Sunday, October 22, 2017

Prepa in 2017 A.D.—After Donahue

By on February 16, 2017

When the Alejandro García Padilla administration hired AlixPartners to overhaul the ailing Puerto Rico Electric Power Authority (Prepa), the plan from the outset was to restructure the utility’s $9 billion debt outside the rest of Puerto Rico’s $72 billion public debt load—“one false step in the bigger tranche and it’s lights out for Puerto Rico,” explained one expert who engineered the Prepa strategy. Ahead is a roadmap of the milestones, negotiations and status of the Prepa deal as it stands in Puerto Rico 2017 A.D.—After Donahue.

Forbear with me (August 2014)

Out of cash and faced with a liquidity crisis, Prepa enters into a forbearance agreement with lenders, which staves off calling in nearly $700 million in outstanding loans; the agreement buys the time to try and strike a deal with several creditor groups and banks. Under Alix, the forbearance agreement was either extended or amended some 14 times.

You’re hired (September 2014)

AlixPartners is hired by the García Padilla administration to transform Prepa and restructure some $9 billion in debt. Donahue is hired as Prepa’s chief restructuring officer (CRO). Her restructuring brigades enter the Prepa fray, discovering that the utility’s contributions in lieu of taxes costs the power company $757.7 million receivable from the government.

Prepa Chief Restructuring Officer Lisa Donahue. /File

AlixPartners’ Lisa Donahue (File)

Sounds like a plan (December 2014)

In keeping with the stipulations of the original forbearance agreement with Prepa bondholders, Alix delivers a five-year business plan that recommends replacing obsolete power-generation units with new units at an estimated cost of $3.5 billion.

When offshore is bad

Typically in the sport of surfing, offshore is a good thing—as in offshore wind leading to stellar conditions. Not so in Prepa’s infrastructure overhaul, whereby the Aguirre Offshore Natural GasPort becomes a bone of contention. Prepa’s business plan, which suggests that the facility should be built at a cost of $481 million, is confronted with resistance from analysts who believe the project is only viable at a cost of $200 million.

Yo te lo presto’ (July 2015)

Prepa made a $415 million payment for its power revenue bonds to creditors in July 2015 using $153 million in cash from the general fund. Then, to provide liquidity for working capital, insurers of Prepa’s power revenue bonds agreed to purchase $128 million in short-term notes scheduled to be paid in full by Dec. 15, 2015. All told, Prepa struck four similar deals across the next two years.

Born in the RSA (November 2015)

Prepa signs the restructuring support agreement (RSA) with the Ad Hoc Group of bondholders. The RSA formalizes the previously announced agreements on economic terms between Prepa, the Ad Hoc Group and fuel-line lenders. The monoline bond insurers sign on to the RSA in December 2015. The RSA is extended seven times.

Thanks, but no thanks (December 2015)

The Ad Hoc Group of Prepa bondholders, which includes traditional municipal bond investors, hedge funds, puts up their own $2 billion plan for the utility’s overhaul. Donahue rejects the offer—the Prepa CRO could have quoted from a 1970s R&B classic: “Too much, too little, too late.”

So long, goodbye, farewell (February 2017)

The Ricardo Rosselló administration announces the Fiscal Agency & Financial Advisory Authority will be running point with financial advisers Rothschilds in the Prepa negotiations. Those close to the negotiations assume AlixPartners will remain involved as long as the RSA, which was extended to March 31, remains in place. However, with the Alix extension set to expire on Feb. 15, 2017, Donahue tenders a letter to the government stating that the firm she heads will not be submitting a contract-extension proposal.

Eva Lloréns Vélez and Rosario Fajardo contributed to the research.

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