PREPA
RESTRUCTURING SUPPORT AGREEMENT TERMINATED. BY CARIBBEAN BUSINESS ON JANUARY 23, 2016
SAN JUAN – As the
deadline for the passing of the Puerto Rico Electric Power Authority’s (Prepa)
revitalization bill was blown Friday, the Restructuring Support Agreement (RSA)
between 70 percent of the authority’s bondholders and the power utility came apart.
Prepa announced early Saturday that the RSA and related Bond Purchase Agreement
(BPA) with creditors have terminated. The restructuring of Prepa’s $8.2 billion
debt also hinged on lawmakers passing legislation to enable the RSA by Friday,
which they failed to do.
“In light of the
Legislative Assembly’s ongoing deliberations over the Prepa Revitalization Act,
Prepa asked creditors to extend the legislative enactment deadlines under the
RSA and the BPA by three weeks. Under these agreements, creditors had agreed to
relend to Prepa $115 million in interest that Prepa had paid to them on January
1, 2016 as the parties continued to work towards consummation of the proposed
restructuring,” Prepa says in its statement.
“Although other
creditors agreed to the requested extension, the Ad Hoc Group of Bondholders
did not. Instead the Ad Hoc Group imposed additional conditions on their $115
million relending obligation, even though Prepa had rejected these same
conditions in December 2015 before making the January 1, 2016 interest payment.
In addition, certain of the Ad Hoc Group members rejected any extension
of the relending obligation at all, thereby reducing the relending proceeds to
less than the agreed-upon $115 million,” the power utility’s news release adds.
“We are
disappointed that the Ad Hoc Group did not grant our requested extension,”
stated Lisa Donahue, Prepa’s Chief Restructuring Officer. “Prepa remains
willing to continue discussions with the Ad Hoc Group and other stakeholders.”
“Extending the
legislative enactment deadline under the agreements would not have prejudiced
the Ad Hoc Group. The Legislative Assembly was actively working with Prepa on
the legislation. Prepa’s request was only to extend the legislative enactment
deadline to give the legislature more time to review the bill, while
maintaining the creditors’ rights to review the law to determine if it
satisfied the terms of the RSA,” Prepa explained.
Meanwhile, in
their own statement, Prepa’s bondholders said, “Today the Prepa Bondholder
Group put forward an offer to extend the RSA until February 12th in order to
give the Puerto Rican legislature more time to pass the Prepa Revitalization
Act. Based on our direct and positive conversations with Puerto Rican
lawmakers, we are optimistic that the bill will be passed and it was our desire
to be as supportive of the legislative process as possible. In addition, we
also offered to extend our Bond Purchase Agreement with Prepa, under which RSA
creditors would provide $115 million in additional financing once the energy
commission approves the securitization charge, with a deadline of May 23rd.
This amendment to the BPA reflects a milestone that was previously agreed upon,
and was included in order to help ensure the deal would get done – as the
energy commission approval is a vital element of the agreement.
“Unfortunately,
Prepa is choosing not to extend the RSA. Over the approximately 18 months that
we have been negotiating this plan it has consistently been our desire to reach
a fair, collaborative agreement that would benefit all stakeholders, including
the people of Puerto Rico. The plan has been described as fair to all parties
and beneficial to Puerto Rico – not only by key legislative leaders but by
other decision-makers in the Commonwealth. This is why we were willing to offer
these further concessions, recognizing the complexities of the legislative
process. “While it is extremely disappointing and perplexing that Prepa has
chosen to take this stance, we continue to remain open to reaching a deal with
Prepa and it is our sincere hope that they reconsider their position and assume
postures beneficial to the people of Puerto Rico.”
The bondholders
“want to stay in the agreement but they want to change the scope of the
negotiation, conditioning the bond purchase agreement to a series of items that
were not in the original agreement,” a source with knowledge of negotiations
told Caribbean Business on Friday. The monoline bond insurers were still
onboard with the original deal.
The bondholders
sought to change the conditions of the $115 million re-lending as a condition
to extend the RSA. The relending mechanism utilizes bridge bonds similar to
those used in July that provided liquidity to the utility and helped it meet a
$415 million payment.
“They are
insisting on renegotiating the conditions of the re-lending agreement. They
were supposed to fund approximately 10% of the cost of the re-lending,” the
source had said, “And [the bondholders] are saying that they will only extend
the relending obligation conditioned to the Puerto Rico Energy Commission’s
approval of the entire securitization deal. And that is going to take months.”
Prepa insists on
maintaining the RSA and the re-lending. Although the bond insurers who came
into the fold in December remain onboard, they do not want to fulfill that
commitment without the creditors.
Sources close to
the negotiations said the move was an eleventh hour arm-twisting to pressure
Prepa to guarantee that the deal would get made as quickly as possible. The
source said the sooner the Prepa bill were passed, the sooner the terms in the
securitization deal would be locked in.
Sources also told
Caribbean Business that the leadership in both chambers of the Puerto Rico
Legislature were working hard to secure passage of the bill, but the rate
restructuring remained a bone of contention. The bondholders want to guarantee
that the electric rate structure will not wind up in the hands of a body that
creditors fear will cause revenue gaps. The legislators had asked the creditors
to grant them several weeks to consider key aspects of the bill.
“That [Jan. 22]
deadline was one negotiated by Prepa. We did not negotiate that deadline. I
have always said we were going to pass the bill before the end of the month,” Rep.
Jesús Santa (PDP-Caguas), head of the Special House Committee on a New Public
Policy on Energy, had told Caribbean Business.
Through the RSA,
the utility’s obligations would have been cut by more than $600 million, with a
large share of investors taking losses of about 15% by exchanging their bonds
for new securities that were going to be made possible through the bill. It
also included five-year liquidity relief of debt-service obligations of nearly
$800 million. The restructuring also aims to free up cash so the utility can
modernize its power plants.
The House and
Senate have been working for weeks on the final draft of the Prepa
revitalization bill, along with officials from the executive branch. Prepa CRO
Donahue had warned that if lawmakers did not pass the Prepa revitalization
bill, debt negotiations would have to start all over again. Wrtten and Photo by Phillipe Schoene Roura and Eva Lloréns Vélez of Caribbean Business. Edited by Ramon Luis Vazquez
Collazo of the Independent Press and
Noticiasillescanos.net. Publish by Vazcorp
Corp.
