By The Star Staff
The federal Title III bankruptcy court will conduct a hearing on June 6 to estimate the size of the debt the bankrupt Puerto Rico Electric Power Authority (PREPA) can pay to its bondholders, who are insisting on payment in full of the more than $8 billion in bonded debt.
U.S. District Court Judge Laura Taylor Swain, who is overseeing PREPA’s bankruptcy process, said the parties’ expert witnesses will be required to proffer their direct testimony in the form of declarations, which must be filed by June 1. PREPA has been in bankruptcy since 2017 to restructure close to $10 billion in debt.
As expected, the Financial Oversight and Management Board and the bondholders are at odds as to the amounts the bankrupt electric utility can pay back to the bondholders.
Maureen M. Chakraborty, the expert witness for the PREPA Ad Hoc Group of Bondholders, submitted a report in which she forecasted the amount of surplus revenues PREPA could collect from the bankruptcy petition date, July 2, 2017, until the PREPA Bonds were repaid. The surplus revenues are defined as revenues PREPA could reasonably be capable of collecting each year by increasing electricity rates while keeping them affordable, minus the expenses contemplated in the Financial Oversight and Management Board 2017 fiscal plan. Chakraborty calculated debt service payments as the surplus revenues applied to the bondholders’ claim and conducted other mathematical calculations.
She concluded that PREPA could generate surplus revenues sufficient to fully pay outstanding principal and interest on the PREPA bonds as of the petition date as well as further interest accrued during the repayment period.
“Under the most conservative scenario that I modeled, complete repayment occurs approximately 36 years after the petition date and the nominal amount of cumulative Surplus Revenue paid on principal and interest to bondholders totals $19.91 billion,” Chakraborty said. “Under the least conservative assumptions that I modeled, complete repayment occurs approximately 25 years after the petition date and the nominal amount of cumulative Surplus Revenue paid on principal and interest to bondholders totals $15.96 billion.”
She also estimated the net present value (NPV) of the cash flows used to fully repay outstanding bonds.
“The NPV of the cash flows associated with repaying the Bondholders’ Claim as of the Petition Date ranges from $8.39 billion to $8.56 billion for my most conservative scenario and my least conservative scenario, respectively,” she said in her report.
The PREPA debt plan proposes to restructure PREPA’s debt principally through an issuance of $5.68 billion of new bonds to fund partial recoveries on creditors’ claims. PREPA owns about $8.26 billion in revenue bonds, plus some $218 million in prepetition accrued interest on such bonds. The utility also owns $700 million in fuel line loans and projects some $246 million to $4.9 billion in general unsecured claims. It also has over $3 billion in unfunded pension liabilities.
Under the proposed plan, PREPA will pay for the new bonds over a 35-year period through revenues from a legacy charge to PREPA’s customers. but the board has said an affordable and sustainable legacy charge will generate only $5.68 billion in additional net revenues.
The plan imposes a legacy charge for certain customers not currently benefiting from subsidized electricity rates that would be, on average, about $19 a month that will be added to the utility bill. The PREPA legacy charge, which will be used to pay bondholders, would exclude qualifying low-income residential customers from a connection fee and kilowatt-hour (kWh) charge for up to 500 kWh per month. For non-subsidized residential customers, the proposed PREPA legacy charge would be: a flat $13 per month connection fee, and 75 cents per kWh for up to 500 kWh per month of electricity provided by PREPA, and 3 cents per kWh for electricity above 500 kWh per month.
For commercial, industrial and government customers, the PREPA legacy proposed charge would entail: a connection fee of between $16.25 for small business customers, $20 per month for smaller industrial companies, and $1,800 per month for large businesses proportional to their current rate. They will pay between 97 cents and 3 cents per kWh per month for electricity provided by PREPA.