MPLT offers CUC $10M guaranty

The Marianas Public Land Trust has offered the Commonwealth Utilities Corp. a $10-million guaranty to be given directly to Mobil Oil Marianas Inc. for use in CUC’s fuel supply contract with the oil company.

Acting MPLT chair Herman R. Guerrero made the proposal to CUC on Friday, in response to CUC’s request for MPLT to give a guaranty that CUC could use in negotiating a $10 million line of credit from Bank of Guam.

“This [approach] is a costly and cumbersome method to achieve your purpose. In our opinion, the best way to approach this problem is for MPLT to grant a guaranty directly to Mobil, which is acceptable to them in securing their $10 million line of credit,” Guerrero told CUC executive director Lorraine Babauta in a letter.

According to Guerrero, the terms and conditions of MPLT’s offer are:

• MPLT will grant a $10 million guaranty to Mobil to secure their line of credit granted to CUC under the existing fuel contract.

• The $10 million guaranty is limited to the actual amount of collateral given to MPLT from the current CUC customer deposit account funds.

• The CUC customer deposit account funds will be identified in a security agreement and will be in MPLT’s possession and managed separately for CUC’s benefit. The money management fees associated with CUC’s separately managed custody account will be an expense of CUC and will be charged to the separately managed custody account. Should Mobil utilize the guaranty, MPLT will offset such advances against the collateral in its possession.

• MPLT will charge a non-refundable annual guaranty fee of 0.5 percent based upon the amount of the actual guaranty being used. For instance, if $2.5 million is initially used, then the annual fee would be $12,500. Additions to the guaranty occurring during the year would have the fee pro-rated for the actual amount of the guaranty.

Guerrero pointed out that by taking MPLT’s offer, CUC would not be incurring multiple fees and would minimize transaction costs. He added that MPLT’s offer would provide CUC 0.4-percent savings over the rate charged by Bank of Guam.

“We believe this is the best approach to accomplish your goal, but it does depend upon Mobil accepting our guaranty in lieu of the Bank of Guam letter of credit. If this cannot be accomplished, then it is best for you to deal on a direct basis with the Bank of Guam to increase your Mobil line of credit,” Guerrero said.

The Babauta administration, which currently controls CUC pursuant to the May 19 declaration of a state of emergency, reached a final agreement for a fuel supply contract with Mobil on June 3.

The contract, which took effect May 1, 2005, grants Mobil an exclusive right to provide fuel to CUC for two years.

Mobil has required CUC to secure a $10-million guaranty or line of credit as part of the contract.