Conformed Copy - L2974 - Housing Sector Project - Project Agreement 1

Page 1 CONFORMED COPY LOAN NUMBER 2974 PH (Housing Sector Project) between INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT and NATIONAL HOME MORTGAGE FINANCE CORPORATION Dated September 1, 1988 LOAN NUMBER 2974 PH PROJECT AGREEMENT AGREEMENT, dated September 1, 1988, between INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT (the Bank) and NATIONAL HOME MORTGAGE FINANCE CORPORATION (NHMFC). WHEREAS (A) by the Loan Agreement of even date herewith between the Republic of the Philippines (the Borrower) and the Bank, the Bank has agreed to make available to the Borrower an amount in various currencies equivalent to one hundred sixty million dollars ($160,000,000), on the terms and conditions set forth in the Loan Agreement, provided that NHMFC agree to undertake such obligations toward the Bank as are set forth in this Agreement; (B) by a subsidiary loan agreement to be entered into between the Borrower and NHMFC, the part of the proceeds of the loan provided for under the Loan Agreement will be made available to NHMFC on the terms and conditions set forth in said Subsidiary Loan Agreement; and Page 2 (C) by the Project Agreement of even date herewith between the Bank and the National Housing Authority (NHA) (the NHA Project Agreement) NHA has agreed to undertake such obligations toward the Bank in respect of the Project as are set forth in the NHA Project Agreement; and WHEREAS NHMFC, in consideration of the Bank's entering into the Loan Agreement with the Borrower, has agreed to undertake the obligations set forth in this Agreement; NOW THEREFORE the parties hereto hereby agree as follows: ARTICLE I Definitions Section 1.01. Unless the context otherwise requires, the several terms defined in the Loan Agreement, the Preamble to this Agreement and the General Conditions (as so defined) have the respective meanings therein set forth. ARTICLE II Execution of the Project Section 2.01. NHMFC declares its commitment to the objectives of the Project as set forth in Schedule 2 to the Loan Agreement, and, to this end, shall carry out Parts B, C (1)(b) and C (4) of the Project with due diligence and efficiency and in conformity with appropriate administrative, financial and housing practices, and shall provide, or cause to be provided, promptly as needed, the funds, facilities, services and other resources required for the Project. Section 2.02. Except as the Bank shall otherwise agree, pro- curement of the goods, works and consultants' services required for Parts B, C (1)(b) and C (4) of the Project and to be financed out of the proceeds of the Loan shall be governed by the pro- visions of Schedule 4 to the Loan Agreement. Section 2.03. NHMFC shall carry out the obligations set forth in Sections 9.04, 9.05, 9.06, 9.07, 9.08 and 9.09 of the General Conditions (relating to insurance, use of goods and services, plans and schedules, records and reports, maintenance and land acquisition, respectively) in respect of the NHMFC Project Agreement and Parts B, C (1)(b) and C (4) of the Project. Section 2.04. (a) NHMFC shall duly perform all its obligations under the Subsidiary Loan Agreement. Except as the Bank shall otherwise agree, NHMFC shall not take or concur in any action which would have the effect of amending, abrogating, assigning or waiving the Subsidiary Loan Agreement or any provision thereof. (b) Except as the Bank shall otherwise agree, sub-loans made by NHMFC shall: (i) be in respect of sites and services, housing units or upgrading of housing units which had been constructed or initially financed by qualified originators; (ii) be only made to benefit households below the seventieth percentile; and (iii) comply with criteria agreed between the Bank and NHMFC. (c) For the purposes of Section 2.04 (b) of this Agreement, the term "seventieth percentile" shall mean households whose incomes are at or below the seventh decile of an urban income curve as mutually agreed between the Borrower, the Bank and NHMFC for the purpose. Section 2.05. (a) NHMFC shall, at the request of the Bank, exchange views with the Bank with regard to progress of the Project, the performance of its obligations under this Agreement and other matters relating to the purposes of the Loan. Page 3 (b) NHMFC shall promptly inform the Bank of any condition with respect to itself which interferes or threatens to interfere with the progress of the Project, the accomplishment of the purposes of Loan, or the performance by NHMFC of its obligations under this Agreement and under the Subsidiary Loan Ageement. Section 2.06. NHMFC shall duly carry out the Commitment Line Agreement with NHA. Section 2.07. NHMFC shall enter into, and duly carry out, agreements respectively with the Borrower's Government Social Insurance System (GSIS); Social Security System (SSS); and Home Development Mutual Fund (HDMF), setting out arrangements for the provision of funding by GSIS, SSS and HDMF to NHMFC. Section 2.08. NHMFC shall take appropriate action to progressively raise collection of receivables owed to it such levels and within such time periods as shall be agreed with the Bank. Section 2.09. NHMFC shall implement an adjustable rate mortgage policy with respect to that portion of mortgages taken out which are funded by variable interest rate financing. Section 2.10. NHMFC shall, by December 31, 1991, furnish to the Bank for comments the findings and recommendations of the study undertaken under Part C (4) of the Project. Section 2.11. NHMFC shall take all necessary action on a timely basis to carry out the NHMFC Institutional Action Plan and the NHMFC Policy Statement. ARTICLE III Management and Operations of NHMFC Section 3.01. NHMFC shall carry on its operations and conduct its affairs in accordance with sound administrative, financial, and housing practices under the supervision of qualified and experienced management assisted by competent staff in adequate numbers. Section 3.02. NHMFC shall take out and maintain with respon- sible insurers, or make other provision satisfactory to the Bank, for insurance against such risks and in such amounts as shall be consistent with appropriate practice. ARTICLE IV Financial Covenants Section 4.01. (a) NHMFC shall maintain records and accounts adequate to reflect in accordance with sound accounting practices its operations and financial condition. (b) NHMFC shall: (i) have its records, accounts and financial statements (balance sheets, statements of income and expenses and related statements) for each fiscal year audited, in accordance with appropriate auditing principles consistently applied, by independent auditors acceptable to the Bank; (ii) furnish to the Bank as soon as available, but in any case not later than six months after the end of each such year: (A) certified copies of its financial statements for such year as so audited, and (B) the report of such audit by said auditors of such scope and in such detail as the Bank shall have reasonably requested; and Page 4 (iii) furnish to the Bank such other information concerning said records, accounts and financial statements as well as the audit thereof, as the Bank shall from time to time reasonably request. Section 4.02. (a) Except as the Bank shall otherwise agree, NHMFC shall earn, for each of its fiscal years after its fiscal year ending December 31, 1989, a positive annual return on its equity. (b) Before June 30 in each of its fiscal years, NHMFC shall, on the basis of forecasts prepared by NHMFC and satisfactory to the Bank, review whether it would meet the requirements set forth in paragraph (a) in respect of: (i) the previous fiscal year; (ii) such fiscal year; and (iii) the next following fiscal year and shall furnish to the Bank the results of such review upon its completion. (c) If any such review shows that NHMFC would not meet the requirements set forth in paragraph (a) for NHMFC's fiscal years covered by such review, NHMFC shall promptly take all necessary measures (including, without limitation, adjustments of the structure or levels of its rates and fees on future loans) in order to meet such requirements. (d) NHMFC shall, every six months, furnish to the Bank for review and comment, a projection of its financial performance for the following five fiscal years. (e) For purposes of this Section: (i) The annual return on equity shall be calculated by dividing NHMFC's net operating income for the fiscal year in question by one half of the sum of NHMFC equity (capital and retained earnings) at the beginning and at the end of that fiscal year. (ii) The term "net operating income" means total operat- ing revenues less total operating expenses. (iii) The term "total operating revenues" means revenues from all sources related to operations. (iv) The term "total operating expenses" means all expenses related to operations, including adminis- tration, adequate maintenance, taxes and payments in lieu of taxes, and provision for depreciation on a straight-line basis at a rate of not less than 4% per annum of the average current gross value of NHMFC's fixed assets in operation, or other basis acceptable to the Bank, but excluding interest and other charges on debt. Section 4.03. (a) Except as the Bank shall otherwise agree, NHMFC shall take all such action as necessary to maintain: (i) a debt to equity ratio of no more than 20:1; (ii) an internal cash generation ratio for each fiscal year at least equal to 1.1 times the projected debt service requirement; and (iii) a positive effective spread for loans it finances of at least two percent (2%) over the cost of funds borrowed for such loans. (b) For the purposes of this Section: (i) The term "debt" means any indebtedness of NHMFC maturing, partly or fully, by its terms more than one year after the date on which it is originally Page 5 incurred. (ii) Debt shall be deemed to be incurred: (A) under a loan contract or agreement or other instrument providing for such debt or for the modification of its terms of payment on the date of such contract, agreement or instrument; and (B) under a guarantee agreement, on the date the agreement providing for such guarantee has been entered into. (iii) The term "internal cash generation" means the difference between: (A) the sum of cash inflows from receipts and loan repayments from all sources related to opera- tions and net non-operating cash inflows (including the beginning cash balance); and (B) the sum of all cash outflows for expenses related to operations including administra- tion, adequate maintenance, taxes and payments in lieu of taxes, but excluding provision for depreciation, other non cash operating charges and interest and other charges on debt. (iv) The term "net non-operating cash inflows" means the difference between: (A) cash inflows of revenues collected from all sources other than those related to operations; and (B) cash outflows for expenses, including taxes and payments in lieu of taxes, incurred in the generation of the cash inflows referred to in (A) above. (v) The term "debt service requirements" means the aggregate of repayments (including sinking fund payments, if any) of, and interest and other charges on, debt. (vi) For the purposes of this Section, the projected debt service requirement referred to in Section 4.03(a) (ii) of this Agreement shall be based on a forecast prepared by NHMFC every six months which both the Bank and NHMFC accept as reasonable and as to which the Bank has notified NHMFC of its accept- ability, provided that no event has occurred since such notification which has, or may reasonably be expected in the future to have, a material adverse effect on the financial condition or future operating results of NHMFC. (vii) Whenever for the purposes of this Section it shall be necessary to value, in terms of the currency of the Guarantor, debt payable in another currency, such valuation shall be made on the basis of the prevailing lawful rate of exchange at which such other currency is, at the time of such valuation, obtainable for the purposes of servicing such debt, or, in the absence of such rate, on the basis of a rate of exchange acceptable to the Bank. Section 4.04. (a) NHMFC shall review annually its interest spread in each of its fiscal years commencing January 1, 1989 and furnish to the Bank for comments, before June 30 of each fiscal year, and exchange views with the Bank regarding, the results of such review including appropriate recommendations for action. (b) NHMFC shall take necessary steps to implement recommendations agreed with the Bank resulting from the review Page 6 under Section 4.04 (a) of this Agreement. ARTICLE V Effective Date; Termination; Cancellation and Suspension Section 5.01. This Agreement shall come into force and effect on the date upon which the Loan Agreement becomes effective. Section 5.O2. This Agreement and all obligations of the Bank and of NHMFC thereunder shall terminate on the date on which the Loan Agreement shall terminate in accordance with its terms, and the Bank shall promptly notify NHMFC thereof. Section 5.03. All the provisions of this Agreement shall continue in full force and effect notwithstanding any cancellation or suspension under the General Conditions. ARTICLE VI Miscellaneous Provisions Section 6.01. Any notice or request required or permitted to be given or made under this Agreement and any agreement between the parties contemplated by this Agreement shall be in writing. Such notice or request shall be deemed to have been duly given or made when it shall be delivered by hand or by mail, telegram, cable, telex or radiogram to the party to which it is required or permitted to be given or made at such party's address hereinafter specified or at such other address as such party shall have designated by notice to the party giving such notice or making such request. The addresses so specified are: For the Bank: International Bank for Reconstruction and Development 1818 H Street, N.W. Washington, D.C. 20433 United States of America Cable address: Telex: INTBAFRAD 440098 (ITT) Washington, D.C. 248423 (RCA) or 64145 (WUI) For NHMFC: National Home Mortgage Finance Corporation 8th Floor, Allied Bank Center Ayala Avenue, Makati, Metro Manila Philippines Telex: 762 3554 PH Section 6.02. Any action required or permitted to be taken, and any document required or permitted to be executed, under this Agreement on behalf of NHMFC may be taken or executed by its Chairman or such other person or persons as the Chairman shall designate in writing, and NHMFC shall furnish to the Bank sufficient evidence of the authority and the authenticated specimen signature of each such person. Section 6.03. This Agreement may be executed in several counterparts, each of which shall be an original, and all Page 7 collectively but one instrument. IN WITNESS WHEREOF, the parties hereto, acting through their duly authorized representatives, have caused this Agreement to be signed in their respective names in the District of Columbia, United States of America, as of the day and year first above written. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT By /s/ A. Karaosmanoglu Regional Vice President Asia NATIONAL HOME MORTGAGE FINANCE CORPORATION By /s/ Emmanuel Pelaez Authorized Representative