CDA Executive Director Manuel Sablan said, “We don’t anticipate tapping into MPLT standby letter of credit.”
Sablan told Variety that they have yet to hear from the U.S. Treasury on their grant re-application and it remains under review.
Asked on the potential $2.7 million reserve deficit that MPLT was anticipating based on its risk assessment, Sablan expressed optimism that the agency would be able to generate enough income to put into the reserve account.
“We should be able to generate some income in the loan participation program,” he said.
Sablan also confirmed that should CDA get approved for the State Small Business Credit Initiative grant of $13 million, they are going to set aside their direct loans program.
“We are recommending to the board that we suspend the direct loans program,” he said.
As for the reserve account for the loan guaranty program, Sablan said, “The reserve account of 25 percent is CDA’s mandated reserve.”
He said, “For every $1 guaranty that we make, we have to put aside 25 cents on that dollar into the reserve account.”
Asked if CDA could lower the percentage to be reserved, Sablan said, “Definitely.”
He said, “It is up to us. We can go down to as low as 10 percent. But we don’t want to do that now.”
For Sablan, the cash reserve ratio is a critical component of the leverage ratio. “The higher the cash reserve ratio the lower the leverage ratio.”
He said, “That means we have to pump in more money into the cash reserve.”
For every dollar that SSBCI program committed to this program, the private lenders would have to generate 10 times this amount.
“We have to achieve that ratio within a five-year program,” he said.
At the end of the five years, Sablan said they have to show that the $1 of SSBCI commitment resulted in $10 minimum of private financing.
He also said in as much as they could still lower the reserve account percentage to about 10 percent, he said, “We don’t want to do that at this early part of the game. We want to be extra conservative.”
As for the inability to liquidate its foreclosed properties — one of the sources to be tapped to fill the reserve account — Sablan said, “The foreclosed assets that we have worked out to generate the cash flow to build up into that reserve, we have substantially discounted the value of the foreclosed assets.”
Sablan told Variety they have reduced the value of the foreclosed properties. “We are more conservative in our estimate.”
As for collections, CDA remains aggressive.
Sablan said they are also continuously bringing in more borrowers into the debt relief program.
CDA reapplied for the $13 million federal grant on Oct. 14 that would make $130 million in loans available in the CNMI in the next five years.
CDA’s first application was rejected and it re-filed its application last month with MPLT committing to a $10 million letter of credit as back-up.
As of Sept. 30, 2010, CDA had $3.36 million cash and cash equivalents coming from the Development Corporation Division.
Its Development Banking Division had $2.6 million in cash and cash equivalents in the same period and $3.265 million in time certificates of deposit.
The agency has a total net assets of $8.75 million as of Sept. 2010.
