Who benefits from CAP's trust funds?

By Lala Rimando, abs-cbnNEWS.com/Newsbreak

Posted at Apr 28 2009 11:26 PM | Updated as of May 28 2009 10:37 AM

Who are benefitting from the sale of assets in the trust fund of pre-need industry's poster company, College Assurance Plan (CAP)?

In a congressional hearing on Monday, representatives were aghast when they learned that Sobrepena-led CAP sold its MRT III bonds and that the $9 million-worth sale proceeds were used to pay off two firms also controlled by the Sobrepenas.

These reactions came amidst complaints by plan holders who were present at the hearing that they had only received a measly P400 to cover tuition costs per semester.

In a statement Tuesday, CAP countered that they sold the MRT bonds to the government, which acquired a majority stake in the Metro Rail Transit Corporation (MRTC), the operator of the MRT II line. It did not clarify if the, or a portion of the, proceeds indeed benefitted the companies related to the Sobrepenas.

It added, however, that "Proceeds of this transaction will be used to pay plan benefits according to the amounts and schedule of payments set by the court in the revised rehabilitation plan approved in 2006." It said among those that are scheduled to receive such benefits are enrollees for school years 2005 to 2009.

In 2005, CAP wiggled away from the supervision of pre-need regulator Securities and Exchange Commission (SEC) when it sought refuge from the local courts.

CAP blamed SEC for the collapse of its pre-need business. SEC then required CAP to submit a plan on how it would plug the deficit or the gap between how much it had and should have set aside in its trust funds to cover obligations to its about one million education, pension and memorial plan holders.

CAP was adamant that the deficit was not real but a result of SEC's strict implementation of an accounting standard that even the accounting industry association said was prudent.

However, the deficit eventually became real when checks issued by CAP to cover tuition costs of educational plans bounced. For months, plan holders and the schools where the plan beneficiaries were enrolled in, beseiged CAP offices nationwide.

CAP became illiquid--then insolvent--when the funds from its then-profitable pre-need business were diverted into real estate, MRT, and other ventures of the Sobrepenas during the hubris years in the 1990's. The expected high returns from these ventures, however, failed to come to fruition when the 1997/98 Asian financial crisis hit, eventually bursting the property bubble.

The Sobrepenas held stakes in Fil-Invest Group of realty companies, John Hay Development Corporation (operator of former American base in Baguio), mid-sized Bank of Commerce, among others.

The value of CAP's trust fund dwindled as most of these companies also took a dive.

Of the assets in the trust fund, the MRT III bond was considered the most liquid.

CAP said in its Wednesday statement that the sale of the bond was approved by the rehabilitation court, the Makati City Regional Trial Court. It added that the bonds were sold "at the best possible price."

It also said that the real estate assets in the trust fund are projected to appreciate, thus "could be a major source of fund" that would allow CAP to sustain its future payments to clients.

CAP said it is currently supporting over 100,000 enrollees--a far cry from the almost 800,000 student-beneficiaries it had in 2004.

CAP's woes were remembered after the pre-need industry was again rocked by controversies hounding the Legacy Group of financial services. This month, the SEC decided to revoke the license of Prudentialife and Permanent Plans to sell new plans after the pre-need companies failed to submit a plan how to address deficits in its trust funds. - with ABS-CBN News