Fitial takes over CPA

Gov. Benigno R. Fitial has placed the Commonwealth Ports Authority under his direct control amid a possible bank takeover for violation of bond terms. The move suspends the CPA board of directors.

The administration said the executive order became necessary because the CPA board of directors had been unable to muster a quorum for a special meeting to act on urgent measure relating to CPA’s bond indenture agreement, of which the Bank of Guam is the bond trustee.

“The intended goal of [Executive Order] 08-03 is to implement those measures that the board was considering in order to ensure compliance with the Bond Indenture; to preserve the fiscal integrity of CPA as an autonomous agency; and to maintain the entity’s stability for an interim period,” stated a media release issued by the Governor’s Office.

CPA is nearing technical default on the 1998 indenture on its airport revenue bonds. Under the indenture agreement, if CPA committed such default, the bank could issue a notice of default and take over.

CPA now joins the Commonwealth Utilities Corp. as autonomous agencies that are currently under the direct control of the Office of the Governor.

Concurrent with the executive order, Fitial will issue several directives that will raise CPA rates, impose austerity measures, and end the incentive program for airlines flying to the Northern Marianas.

Fitial has instructed acting executive director Lee Cabrera to administer CPA during the extendable 120-day period that the ports authority will be under the Governor’s Office, specifically the Department of Public Works. Cabrera has been told to consult with the Executive Branch, the Office of the Attorney General, and CPA acting comptroller Frances C. Mafnas.

During the 120-day period, Cabrera will be tasked to file interim bond indenture compliance and fiscal reports at 15, 30, 60, and 90 days from May 12, 2008 to the administration, to the Legislature, and to Bank of Guam. These interim reports will detail CPA’s administrative status, fiscal integrity, and compliance with its enabling act directing that CPA generate revenues for its operations and for the bond indenture.

On March 1, 1998, CPA entered into a $20 million airport revenue bond indenture agreement with Bank of Guam as the bond trustee. This agreement requires CPA to make timely payments and to maintain a 1.25 revenue-to-bond payment ratio at all times during the duration of the bond. In other words, for every $1 owed on the bond, CPA must have $1.25 of net revenue in reserve.

CPA, which still owes $17 million, has been making punctual payments. But it has failed to meet the required debt ratio of 1.25.

In a recent report, CPA’s acting comptroller said that first quarter losses from the airline incentive program have totaled $1.2 million. If the Airline Incentive Program is continued and rate increases are not increased, CPA’s projected total deficit will be at least $3.4 million. By eliminating the airline incentive program alone, the acting comptroller projects a $1.97-million reduction in losses.

Cabrera said the new rates are now being drafted and should be on the governor’s desk for his signature soon. The departure service charge is one of those expected to increase—from $8 to $9.07. Airlines normally pass this charge on to passengers.

Press secretary Charles P. Reyes Jr. said the administration is ready to work with airlines that have been promised incentives for flying new routes and adding air service to Saipan.

In recent meetings with the Legislature, the administration, the airlines, and with the CPA board, Bank of Guam has underlined the importance of generating revenue and implementing management controls to be able to maintain the debt service ratio as required by the Bond Indenture Agreement, given decreasing revenues.

“The Administration’s concern for CPA’s financial stability prompted Governor Fitial to take all deliberate measures in the best interest of CPA and its Bond Indenture Agreement, including the execution of Executive Order 08-03, in order to maintain CPA’s stability and integrity as an autonomous agency,” the press statement said.

Reyes said the governor’s action is temporary. CPA will regain its autonomy once its finances are stable.

The Legislature has 60 days to contest the governor’s order if it wishes to do so.

The CPA board of directors is made up of chairman Rex Palacios, Antonio Camacho, Marian Tudela, Connie Igisomar, Alejo Mendiola, Ray Cing, and Joe Lifoifoi.