Tuesday, July 25, 2017

Puerto Rico’s electric utility files for Title III bankruptcy

By on July 2, 2017

SAN JUAN — Two days after it approved bankruptcy protection for the Puerto Rico Electric Power Utility (Prepa), the island’s financial control board filed Sunday a Title III petition for the public corporation in the commonwealth’s federal district court.

During the board’s Friday meeting, the body unanimously agreed that the public corporation could seek bankruptcy protection under Title III of the federal Promesa law, but it was uncertain when and if the board would ultimately file the petition.

On Sunday, July 2, the seven-member panel —as representative of Prepa— commenced the bankruptcy proceedings for the utility by filing the petition along with the utility’s 20 largest unsecured creditors.

The list of unsecured creditors includes Scotiabank ($553.2 million), Solus ($146 million), Freepoint Commodities ($60 million), EcoEléctrica ($44.8 million), AES ($44.1 million), JPMorgan ($34.4 million), Puma Energy ($19.9 million), and other claims related to litigation that amount roughly $1.2 billion.

Puerto Rico fiscal board rejects power authority restructuring deal

Both the island’s Financial Advisory & Fiscal Agency Authority (Fafaa) director, Gerardo Portela, and Prepa’s executive director, Ricardo Ramos, stated Sunday night that the bankruptcy process ensures the utility’s “uninterrupted operations.” Ramos added that Prepa will meet its “current obligations with employees and other essential suppliers.”

Earlier on Sunday, the island’s fiscal agent released a statement announcing the Title III filing, but immediately asked to ignore the communication, adding that an official statement would be released later.

After the governing body’s eighth public meeting held in San Juan on Friday, board Chairman José Carrión had said that they had “chose not to implement Title III immediately [because of] ongoing negotiations.”

FAFAA Director Gerardo Portela and oversight board Chairman José Carrión III (Juan J. Rodríguez / CB)

Earlier that day, Gov. Ricardo Rosselló announced the government had requested the board to commence a Title III bankruptcy case for Prepa, to ensure that the utility’s services are not disrupted.

“Prepa wishes to make a plan to adjust its debts consistent with the provision of liquidity in accordance with what is established in the Fiscal Plan,” reads the governor’s letter to the board, which adds that the administration wants to continue “good faith” negotiations, but under a Title III process.

In a 4-3 vote—so far the only action it has not taken unanimously—the board rejected earlier in the week a restructuring support agreement (RSA) between Prepa and its creditors that had been three years in the making. The board didn’t certify the agreement as a “qualifying modification” under Title VI of Promesa, thus putting on hold the overhaul of the utility’s roughly $9 billion in debt.

Before striking down the RSA, the board delivered Prepa creditors recommended changes to the RSA that, if accepted, would have paved the way for an eventual certification, but parties failed to reach a deal.

A group of Prepa bondholders stated that before the RSA expired Wednesday, they had offered an extension to the agreement, as well as additional liquidity to fully cover a $450 million debt payment due July 1, in a bid to keep negotiations alive.

“Unfortunately, other parties simply rejected our offer […] with limited explanation given,” reads a statement released Friday by the Prepa Bondholder Group. It adds that the offer is still on the table and the group doesn’t intend to sue the government, “unless and until a Title III process [begins], which would simply leave us no choice.”

As of Friday afternoon, only two bond insurers, National and Assured, had filed a legal action against the board over Prepa’s RSA, seeking to have the court declare that Promesa calls for the approval of the deal as it was preexisting agreement.

See Prepa’s Title III filing here.

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