BDO Unibank's 'Key Man Clause' Protects Piki Lopez in P24.75B Loan Deal

First Gen Corporation disclosed on April 17 that BDO Unibank has included contractual provisions requiring the continued active involvement of CEO Federico “Piki” Lopez in First Philippine Holdings (FPH) as a condition for loan agreements supporting the company’s acquisition of a 33% stake in Prime Hydropower Energy Inc. (PHEI). The provisions, termed “key man clauses” by First Gen and “poison pills” by the Lopez majority faction, would trigger defaults across FPH group loans if Piki Lopez is removed from the holding company.

Standby Letters of Credit and Project Financing

BDO Unibank issued two standby letters of credit (SBLCs) worth a combined P24.75 billion to support First Gen’s stake acquisition in PHEI, according to the disclosure. PHEI is currently constructing the 600-megawatt (MW) Wawa Pumped Storage Hydro Project in Rizal and the 1,400-MW Pakil Pumped Storage Hydro Project in Laguna, with both projects expected to be operational by 2030.

First Gen stated: “BDO’s issuance of the SBLCs in support of First Gen’s acquisition of a 33% stake in the pumped storage hydro projects, coupled with contractual arrangements on the Change in Management Control, demonstrates the bank’s recognition that the continued active involvement of FRL [Federico Rufino Lopez] in the FPH group is necessary, vital, and indispensable.”

Change of Management Control Provisions

The loan agreements contain what First Gen calls “leadership continuity covenants” that classify any change in management control as an “Event of Default.” According to First Gen’s disclosure: “BDO’s commitment terms are clear that maintaining the role of FRL in the FPH group is critical, such that replacing FRL will trigger defaults in the loan agreements of the FPH group. Such a structure not only ensures that the FPH group maintains a unified strategic direction under FRL, but underscores the link between the FPH group’s financial footing and its leadership under FRL.”

First Gen stated the SBLCs were “made conditional on covenants required by BDO to ensure leadership continuity across operating segments and subsidiaries of the First Philippine Holdings Corporation (FPH) group of companies.”

Key Man Clause Definition and Context

First Gen characterized the provision as a “key man clause,” describing it as “a significant protection mechanism for a business partner” and “a relatively standard provision often in contracts for projects in industries such as energy and infrastructure which involve huge investments.”

According to First Gen: “This ‘key man clause’ was requested not by Piki Lopez but by Razon’s Prime Infra,” indicating that billionaire Ricky Razon’s company requested the contractual protection. First Gen added: “Prime Infra’s request for inclusion of the CMC [change of management control] provisions shows the level of trust and confidence that Prime Infra has in FRL and his management team.”

The Lopez majority faction, led by former ABS-CBN CEO Eugenio “Gabby” Lopez III, has characterized similar provisions in Prime Infra’s natural gas deal with First Gen as a “poison pill” designed to prevent Piki from being ousted and to allow Razon to purchase First Gen at a discount if Piki is removed.

FPH Group Structure and Leadership

First Philippine Holdings, led by Piki Lopez as CEO, includes First Gen Corporation, Batangas Cogeneration Corporation, First Philippine Electric Corporation, Rockwell Land Corporation, and First Balfour Inc. as subsidiaries. First Gen claimed the company “has consistently proven profitability with its earnings exceeding P100 billion during the past five years.”

BDO Unibank, part of the Sy family’s SM Group, is the Philippines’ largest bank in terms of total resources and number of automated teller machines. Its president and CEO is Nestor Tan. BDO declined to comment on First Gen’s press statement, according to the disclosure.

Broader Lopez Family Dispute

Piki Lopez was ousted by the Lopez majority from Lopez Inc., the Lopez family’s private holding firm, in February through a 5-2 vote, though a court has since issued an order stopping his removal. The conflict has centered on competing visions for the Lopez group’s strategic direction, with the majority faction seeking management changes that would trigger these contractual protections.

Prime Infra Financing Syndicate

Prime Infra announced on March 12 that it had sealed financing agreements worth P273 billion to support development of its 2-gigawatt pumped storage portfolio. The financing deal involved both local and foreign lenders: Bank of the Philippine Islands, BDO Unibank Inc., China Banking Corporation, Land Bank of the Philippines, Metropolitan Bank & Trust Company, Philippine National Bank, Security Bank Corporation, Union Bank of the Philippines, MUFG Bank, Mizuho Bank Ltd., and Sumitomo Mitsui Banking Corporation.

Prime Infra described its pumped storage hydro portfolio as “long-duration energy storage capacity” projects of “national significance” expected to “provide large-scale grid balancing, system reliability, and renewable energy integration for the Luzon power system.” According to Prime Infra, pumped storage technology “allows for energy storage by pumping water to an upper reservoir during off-peak hours and releasing it to generate power during peak demand,” and “helps stabilize the grid and manage intermittent renewable energy sources like wind and solar.”