MPLT board chairman Alvaro A. Santos confirmed to Variety on Thursday that the MPLT board had decided to approve $10 million in line of credit to CDA for the State Small Business Credit Initiative program.
“MPLT will have standby line of credit of $10 million to support CDA’s application to the State Small Business Credit Incentive,” Santos told Variety on Thursday.
MPLT serves as backup to the CDA as it beefs up its application to the federal program SSBCI and proves its ability to sustain the program in five years.
Santos said the program has a multiplier result that the initial $13 million in seed money will multiply into a lending capacity of $130 million.
He also added that MPLT’s engagement in the program is to assure the U.S. Treasury which administers the program that if CDA will not be able to see the program through, then MPLT’s standby line of credit will ensure that the project will proceed as scheduled and it will guarantee whatever kind of losses the project will incur during the five-year window.
In a separate interview with Variety on Friday, CDA Executive Director Manuel Sablan said, “What we worked out with MPLT is not a loan but a standby line of credit.”
He said, “In the event that we need a loan, then we come in and request for assistance.”
“It provides essentially a notice to the U.S. Treasury that in the event we need that support MPLT will be there to provide that support,” he added.
Sablan explained that for every dollar of loan guaranty that CDA makes on a bank loan, under the regulations, CDA is required to set aside 25 percent of that guaranty in a cash reserve account.
“Under this program, we are dedicating a portion of the SSCBCI funds into the loan guaranteed account and we are also supplementing that account with CDA cash contribution,” he said.
If the loan defaulted, Sablan said the bank can draw on the reserve account to pay for guaranteed amount.
He also said that for every one dollar of SSBCI money, CDA has to generate a minimum of $10 in private financing.
The CDA on Friday filed a reapplication to the $13 million non-recurring federal grant.
Sablan said should the CDA gets approved, the U.S. Treasury will be monitoring the program in the next five years and CDA has to comply with all the requirements set forth under the said federal program.
He also said when the program terminates in March 2017, whatever will be left of the money under the program will be ceded to the CNMI as a grant.
“It is very important that we make sure that we run this program successfully so that at the end of the program period, whatever money that is there becomes CDA/CNMI’s assets,” Sablan told Variety.
MPLT’s Santos, on Thursday, told Variety that all becomes final upon completion and signing of a memorandum of agreement and promissory note which will have to be arranged by the counsels of the two agencies.
Santos also shared with Variety their confidence in CDA in handling the program.
He also said they welcome the $13 million infusion into the local economy.
“If this is done right, it will be a plus to the community, to the business sector,” Santos said.
CDA, MPLT invest in Arctic
MPLT finally approved Arctic Circle Air on Thursday for a $500,000 loan.
CDA earlier approved in principle $600,000 investment in support of the proposal but stated during its board meeting last Wednesday that the approval was contingent on MPLT’s approval.
“CDA did that contingent on our action that we will fork out the $500K of MPLT money,” Santos said.
He said if MPLT disapproved the proposal then the CDA approval would be null and void.
But that approval finally came on Thursday afternoon when the MPLT board decided to loan $500,000 to Arctic for 10 years at 7.5 percent interest.
Arctic Circle will pay MPLT only interest in the first 12 months and will commence payment of both principal and interest on the 13th month.
In approving the loan, MPLT also approved as collateral the business’ aircraft, flight certification, accounts receivables, furniture and fixtures and other capital assets, inventory of parts, and non-perishable items.
CDA, meanwhile, approved a $600,000 investment: 50 percent in preferred stock and 50 percent in common stock. Sablan said said they have yet to work out the terms and dividend rate for preferred stock.
