Monday, June 26, 2017

[Editorial] Let’s Make a Deal

By on April 12, 2017

editorial-philipe-schoeneWhen Gov. Ricardo Rosselló’s communications brigades announced that “a deal in principle” had been struck between the Puerto Rico Electric Power Authority (Prepa) and the creditor groups, this newspaper was quick to denounce that several loose ends remained to be knotted before the final signatures could be inked. Then, you would have a deal.

The more accurate statement would have been that a revised term sheet containing core items that various creditor constituencies agreed upon had been drafted. The truth is that the first draft of the restructuring support agreement (RSA) featuring clauses with many of those unresolved issues—among them liquidity for the funding of the utility’s overhaul (small detail)—were delivered over the weekend.

The points of agreement thus far? Everyone seems to be on board as it pertains to measures to provide the liquidity for the overhaul of the utility and the debt-service schedule is clear; governance is set—with the three appointees by the governor, three independents and the three consumer reps.

Gov. Rosselló’s restructuring brigades assure that they have achieved a better deal that represents $1.5 billion in additional savings versus the existing terms of the RSA. The improved RSA will reportedly lead to $90 in savings annually for we the people over the next five years. The math leading to that assumption is based on a new formula that essentially pushes the debt payment out. La Fortaleza said in its statement that the administration estimates the enhancements to the RSA will achieve $2.2 billion in debt-service savings between 2018 and 2022.

There are, however, very delicate issues tied to MBIA’s National, the bond insurer with a whopping $1.2 billion exposure to Prepa debt; one false move in this deal and they could see their balance sheet torn to shreds. National’s reps want to make certain that the bulk of the Prepa deal goes to Title VI for consensual restructuring because, if it goes to Title III and they are forced to take a big hit, they will be in trouble.

To soften the blow to the bond insurers in the Prepa equation, the utility itself will be providing 1% of the surety to cover the bond exchange in the deal, and even the Ad Hoc Group will provide some support to the fund.

There is still work to be done.

fortaleza-rosa-1One source with knowledge of negotiations told this newspaper that there are piles of supporting paperwork yet to be reviewed that will likely take more than 72 hours to complete—so, we could see yet another 11th-hour extension to finally get a deal done.

Once that happens, it’s off to see the wizards, the wonderful wizards of Oversight. Let us pray that they do not deliver the lines—“I’ll get you my pretty…and your little dog of a utility too.” Because if the junta fails to certify the deal or it fails to approve Prepa’s fiscal plan that could blow the entire power utility to kingdom come.

Keep in mind that the RSA is a roadmap for the restructuring of debt; without it the utility will not be able to undertake much-needed overhaul of infrastructure. That last component has some separate set-asides, which if not obtained would leave Puerto Rico at the mercy of the elements.

Need we mention the massive blackout event that took place in September. One telling exchange during oversight hearings investigating that event shed light on the severity of the situation—engineers explained that the cause was a lightening strike that was time stamped after the outage.

Another source with knowledge of the Transmission And Distribution challenges inside the utility explained it best with this frank statement—“The system collapsed; if we don’t secure the investment to overhaul T and D—it’s apaga y vamonos (lights out and let’s go). Reliable power is essential to achieve sustainable growth.

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