SEC Adm. Case No. 04-07-97 Pacific Plans, Inc.

Securities and Exchange Commission SEC Bldg. EDSA, Greenhills, Mandaluyong City Department of Trade and Industry. Republic of the Philippines

PACIFIC PLANS, INC. Petitioner-appellant.

HON. JOSE P. AQUINO, in his capacity as Acting Director of the Non-Traditional Securities and Instruments Department, -versus- Respondent-appellee For: Approval of Hedging SEC En Banc Case No. 04-07-97 Arrangement

DECISION

Aquino, in his capacity as Acting Director of the Non-Traditional Securities and and reversal of the letter dated 04 April 2007 issued by respondent-appellee Jose P Instruments Department ('N'TD"2). For consideration of the Commission En Banc is an appeal seeking the review

The relevant facts of the case are narrated below.

Providers Entrepreneurs Corporation) is a pre-need corporation that was licensed to sell pre-need plans. Petitioner-appellant Pacific Plans, Inc. ("PPI' (now known as Abundance

with a total face value of Forty Seven Million U.S. Dollars (US$47, 700,000.00) maturing on 12 July 2010.1 C`RCBC-TID'? is the trustee of the traditional education plan trust fund ('Peptrad Trust Fund"), which is invested in the National Power Corporation (NAPOCOR) Bonds The Trust and Investment Division of Rizal Commercial Banking Corporation

other appropriate agency for the trustee bank to enter into a non-deliverable Branch 61. In a Decisior? dated 27 April 2006, the RTC granted the petition. The dollar proceeds to peso, up to the equivalent of the tuition support requirements; or was directed to obtain approval from the Bangko Sentral ng Pilipinas (`BSp" or with the Regional Trial Court ('RTC') of Makati City, and the same was raffled to decision provides, among others, for tuition support, which willf be supported from either of the foilowing: (1) outright sale of the NAPOCOR Bonds and conversion of (2) forward sale of the underlying dollars to a financial institution who then issue notes credit finked with NAPOCOR bonds. Either way, the Rehabilitation Receiver As a brief background, PPI filed a petition for rehabilitation on 07 April 2005,

: Memorandum on Appeal dated 19 April 2077, paragraph 3.2. 2 Annex 1, Reply Memorandum filed on 07 Jiine 2007. http://www.sec.gov.ph +(632) 726 09"31 to 39

Non-Traditional Securities and Instruments Department. SEC En Banc Case No. 04-07-97. Page 2 of 4 Pacific Plans, Inc. vs. Horr-ose P. Aquino. in his capacity as Acting Director of the

forward (`NDF" transaction. If the required BSP approval for the NDF transaction NAPOCOR Bonds. cannot be secured, the Rehabilitation Receiver would then proceed to sell the

hedging the foreign exchange risks of the Peptrad Trust Fund. dated 19 February.2007 seeking confirmation that it may enter .into an NDF arrangement or alternative hedging structures which can address the objective of Appellant RCBC-TID then presented their proposal to NTD in a letter-request

On 04 April 2007, appellee NTD issued the subject letter, which reads, in part:

arrangement for the trust fund of Pacific Plans, Inc. (PPI). approval by the Commission to enter into. a non-deliverable forward "This has reference to your letter dated February 19, 2007 requesting

their office. filed with the Bangko Sentral ng Pilipinas (BSP) on August 2, 2005. To clarify matters, this Department sent a letter dated February 27, 2007 to BSP Deputy Governor Nestor A. Espenilla, Jr. inquiring on the status of your reguest with In the said ietter you stated that a request of the same nature has been

Department that the-proposed NDF transaction is still being evaluated by them. On March 16, 2007 BSP Deputy Director Judith E. Singson informed the

company can enter into." arrangement is not among the investments that the trustee of a pre-need Be that as it may, we regret to inferm you that non-deliverable forward

Dissatisfied, appellant filed the instant appeai.

request of RCBC-TID to enter into a non-deliverable forward arrangement for PPI to foows: allow the latter to hedge its foreign exchange exposures. A copy of the BSP letter was submitted to the Commission on 03 March 2010. The BSP letter reads in part as August 2007 stating that the BSP in a letter dated 14 June 2007 approved the Meanwhile, or on 04 Septernber 2007, PPI filed a Manifestation dated 31

Traditional Education Pian Trust Funds using the following proposed hedging Corporation -- Trust and Investment Division (RCBC-TID) to enter into a non- deliverable forward (NDF) arrangement for its client Pacific Plans, Inc. (PPI) to allow the latter to hedge its foreign exchange (FX) exposures of the PPI structures: dated 1 June 2007, approved the request of the Rizal Commercial Banking "Please be informed that the Monetary Board, in its Resolution No. 630

a. Forward sale of National Power Corporation (NPC) Bonds and US Dollar (US$) proceeds thereof;

b.Forward sale of FX only;

Non- Traditional Securities and Instruments Department. SEC En Banc Case No. 04-07-97, Page 3 of 4 Pacific Plans, Inc. vs. Honrose P. Aquino, in his.capacity as Acting Director of the

Forward sale of NPC Bonds and forward hedge of the US$ proceeds for periodic Pesos cashflows; and

Swap of NPC Bonds and forward hedge of the US$ proceeds from the Forward sale with issuance of Credit Linked Notes. Provided, that:

a. All hedging structures will be done through other financial institutions on an arm's-iength basis and RCBC will not be involved in any leg of the transactions;

b. The hedging structure :to be selected. should most be favorable to the planholders given market conditions at the time of deal c losing;

RCBC TID shali seek: the approval/consent of the Rehabilitation Court/Receiver on the use of the modified hedging structure.xxx"

of his share to the total liabilities in 2010 and payments in US Dollars in 2010.4 [Modified Rehabilitation Plan] dated 07 March 2008 with the RTC stating among Philippine peso did not happen because of a slow reguiatory approval process.3 The Rehabilitation Receiver then went on to recommend the conversion of the peso liabilities of PPI to United States Doilars (US Doilars) by assigning to each others that the previous recommendation of the rehabilitation receiver for non- deliverable forward contracts which have heiped in managing the movement of the planholder/creditor a share of the remaining asset in the trust fund in the proportion The Rehabilitation Receiver then filed a Manifestation with Motion to Admit

a Resolution dated 28 July 2008 approving the Modified Rehabilitation Pian for the following reasons: Acting on the .recommendation of the Rehabilitation Receiver, the RTC issued

or an appreciation of at least fourteen percent (14%). Since the NAPOCOR Bonds of the trust fund being substantially diluted when the planholders avail of the Rehabilitation Plan was approved on 27 Apri: 2006, the exchange rate was Php52.02/US1.00. As of 15 July 2008, the exchange rate was Php45.35/US$1.00 are denominated in United Stated dollars, it means that the NAPOCOR Bonds have lost. their originai value by at least fourteen percent (14%) since the approval of the Alternative Rehabilitation Plan on 27 April 2006. Ergo, the continued payment of tuition support in Philippine Pesos will lead to the certainty same upon maturity of the NAPOCOR Bonds in 2010. "First, ... the Court takes cognizance that at the time the Alternative

4 Id, par. 7, p. 3. Manifestation with Motion to Admit, par. 6, p. 2.

in his capacity as Acting Director of the Non- Traditional Securities and Instruments Department. Pacific Plans, Inc. vs. Horirose P. Aquino. SEC En Banc Case No. 04-07-97, Page 4 of 4

*X

planhoiders. xxx" States Dollar"entitlements would not diminish the pro-rata share of the Second, the conversion of the Philippine peso entitlements into United

entitlements of the planholders to US Dollars entitlements and the payments in US the subsequent approval by the Rehabilitation Court of the conversion of peso Dollars, the Commission deems it proper to dismiss the case for being moot. Considering that the proposed hedging transactions did not materialize and

WHEREFORE, the instant petition is hereby DISMISSED for being moot. SO ORDERED.

Mandaluyong City, 13 May 2010.

PE B. BARIN Chairperson

Ma. JUanita E. cuet Commissioner RAUL J. PALABRICA Commission

A

manuei Commissioner ErtO B. GAIte Eladio m.bala. A missioner