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  • Writer's pictureThe San Juan Daily Star

Fiscal board to House majority Approve enabling legislation for PREPA debt plan or risk receivership

Financial Oversight and Management Board Executive Director Natalie Jaresko

By The Star Staff

The Financial Oversight and Management Board advised the majority caucus in the island House of Representatives on Wednesday that the federal bankruptcy court may appoint a receiver for the Puerto Rico Electric Power Authority (PREPA) as requested by bondholders unless lawmakers approve the legislation that would enable a debt adjustment plan for PREPA.

The oversight board announced that on Wednesday they met with the Popular Democratic Party (PDP) majority caucus in the lower chamber to discuss legislation that would enable PREPA to emerge from bankruptcy and continue the transformation of the energy sector to provide residents with more reliable, more affordable, and cleaner electricity.

The oversight board’s executive director, Natalie Jaresko, met with the PDP caucus and urged them to consider legislation that would allow the restructuring of PREPA’s existing bond debt through the issuance of new securitization bonds, according to a statement.

The oversight board, the Puerto Rico Fiscal Agency and Financial Advisory Authority, and PREPA reached a restructuring support agreement (RSA) with the Ad Hoc Group of PREPA bondholders and bond insurer Assured Guaranty Corp. in May 2019 that would cut PREPA’s then-accrued bond debt by up to 32% and includes significant protections for Puerto Rico’s households and businesses dependent on PREPA as their single power utility. The implementation of the RSA was put on hold after the outbreak of the COVID-19 pandemic.

Following the confirmation of the Plan of Adjustment for the Commonwealth, PREPA’s debt is the oversight board’s top debt restructuring priority. PREPA’s bankruptcy must end to further enable the transformation of Puerto Rico’s energy system to provide residents and businesses with more reliable, more affordable, and cleaner energy, the oversight board said.

“The RSA provides significant benefits for Puerto Rico,” the board said. “The RSA would insulate PREPA’s customers from the risk that falling energy demand will require increases in electricity bills to pay the new securitization bonds, insulates PREPA from the risk of future debt defaults and exercise of bondholder remedies, and ensures that the repayment of the debt is shared equitably by everyone connected to the grid based on energy consumption regardless of the source of their electricity.”

The RSA also presents a straightforward path to the conclusion of PREPA’s bankruptcy case, as it enjoys the support of a substantial majority of bondholders and all monoline insurers of its bond debt.

“The Oversight Board hopes Puerto Rico’s elected leaders will consider the legislation necessary to implement the RSA,” the board said. “If legislation is not enacted, and if an alternative settlement with bondholders in line with the loss of the RSA’s significant benefits to PREPA is not obtainable, lengthy and expensive litigation might result, delaying the transformation of PREPA and putting at risk PREPA’s ability to control the cost of electricity to its customers.”

As a result of such litigation, the oversight board said, the U.S. District Court for the District of Puerto Rico might allow bondholders to seek the appointment of a receiver who could in turn seek to raise electricity rates sufficient to satisfy PREPA’s existing, unrestructured debt obligations and cut off electricity to delinquent customers. Bondholders might argue this relief is fair and necessary because PREPA has not paid any debt since 2017 and that termination of the RSA means there is no immediate path to exit the bankruptcy proceedings under Title III of the Puerto Rico Oversight, Management and Economic Stability Act, the board said.

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