Bond insurer warns Puerto Rico power utility can’t be sold free of liens unless debt is discharged
SAN JUAN – Assured Guaranty Ltd., a Puerto Rico Electric Power Authority (Prepa) bond insurer, warned the island’s government and Financial Oversight and Management Board that the utility cannot be sold free of liens on revenues in the event it is sold to the private sector and that it will insist on receiving debt payments.
“Prepa bonds are secured by a lien on the system revenues, and supported by covenants and Puerto Rico law ensuring that rates must be sufficient to cover all costs including debt service. Under Promesa and the United States Constitution, the system cannot be sold free and clear of the lien on revenues unless the lien is discharged through full payment of the bonds, there is adequate coverage of debt service after any sale of assets, or the bonds are given the full value of their collateral through a confirmed plan of adjustment. Rather than force litigation, or operate in secrecy, we urge the Commonwealth and Oversight Board to collaborate meaningfully with stakeholders on consensual plans,” the company said in a statement.
Gov. Ricardo Rosselló and the fiscal board have already said investors may not get the full value of their bonds. Prepa has been in a bankruptcy process under the federal law Promesa since last year. The public utility currently has less than $200 million to operate. The governor announced early this week that the public power corporation will be put on the market in a process that could take some 18 months.
Assured said that, like all of Puerto Rico’s residents, it is eager for Prepa to be operated more efficiently and reliably.
The company added that it offered forbearance agreements, liquidity and concessions, as reflected in the restructuring support agreement (RSA) that was approved by two successive commonwealth government administrations. The RSA was rescinded by the fiscal board. Assured also joined other creditors in seeking to lift the stay to have a receiver appointed to manage Prepa’s assets and raise rates to pay the utility’s debt. The request was rejected by the U.S. District Court.
“Furthermore, when creditors had no option but to exercise their rights under Commonwealth law to install a competent and professional independent Receiver for Prepa who could implement sound, depoliticized management and an effective long-term energy generation and transmission strategy, both the Oversight Board and Commonwealth objected,” the insurer said. “A qualified, experienced Receiver might have begun improvements many months ago that could have given the electricity system more resilience to withstand and recuperate from hurricanes. A respected Receiver could have also acted as a credible coordinator of federal aid for Prepa. Instead American citizens in Puerto Rico continue to suffer.”
Given recent and continuing revelations about Prepa–including the apparent uncovering of unutilized restoration materials in a Prepa warehouse, the infamous Whitefish contract and other allegations of impropriety–Assured wrote, any new privatization partners or investors “will rightly first look at respect for the rule of existing law, and the credibility and transparency of both Island leadership and the Oversight Board. We continue to look forward to engagement from the Commonwealth and Oversight Board to consensually help improve PREPA and the quality of life of Puerto Rico residents.”