- senior debt for required project modifications;
- other debt, subject to satisfaction of debt-service-coverage-ratio tests; and
- further refinancing of the credit facilities.
Such additional indebtedness could adversely affect the project company’s overall debt-ser-
vice capability.
Environmental compliance
The project was subject to numerous environmental regulations governing construction; oper-
ation; transport, storage and disposal of fuel; and air, water and noise emissions. Additional
expenditures could be required of the project company because of new laws or regulations,
or changes in the interpretation of existing laws and regulations. Partially mitigating this risk
to the project company, the PPA required Meralco to pay increased costs caused by changes
in government laws, regulations, judgements, ordinances, permits or other conditions.
Force majeureevent risk
Although Meralco was required to continue making payments under the PPA even if force
majeure events occurred, there could be no assurance that it would ultimately make such pay-
ments.
Cross-default risk
An event of default under the bond indenture or the bank credit agreement also would be an
event of default under the other credit facilities. There could be no assurance that, upon an
event of default, the exercise of remedies, including foreclosure on the collateral, would make
all the creditors whole.
Land lease risk
Under Philippine law only Philippine citizens, corporations or associations at least 60-per-
cent owned by Philippine citizens may own land or leasehold interests in foreshore land
(seashore land between the high and low water mark) or hold permits to build or operate piers
on such land. Therefore Meralco became the owner of the land on which the power plant was
to be built, and the holder of a foreshore lease from the Philippine Department of
Environment and Natural Resources, and in turn it was to lease this property to the project
company. Any material failure of Meralco to perform its obligations under the site leases
could affect the project company’s ability to operate and service its debt.
Bond market risk
Neither liquidity nor an active trading market could be assured for the bonds. The bond
prospectus noted that Salmon Brothers, as the representative for all the bond underwriters,
intended to make a market in the bonds but was not obliged to do so and could discontinue
market making at any time without notice.
QUEZON POWER, THE PHILIPPINES