IEEFA calls for elimination of debt in PREPA’s restructuring
By The Star Staff
The Puerto Rico Electric Power Authority (PREPA) is entering another round of debt restructuring negotiations after cancelling its 2019 debt deal agreement, but Institute for Energy Economics and Financial Analysis (IEEFA) said Thursday the new arrangement is set up to fail again.
At a press conference hosted by the Electrical Industry and Irrigation Workers Union (UTIER), CAMBIO and the Citizen Front for the Audit of the Debt, IEEFA called for a new restructuring agreement that considers the island’s economic prospects and investments in renewable energy.
PREPA is currently under Title III bankruptcy to restructure some $9 billion in debt.
On April 7, IEEFA wrote a letter calling for the money owed to bondholders by PREPA to be written off as a loss as Puerto Rico looks. On Thursday, IEEFA insisted on the need to write off thse debt to keep electricity rates low and strengthen the power grid through renewable energy projects.
“I am proposing that the advisors who failed PREPA and failed Puerto Rico—the same ones who failed twice to produce bond deals that could work—come together with their trillion dollars in assets and settle the claims for everyone,” said Tom Sanzillo, IEEFA director of financial analysis. “Companies with assets in the trillions can come up with approximately $4 billion to $5 billion. The money can be used to pay back bondholders and it can establish a way to reimburse small bond holders on Puerto Rico.”
IEEFA says the mediation plan includes a set of stakeholders who represent the principal financial interests supporting PREPA and the electric grid. “This same group has proposed two failed restructuring support agreements (RSAs). The deliberation processes have been extraordinarily lucrative for the army of financial service providers enlisted to represent the interests of many of the stakeholders, but it has not produced a meaningful exit strategy. The two rejected proposals reflect a failure on the part of the bondholders to acknowledge that Puerto Rico’s economic growth is negative now, has been for the better part of a decade, and is likely to continue to be so for the foreseeable future,” IEEFA said.
The organization also said that rejecting the debt will also help the island achieve its 20 cent per kilowatt hour goal for rates. “Macroeconomic conditions are weak and the population is expected to continue to decline. No debt service can be imposed when the repayment of the debt outpaces the growth rate of the Commonwealth’s economy,” the group said.
Urgently needed increases in renewable energy are unlikely to take place, compromising the grid system’s affordability and resilience, as well as PREPA’s budget stability, the group said.