Judge grants extension to PREPA debt plan, mediation team
Shelley Chapman leads the mediation team in the Puerto Rico Electric Power Authority bankruptcy process.
By THE STAR STAFF
U.S. District Judge Laura Taylor Swain has ruled that the Puerto Rico Electric Power Authority (PREPA) mediation team will remain in place until Oct. 30, extending a term slated to end this week.
The mediation team had requested to be allowed to continue to facilitate negotiations between PREPA and its creditors. The judge, who is overseeing the power utility’s Title III bankruptcy process, granted the request on Tuesday. Swain had ruled that a court order would be necessary to extend the team’s termination date unless the team elected to continue any work on secondary or drafting items.
The mediation team, led by Shelley Chapman, must also continue filing monthly status reports indicating whether there has been progress in the talks.
The request came after the Financial Oversight and Management Board, which represents PREPA, asked for an extension to file its amended debt adjustment plan. The oversight board had cited ongoing creditor negotiations as the reason for the postponement.
The judge gave the oversight board an extension to Aug. 4 to file the third amended debt adjustment plan. The plan was due this Friday, July 28.
As it is, the current debt adjustment plan proposes to cut PREPA’s bonded debt to $2.5 billion from the estimated $8 billion. Bondholders would receive an interest rate of 6% and the possibility of additional income through a new contingent value instrument (CVI) if PREPA meets its electricity sales targets.
The oversight board will include a “fixed legacy charge” in the electricity rate to pay bondholders, instead of the previously proposed “hybrid” charge. Additional protections for bondholders, such as a new trust deed and a specific lien against the legacy charge, will also be included in the new plan. The new trust deed will require PREPA to adjust its rates and charges to ensure revenues cover operational costs.
As reported by the STAR in June, a debt sustainability analysis found that the maximum amount for PREPA can reasonably pay to creditors is about $2.5 billion, including some $2.38 billion in new bonds serviceable by rates at or about the 6% share of wallet threshold for the first expected year of implementation or fiscal year 2025. The 6% share of the wallet is the number provided by experts as the maximum amount PREPA customers can pay from their yearly household income in electricity.
It also includes an additional $150 million of value the oversight board believes can be provided at a tolerable risk level through additional potential revenue sources and savings.
Based on the debt sustainability analysis, the Title III debt plan will reduce the number of new bonds to be issued to $2.38 billion from the $5.68 billion proposed initially as repayment. The total bonded debt is about $8.4 billion. Bondholders are expected to reject the new offer.
About $1.35 billion of new bonds or cash will be used to maintain the settlements with the Fuel Line Lenders, monoline National, the Settling Bondholders, and Vitol.
The treatment of the pension claims will not be amended. PREPA’s pensions will be paid under a pay-as-you-go mechanism.
Non-settling bondholder claims and general unsecured claims will be guaranteed a minimum distribution of 12.5% of their allowed claim in the form of new bonds. In addition, they will receive the CVI currently in the second amended plan and another CVI adjusted to the amount of their final allowed claim. The proposed second CVI will be distributed to the non-settling bondholders to compensate if PREPA’s revenue requirements equivalent per kilowatt-hour (kWh) for a specific year are lower than the revenue requirements per kWh projected in the 2023 fiscal plan.