Monday, September 24, 2018

Judge sets final hearing on $1.3 billion Puerto Rico power utility loan for Feb. 15 

By on February 4, 2018

The Palo Seco powerplant in Cataño. (Felipe Torres/CB)

SAN JUAN – Since asking on Jan. 27 for a $1.3 billion loan from the commonwealth to prevent a possible shutdown of services, the Puerto Rico Electric Power Authority (Prepa) has received three offers of financing, but none at favorable terms for the ailing public utility.

Prepa also denied claims that the $1.3 billion revolving credit line–the first financing request since filing for bankruptcy last year–is not needed because the utility could get liquidity from huge sums that agencies owe for electric service. Prepa said it is owed less than $300 million.

Those were some of the arguments Prepa officials and the Financial Oversight and Management Board presented in U.S. District Court in reply to objections raised by creditors against the $1.3 billion loan.

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Judge Laura Taylor Swain agreed last week to schedule a final hearing on the $1.3 billion loan for Feb. 15 in New York and denied the fiscal oversight board’s request to limit the scope of issues that could be raised at the hearing. Because the hearing was scheduled sooner than expected, the commonwealth withdrew a motion seeking interim emergency financing.

Prepa claims undisputed evidence shows it is running out of money and that without an injection of liquidity in the near term there will be insufficient cash to continue to provide power to Puerto Rico.

“If Prepa were to cease operating, the restoration efforts of the Commonwealth and all its instrumentalities would be upended. Outmigration of residents and business would accelerate. Revenues would fall. Human hardship would be exacerbated as potable water, power for medical procedures, communications, and open schools would disappear again. The cost of restoration would increase,” the utility said.

Arc American Inc., a Prepa contractor; the Ad Hoc Group of General Obligation Bondholders; Siemens Transportation Partnership Puerto Rico; the Ad Hoc Group of Prepa Bondholders; Scotiabank; Solus Alternative Asset Management; National Public Finance Guarantee Corp.; Ambac Assurance Corp.; Assured Guaranty Corp.; the Official Committee of Unsecured Creditors; U.S. Bank National Association, which is Prepa’s bond trustee; and Whitefish Energy Holdings, a small company that had an up to $300 million contract to repair the electric grid, have presented objections to the post-petition financing for diverse reasons.

While the creditors argue the utility should find other sources of cash or ameliorate the lending terms in loans it has been offered, the utility said the $1.3 billion loan proposal provides Prepa with liquidity at reasonable terms including an interest rate of zero that will grow to 3 percent with no prepayment penalties and possibility of forgiveness.

Prepa officials said they have been unable to obtain credit on better terms than those of its petition. The only other offer Prepa said it received was before  the $1.3 billion loan request and was on more onerous terms from creditors objecting to the financing.

The public corporation said it has tried to seek loans from other sources, including the Community Disaster Loan (CDL) Program the U.S. Treasury put on hold. The utility also set up marketing efforts and solicited potential lenders.

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“Seven prospective lenders have signed non-disclosure agreements and are exploring potential loans with PREPA. Since the filing of the Postpetition Financing Motion, three parties have submitted indications of interest regarding a proposed loan. Two of these soft proposals require priming liens and super priority administrative expense status, and the third is unclear on the extent of protections requested. Based on the foregoing, no party has been willing to provide credit on an unsecured basis,” the utility said.

While creditors argued Prepa could obtain liquidity from the outstanding accounts receivable with government entities, Prepa officials say it is illogical to assume agencies can come up with $1.3 billion.

“The Commonwealth does not owe Prepa significant amounts for electricity services. Quite the contrary! On January 29, 2018, the Commonwealth paid $23.7 million to PREPA, reflecting undisputed amounts owed to Prepa for services rendered between July and December of 2017. In addition, Prepa and the Commonwealth entered into a memorandum of understanding in which the Commonwealth agreed to prepay its estimated future energy liabilities to the Commonwealth, covering the period of January 1, 2018 to June 30, 2018, in exchange for a 1% discount. On January 29, 2018, the Commonwealth made this payment, which totaled approximately $50.9 million,” the motion states.

While at least nine public corporations and municipalities owe Prepa $233 million, half of that are receivables 120 days past due, which makes them difficult to collect.

“Notwithstanding the low probability of success, Prepa has scheduled meetings on February 5 and 6, 2018 with the nine public corporations which owe Prepa the most money in an attempt to collect funds,” the utility said.

Prepa also denied claims that the commonwealth was loaning the money to get free electricity as the utility said it is not waiving any claims over bills in arrears.

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