Unsecured Creditors Committee goes to court to have PREPA-LUMA deal amended
By The Star Staff
The Unsecured Creditors Committee (UCC) wants the U.S. District Court to amend the contract that the Puerto Rico Electric Power Authority (PREPA) signed with LUMA Energy recently for the management of the utility’s transmission and distribution (T&D) system because it gives the private consortium too much power over decisions related to the power utility’s debt restructuring.
The UCC, which represents all Title III unsecured creditors except those of the Public Buildings Authority and the Puerto Rico Sales and Use Tax Corp., made its remarks in a court document filed earlier this week in which it opposed PREPA’s petition to give priority over other debt payments to the fees the utility must pay to LUMA Energy.
A supplemental agreement that regulates the transition period before the private consortium takes full control of the utility’s T&D establishes as a condition of officially starting its service, that the court should have confirmed a restructuring support agreement that is reasonably acceptable to LUMA Energy.
The “agreement itself will terminate if the service commencement date has not occurred within 18 months of the Supplemental Agreement Effective Date,” the UCC said.
“Taken together, these provisions grant LUMA Energy potential control over PREPA’s Title III case: not only must PREPA confirm a plan within a certain date or risk losing the entire T&D contract, but PREPA also has agreed to grant LUMA Energy what is essentially a ‘reasonable’ veto right over any such plan,” the UCC filing said. “Even more troubling, the supplemental agreement sets no parameters for determining whether LUMA Energy’s dissatisfaction with any proposed plan of adjustment is ‘reasonable’ or not. The supplemental agreement thus creates a scenario whereby LUMA Energy can throw PREPA’s transformation process into turmoil for potentially any reason.”
While the supplemental agreement is not before the court, the UCC said the court should not turn a blind eye to its provisions.
The committee noted that certain front-end transition obligations such as a $60 million fixed fee payable in full even if no front-end transition services are ever provided do not qualify for priority status under the bankruptcy code. The UCC also said the $115 million in termination fees contained in the contract should be eliminated because it allows LUMA Energy to cancel the contract and leave with a lot of money.
Other creditors, such as Cobra Energy and the utility’s fuel line lenders have also come out against the contract, saying LUMA Energy should not be paid ahead of unsecured creditors.