Fiscal board: No renegotiation of PREPA restructuring with gov’t

Financial Oversight and Management Board member Justin Peterson

By The Star Staff

The Financial Oversight and Management Board has dismissed all chances it would renegotiate with the government on the terms of the Puerto Rico Electric Power Authority (PREPA) restructuring deal, arguing that the only alternative is to create an alternate debt deal that does not require legislation to enable it.

“There are really two paths” for PREPA’s restructuring. One would be for the island Legislature to approve the legislation to support the current restructuring support agreement (RSA) that would restructure some $9 billion in debt and the other would be for the oversight board to create an alternate RSA that does not require legislative approval, the chairman of the oversight board, David Skeel, said in a news conference Friday, a day after the House of Representatives said it was going to make a counteroffer to the debt deal that would be unveiled Sunday.

PREPA has been in bankruptcy since 2017 to restructure some $10 billion in debt.

The oversight board also opposes a request by the Ad Hoc Group of PREPA Bondholders to the Title III Bankruptcy Court and others seeking the appointment of a mediator and the imposition of deadlines to approve the utility’s RSA. House Speaker Rafael Hernández Montañez announced this weekend that the lower chamber submitted a response opposing the mediation, asking bondholders to negotiate with the Legislature.

Oversight board member Justin Peterson, in an editorial piece in another media outlet, called for the approval of local legislation that would enable the existing PREPA RSA.

He said the restructuring of PREPA will be completed with or without local legislation. However, its absence will put Puerto Rico through a more costly process, Peterson was cited as saying.

At issue in the local government’s opposition to PREPA’s debt adjustment plan is a transition charge that will be used to pay bondholders that critics say could increase power rates. The transition charge starts at about 2.7 cents per kilowatt hour and goes up until it reaches 4.5 cents per kilowatt hour by 2044.

In May 2019, the oversight board, the Puerto Rico government and PREPA reached an RSA with bondholders and bond insurer Assured Guaranty Corp. to adjust PREPA’s debt.

According to the oversight board, the RSA reduces PREPA’s approximately $9.3 billion in legacy debt by more than 30%, to under $6.5 billion.

The proposed transaction consists of an exchange of existing PREPA bonds for new bonds, which are divided into two tranches: Tranche A Bonds and Tranche B Bonds. Tranche A Bonds will be exchanged at a ratio of 67.5% of principal amount of outstanding bonds subject to the exchange, plus other considerations described below. Tranche B Bonds, meanwhile, will be exchanged at a ratio of 10% of principal amount of outstanding bonds subject to the exchange. The Tranche A Bonds will have a stated maturity of 40 years, subject to early redemption under certain circumstances. They will bear interest at an annual rate of 5.25% to be paid in cash, on a tax-exempt basis. Any interest not paid when due shall be added to the interest to be paid on the next payment date for Tranche A Bonds. The obligation to pay the Tranche A Bonds will extend beyond the stated final maturity if not paid in full on the stated final maturity until all principal of, and accrued and unpaid interest on, the Tranche A Bonds is paid in full. The Tranche B Bonds will have a stated maturity of 47 years. The interest on Tranche B Bonds will be paid in kind, that is, in the form of additional Tranche B Bonds, and will accrete at an annual rate of 7.00% (if tax exempt) or of 8.75% (if taxable). In any event, Tranche B Holders will not receive any cash payments until Tranche A Bonds are paid in full.

In March 2020, the oversight board asked the U.S. District Court to put the confirmation process for the RSA on hold to allow a comprehensive assessment of the effect of the COVID-19 pandemic on Puerto Rico and its economy. This year, the board said it expected to confirm PREPA’s debt deal in March.