Fiscal board amends debt settlement with PREPA’s fuel line lenders
By The Star Staff
The Financial Oversight and Management Board has informed the markets about an amendment to the agreement reached with fuel line lenders of the Puerto Rico Electric Power Authority (PREPA).
On Dec. 1, 2022, the oversight board and fuel line lenders reached an agreement that would give them priority over bondholders’ treatment in PREPA’s debt restructuring. The fuel line lenders’ $700 million claim would receive new PREPA bonds.
On Sunday, the oversight board and the fuel line lenders announced amendments to the agreement.
Under the amendments, the fuel line lenders will receive bonds called Series A bonds, which will be paid from a legacy charge or contingent value instruments (CVIs).
“Notwithstanding the foregoing, PREPA may issue one or more contingent value instruments under its Plan payable from a source of funds other than the Legacy Charge Revenues, including, for the avoidance of doubt, the Remaining Legacy Charge Revenues,” the document to the markets reads.
The “Legacy Charge” in the document means a hybrid connectivity charge and volumetric charge to be added to customers’ bills to pay the new bonds, in structure and amounts that do not change the Series A bonds’ expected repayment date and expected weighted average life as established. The legacy charge will not include any other rate increase or charge added to customers’ bills for payment of a contingent value instrument other than the CVI provided in PREPA’s plan of adjustment.
Series A bonds, which will be issued only to the fuel line lenders, will have first priority of principal repayment following payment of accrued interest on all outstanding new bonds. If unpaid at their final maturity, the Series A bonds will remain outstanding until paid in full in cash, but will cease accruing interest as of the earlier to occur of either a payment in full of the Series A bonds or the final maturity of any series of other bonds.
No principal will be paid on any other bonds, and no other bonds may be called by PREPA until the Series A bonds have been paid in full in cash. Series A bonds will receive a 6% rate and have a 15-year maturity.
From and after the plan’s effective date, until the new bonds have been paid or satisfied in full, the reorganized PREPA will deposit the legacy charge revenues to the credit of the “Bonds Debt Service Account” held by the new bonds trustee, according to the document. Such monies will go first to the payment of stated interest due and payable on the new bonds, second to the payment of principal on the Series A bonds until repaid, and third to the payment of principal on the other bonds.
Upon the occurrence of an event of default, the new bonds trustee’s remedies will be to: a) seek enforcement of reorganized PREPA’s obligation to take reasonable measures to collect revenues generated by the legacy charge and deposit such monies received into the Legacy Charge Revenue Fund; b) prior to the final maturity, as applicable, at the request of 25% or more of the Series A bonds, seek, by action or suit in law or in equity for specific performance, enforcement of any covenant contained in the new bond indenture; and/or c) seek enforcement of reorganized PREPA’s obligation to take reasonable measures to collect revenues and adjust rates and charges so that reorganized PREPA’s revenues in each fiscal year shall be no less than reorganized PREPA’s operating expenses.