Amendment Mulled to Allow Prepa Revitalization Corp. to File for Bankruptcy
SAN JUAN – One of the numerous amendments lawmakers are evaluating for the Puerto Rico Electric Power Authority Revitalization Act will allow a corporation created by the bill to file for bankruptcy.
Senate Bill 1523 and House Bill 2742 would create the Prepa Revitalization Corp., an entity that will issue new securities that would be exchanged for current Prepa bonds as part of the agreement to restructure $9 billion in utility debt. Currently, the bill does not allow the proposed corporation to file for bankruptcy in the event the U.S. Congress passes a law to that effect.
Senate Energy Affairs & Water Resources Committee Chairman Ramón Luis Nieves (PDP, San Juan) is proposing an amendment that would allow that new corporation to file for bankruptcy if that option becomes available in the future.
After the U.S. Supreme Court agreed to hear the commonwealth’s appeal that seeks to validate a local bankruptcy law that was declared unconstitutional, Nieves said it would be detrimental to the case that will be taken up by the top court for the Prepa Revitalization Corp. to not be able to file for bankruptcy protection.
“The lawyers for the bondholders could raise the argument that Puerto Rico wants this law but, on the other hand, exempted a newly created corporation from it. That would make us look bad,” he said.
Nieves said the Justice Department is analyzing whether the Prepa Revitalization Corp. should be able to file for bankruptcy, and no decision has yet been made.
The bill seeks to implement a restructuring support agreement (RSA) that the utility reached with creditors.
Through the RSA, the utility’s obligations would be cut by more than $600 million, with a large share of investors taking losses of about 15% by exchanging their bonds for the new securities. There is also five-year liquidity relief of debt-service obligations of nearly $800 million.
The restructuring also aims to free up cash so the utility can modernize powerplants.
The proposed corporation may also be prevented from issuing new debt, requiring Prepa to explore alternative financing sources to modernize powerplants and facilities, said Rep. Jesús Santa (PDP, Caguas), head of the Special House Committee on a New Public Policy on Energy.
“Prepa will have to use the freed-up cash, or pursue public-private alliances or third-party investments, to modernize the facilities. We can’t allow the utility to continue to have more debt,” Santa said. Lawmakers have until Jan. 22 to pass the legislation.