Sunday, September 24, 2017

[EDITORIAL] The Leaning Tower of Lisa



By on February 17, 2017

editorial-philipe-schoeneLisa Donahue’s exit as the Puerto Rico Electric Power Authority’s (Prepa) Chief Restructuring Officer is a day that critics of the bankrupt utility’s restructuring could not see coming soon enough; you could hear chants of “se acabó el guiso in the Mambo Tropics,” among the naysayers. Her supporters, on the other hand—most Prepa bondholders and AlixPartners’ restructuring brigades who worked alongside her—do not share that joy.

In fact, there is consternation among some observers of the Puerto Rico Oversight, Management & Economic Stability Act (Promesa) sweepstakes because the Ricardo Rosselló administration is taking a second crack at a deal that was hard enough to put together in the first place. Think about it—you have different creditor groups: retail bondholders, fuel-line lenders and monoline bond insurers Assured and National, which had serious concerns that a principal hit would impact liquidity.

Donahue sat at the table with these groups to hammer out one forbearance agreement after another—all told some 14 extensions to the forbearance agreement were issued. Prepa made a $415 million payment for its power revenue bonds to creditors in July 2015 using $153 million in cash from the central government’s general fund.

Then, to provide liquidity for working capital, insurers of Prepa’s power revenue bonds agreed to purchase $128 million in short-term scheduled notes to be paid in full by Dec. 15, 2015. All told, Prepa struck four similar deals across the next two years.

Lisa Donahue, AlixPartners' chief restructuring head (File)

Lisa Donahue, AlixPartners’ chief restructuring head (File)

Then there was the complexity of achieving the restructuring support agreement (RSA). No small thing to get the monoline bond insurers on board, who wanted surety in the exchange to limit exposure.

With 70% of the creditors on board, the Prepa deal is seen by Republicans on the Hill as an ideal candidate for Title VI in Promesa because it would bring in the 30% of creditors who are holdouts by making use of collective action clauses, which allow a supermajority of creditors to agree on a debt-restructuring deal that is binding on all, even the holdouts.

Although some skeptics believe there is nothing in Title VI to prevent holdouts that want a better deal from filing for injunctive relief, two bankruptcy experts who talked to Caribbean Business insist that the prospects of closing the deal under Title VI vis-à-vis the prospects of dragging out the process in litigation under Title III will lead to a final Prepa deal being struck.

So, creditors are nervous that the deal will unravel. The monoline bond insurers who were brought on board—a maneuver as messy as pulling teeth—are particularly concerned that they will be asked to share the pain. It took reduced exposure to bring monolines onboard—now, if the Rosselló administration wants another pound of flesh, the whole thing could come apart.

Had the deal Alix’s Donahue struck been closed—she would have earned her keep. Now, all that work may have all been for naught.

Here’s the thing with the oversight board—everyone is looking at the task at hand from a rhetorical standpoint and at some point, someone is going to have to roll up their sleeves and get in there, get dirty, sit down and start closing deals. Nadie quiere bañarse con el puerco en el fango—in other words, nobody wants to tangle with the pig in the mud.

Next up on Prepa’s timeline is the presentation of the utility’s fiscal plan on Feb. 21, with the RSA expiring on March 31. Let’s focus on bringing Prepa negotiations to a close—Puerto Rico can ill afford to pay more legal fees to pricey attorneys who want a second crack at a deal. And there is so much work to be done on the job creation front, which has sadly taken a backseat in this oversight charade.

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