine National Bank (PNB), as a lower court ordered on Wednesday the postponement of the auction of two Waterfront hotels.
Counsels for both parties said the court order paved for a solution to the problem, but PNB lead counsel and former Justice secretary Estelito P. Mendoza said the Gatchalians will have to "make a very substantial offer."
Marching orders
"Mr. [Lucio] Tan is not willing [to restructure again], but they can try. I’m in this case with specific instructions to foreclose. There have been three [restructuring agreements] already," Mr. Mendoza said in an interview after the court proceedings.
He said even the rental receivables from Waterfront’s leasing client, Philippine Amusement and Gaming Corp. (Pagcor), would not be enough.
The 562-room Waterfront Cebu City Hotel & Casino and the 167-room Waterfront Airport Hotel & Casino Mactan were to be auctioned in the first week of December to satisfy Waterfront’s outstanding loan of P744 million with PNB.
Injunction
Waterfront had filed a complaint for injunction and asked the Lapu-Lapu Regional Trial Court to issue a temporary restraining order.
Lapu-Lapu RTC Judge Victor Teves ordered on Wednesday the postponement of the initial publication of the notices of sale involving the two hotels to November 24.
This would move the original auction date of December 5 to the third week of December.
The notice of sale involving the Mactan hotel, which was issued by Lapu-Lapu Sheriff Basiliso Pimentel last week, was to be published starting today.
At the Cebu RTC, Sheriff Elcid Caballes said he would issue a notice of sale involving the Waterfront Cebu City Hotel today.
But Mr. Caballes said he would abide by the court order to postpone its publication.
As of yesterday, however, he had not received a copy of the order.
The court also set the hearing on Waterfront’s petition for injunction for November 18. The initial hearing on the injunction petition last Wednesday was cancelled to give both parties time to prepare.
Out of court
In the meantime, Judge Teves suggested that taipans Lucio Tan and William Gatchalian settle the matter out of court.
Mr. Tan, who a decade ago took control of the airline founded by Mr. Gatchalian after the latter also defaulted on his loan, is still out of the country.
Lamberto B. Mercado, Jr., vice-president for legal affairs of Waterfront’s parent Wellex Group, Inc., welcomed the move to postpone the auction and expressed optimism that this would pave for a possible settlement.
‘Sincerely open’
"We’re always open, sincerely, for a settlement. We are not running away from our obligation, but we want something that we can both mutually accept," Mr. Mercado said in a separate interview.
He said Waterfront asked PNB last June to restructure the loan again because they were still in the middle of negotiations with Pagcor for another contract. Rental receivables from Pagcor were assigned by Waterfront in 2004 to service the PNB loan as part of the third restructuring agreement.
Waterfront’s proposal was to reinstate the loan conditions prior to the time when PNB considered the loan on technical default.
Mr. Mercado said Waterfront expects to receive almost P20 million a month from Pagcor.
This, he said, should be enough to cover the monthly amortization of P6 million for the principal, and about P12 million in interest based on the third restructuring agreement.
In its petition for injunction filed before the Lapu-Lapu court, Waterfront argued that the mortgage trust indenture signed in 1997 by Waterfront and PNB was no longer valid because it covered only the original loan of about $30 million.
Restructured three times
The loan, secured in March 1997 by WPI and its two subsidiaries to finance the construction of the Cebu City hotel, was converted to peso and restructured three times.
The last restructuring agreement, reached in 2004, did not include a new mortgage trust indenture, said Waterfront counsel Tito E. Pintor, Jr.
He also pointed out that Waterfront has paid around P1.2 billion — P400 million for the principal and P800 million in interest — as of 2007.
The original loan amount also doubled upon conversion to peso.
Secured under the mortgage trust indenture dated March 26, 1997 were, among others, the Waterfront Cebu City Hotel and its improvements, fixtures, machineries and equipment as well as Waterfront’s leasehold rights and interests under its lease contract with the Mactan Cebu International Airport Authority. The Cebu city hotel stands on airport property.
The first restructuring agreement, reached in October 1999, provided that the restructured loan be secured by both the Cebu City and Mactan hotels and their improvements as well as the rental receivables from Pagcor.
The loan was restructured for the second and third time in 2001 and 2004, respectively.