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Bond insurers seek to put Puerto Rico power utility under receivership

By on October 4, 2018

SAN JUAN – Assured Guaranty Ltd. has filed a new motion and form of complaint in U.S. District Court in Puerto Rico with two bond insurance subsidiaries, Assured Guaranty Municipal Corp. (AGM) and Assured Guaranty Corp., as well as National Public Finance Guarantee Corp. and Syncora Guarantee Inc., that seeks to put the Puerto Rico Electric Power Authority (Prepa) under receivership.

The monoline insurer’s action signal that an agreement to restructure Prepa’s $9 billion debt is further away than what has been let on publicly by the Financial Oversight and Management Board.

The Puerto Rico Fiscal Agency and Financial Advisory Board (Aafaf by its Spanish acronym) said it will continue to move forward with a debt resolution for Prepa even though the insurers refused to join the preliminary restructuring support agreement made with the Ad Hoc Group of Prepa bondholders.

Replying to a Caribbean Business request for comment, Aafaf said the move was disappointing.

“The motion rehashes many of the same arguments previously raised by the monoline insurers and is based on false and stale information,” the agency said, adding that Prepa’s management team and board are focused on improving operations and continuing to address the impacts of Hurricane Maria.

“Our goal has been and continues to be to reach a consensual resolution with Prepa’s creditors that will clear the way for the transformation of the electric sector,” Aafaf said.

“Consistent with the United States Court of Appeals for the First Circuit’s remand decision issued August 8, 2018 with respect to a prior lift stay motion, the motion and form of complaint seek an order lifting the automatic stay to allow Assured Guaranty to seek relief before a court of competent jurisdiction, by filing the proposed complaint, to appoint a receiver for the Puerto Rico Electric Power Authority (PREPA),” the company, which insures holders of debt from defaults, said in a statement.

For decades, Assured has said Prepa has been crippled by mismanagement, politicization and poor performance.

“Due to these actions, Prepa is failing to fulfill its obligations to all of Puerto Rico’s stakeholders, including its ratepayers and creditors. As a result of Prepa’s defaults, Assured Guaranty and the other parties are entitled to the appointment of a receiver for Prepa under Puerto Rico law and Prepa’s bond documents. This entitlement to a receiver is automatic once Prepa’s bonds default. Lifting the automatic stay and appointing a receiver for Prepa is necessary to ensure the collateral package securing Prepa’s bonds is not diminished, to foster operational reform by replacing Prepa’s management and to depoliticize Prepa’s key decision-making,” the company said.

“Despite filing the motion, Assured Guaranty stands ready, and would prefer, to work cooperatively with the Financial Oversight and Management Board for Puerto Rico to consensually appoint a receiver for Prepa,” it added.

Irrespective of Prepa’s payment defaults on its bonds and its Title III bankruptcy-like filing under the Puerto Rico Oversight, Management and Economic Stability Act (Promesa), Assured said it will continue to pay Prepa bondholders but that it is determined to take “reasonable and necessary” actions to protect its rights as a Prepa bond insurer.

“With $12 billion in claims-paying resources across its group of companies, which includes an $11 billion investment portfolio that alone generates approximately $400 million of annual investment income each year, the liquidity and capital positions of AGL and its subsidiaries are very strong,” the company assured.

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