Donahue’s Alix Gets $6.7M contract extension
BY PHILIPE SCHOENE ROURA AND EVA LLORENS VÉLEZ
SAN JUAN – On the heels of what was described as a rather drawn-out meeting punctuated by several sticking points, the Puerto Rico Electric Authority’s (Prepa) board voted to extend the contract of AlixPartners, headed by Lisa Donahue, to the tune of $6.713 million. The contract, which was due to expire Aug. 15, will be extended through Dec. 15.
“The deal is broken down with half the money for restructuring-related work and the other half for operational related improvements,” said one source with knowledge of negotiations. The restructuring work involves managing and reporting cash, working out all of the structure for the Special Purchase Vehicle (SPV) and Prepa rate cases, continued implementation of creditor deals and potential negotiations.
The source, who chose to remain nameless, added that there are opportunities under the Puerto Rico Oversight, Management and Economic Stability Act (Promesa) to transition the operational component of the AlixPartners deal, which calls for the naming of a new board and the cross-functional rate implementation.
“They need to make certain, for Prepa and the SPV, that all infrastructure, technology, legal and account setups for everything that is going to happen once the transaction takes place is all said and done,” a Caribbean Business source said.
In that context, the control board is scheduled to oversee the vetting of candidates to Prepa’s board, “seeking the ideal fit and that all of the process runs in compliance with Act 4,” the source said. Once the new Prepa board is appointed, it will commence to transition with the current Prepa board, bring them up to speed with the restructuring efforts and in understanding the overhaul of the operation. Prepa’s board is expected to be confirmed during one of two special sessions the governor will convene in a few months.
Donahue’s AlixPartners, hired by the Alejandro García Padilla administration to restructure the bankrupt utility’s massive $9.5 billion debt load, is the focus of increasing criticism given the many contractual extensions in the face of negotiations that seem to have no end in sight.
Donahue recently came under fire when Caribbean Business made public that AlixPartners had paid Standard and Poor’s some $365,000 in consulting fees to help secure investment grade rating for bonds to be exchanged as part of an SPV that is a cornerstone of the Restructuring Support Agreement (RSA) it has secured with 70% of its bondholders.
“In the contract, S&P did not commit itself to give the new bonds a high classification. Right now, all of the credit rating agencies declined to give the [new] bonds an investment grade,” said Carlos Gallisá, one of two consumer representatives to Prepa’s board during an interview in July.
“Since that did not happen, Prepa must go back to the negotiating table with bondholders,” he added.
Prepa refuted the remarks, saying it had not begun the formal rating process for the new securitization bonds but acknowledging that there is no assurance the bonds will receive an investment grade.
“Over the past few months, PREPA has been meeting with the rating agencies to talk to them about PREPA, the regulatory process and the restructuring efforts, with the objective of keeping them up-to-date and maintain an open dialogue. Although there is no assurance that the securitization bonds will receive an investment grade rating, PREPA continues to believe that there is a path to obtaining an investment grade rating for the securitization bonds and intends to initiate a formal rating process with rating agencies in the near future,” a statement by Prepa read.
Prepa’s labor union and its retirees this week also chided the board for extending the contract, arguing that money is needed for repairs and infrastructure.
Prepa’s restructuring milestones turn ever more pressing against the backdrop of a federal board that is scheduled to oversee Puerto Rico’s financial affairs. As part of the RSA, the Ad Hoc Group of bondholders agreed to exchange all of their debt for new securitization notes to receive 85% of their existing claims in new securitization notes.
The power utility still faces a rather contentious path in achieving important milestones, foremost among which are achieving investment grade in its bond exchange plan. The investment grade, which is key to consummate the deal, is not yet guaranteed by credit rating agencies despite a securitization mechanism tied to a rate hike that could surpass 22%, as first reported by this newspaper.