By The Star Staff
The federal Title III bankruptcy court will hold a disclosure statement hearing today to determine the adequacy of the document’s contents in explaining the plan to restructure close to $10 billion in Puerto Rico Electric Power Authority (PREPA) debt.
The hearing will take place over a day after the Financial Oversight and Management Board submitted late Sunday to the court a second amended version of the debt adjustment plan. A protest organized by PREPA workers and others opposing rate hikes to pay the debt is expected to take place in front of the federal court today.
At least 12 groups of creditors are expected to object to the disclosure statement as they have said PREPA’s debt adjustment plan is unconfirmable and in violation of the Puerto Rico Oversight, Management and Economic Stability Act (PROMESA). Opponents argued, mainly, that the disclosure statement provides no basis for the wide disparities in recoveries among holders of the same bonds. Creditors in the same class are supposed to receive the same amount in recoveries.
Lawyers Zoé Negrón and Rolando Emmanuelli said in a recent podcast that PREPA’s restructuring is more important than the commonwealth restructuring, because the cost of energy impacts the entire island economy. At today’s hearing U.S. District Court Judge Laura Taylor Swain is expected to hear arguments on the adequacy of the contents of the disclosure statement, but the plan will not be confirmed until the summer.
The oversight board has not been able to reach a settlement with bondholders and monoline insurers of bonds, except for National Public Finance Guarantee Corp. It has settled with fuel line lenders and Vitol, among others.
Currently, PREPA is in mediation with several bondholders that hold $3.9 billion (or over 47% of all uninsured bonds) and monoline insurers of insured bonds, but has not included many other bondholders. Therefore, the oversight board has formulated the latest amended debt adjustment plan to try to foster settlement of bond claims and to provide a settlement opportunity for all bondholders, including those who have not participated in the mediation.
The new plan proposes to cut PREPA’s more than $10 billion of debt and other claims by almost half, to approximately $5.68 billion. The new plan offers to pay only 56 cents for settling bondholders and bond insurers if they win all litigation related to the validity of the security of their claims and only 50 cents on the dollar if they settle their claims. Bondholders have said PREPA can pay more.
A so-called legacy charge for certain electric power customers not currently benefiting from subsidized electricity rates would be, on average, about $19 a month. The PREPA legacy charge, which will be used to pay bondholders, would exclude qualifying low-income residential customers from a connection fee and kilowatt-hour (kWh) charge for up to 500 kWh per month. For non-subsidized residential customers, the proposed PREPA legacy charge would be: a flat $13 per month connection fee, and 75 cents per kWh for up to 500 kWh per month of electricity provided by PREPA, and 3 cents per kWh for electricity above 500 kWh per month.
For commercial, industrial, and government customers, the proposed PREPA legacy charge would entail: a connection fee of between $16.25 for small business customers, $20 per month for smaller industrial companies, and $1,800 per month for large businesses proportional to their current rate. They would pay between 97 cents and 3 cents per kWh per month for electricity provided by PREPA.
“No one is saved from these rate hikes,” the attorney Emmanuelli said. “Even those who have energy subsidies will feel the rate hikes in the increase of products that we buy because this is going to increase the cost of living.”
The debt adjustment plan also proposes to convert the power utility’s pension system from a defined contribution to a defined benefit plan. It also would raise the retirement age and eliminate cost of living adjustments for the pension system. Pension officials have said the retirement system, which is owed almost $900 million, could become insolvent by May.
On Monday, Gov. Pedro Pierluisi Urrutia said he was not going to allow cuts to pensions.