Judge Swain approves a $300M loan to Puerto Rico power utility
SAN JUAN – U.S. District Court Judge Laura Taylor Swain on Monday approved allowing the Puerto Rico Electric Power Authority (Prepa) to borrow $300 million from the commonwealth in interim financing to avoid a shut down of services.
Earlier Monday, Judge Swain said she would be issuing a ruling based on the motions and cancelled the hearing set for Tuesday.
At issue in the motions was the adequacy of the loan at a time when the commonwealth is facing financial difficulties and Prepa’s ability to repay. The judge granted the loan as requested by the government and the island’s Financial Oversight and Management Board.
“The loan will mature and become due and payable on the date on which all the loans and other obligations thereunder have been indefeasibly repaid in full in cash; or the effective date of a confirmed plan of adjustment in the Title III case or the date of termination of the commitment and/or acceleration of any outstanding extensions of credit under the facility following the occurrence and during the continuance of an ‘Event of Default,'” the loan terms section reads.
The commonwealth will have a superpriority status over all creditors, which means it gets paid first. The status will continue through the Title III case. As requested, the loan has a 5% interest rate.
Prepa has said in court documents it may file another request for a larger financing contending that the $300 million will not be enough to operate.
Prepa has only restored 35% to 45% of its customer billing capability and while it expects to resume collections by March 31, the utility said it will not be at pre-hurricane levels because of outmigration and the sluggish economy.
While public corporations alone owe the utility about $233 million, Prepa said many of them are disputing the debt and are also having financial difficulties that prevent them from becoming current with Prepa. About $164 million of the debt is more than 120 days old and difficult to collect, according to the government.
In objections that were filed over the weekend, creditors said Prepa could get financing from other sources.
National Public Finance Guarantee Corp., a monoline insurer and one of six creditors objecting the $300 million loan, offered into evidence an exhibit that showed the government owes Prepa about $1.4 billion, suggesting that the government’s debt to Prepa is much larger. The exhibit includes “Wholesale Government Metered Service” owing $356,078,518.79; “Government Unmetered Service” owing $128,563,808.90, and “Deferred Municipal Balances,” owing $864,863,098.36.
“Moreover, by looking from left to right in these rows, one can see that large portions of these governmental accounts receivable are actually years overdue,” National said.
Another exhibit lists eight pages worth of outstanding balances owed to Prepa by various government entities. The total amount owed by the public corporations, agencies and other government entities listed in this particular chart is $257,892,369
“(Government officials) have identified no evidence to controvert these substantial amounts owed to Prepa by government customers. To the contrary, they have repeatedly admitted that substantial amounts are owed,” National said.
Last week, Judge Swain rejected Prepa’s request to borrow $1 billion from the commonwealth, a 30-year loan that creditors objected because of the commonwealth’s fiscal state. Creditors also objected to the loan because it gave the commonwealth a priming lien over Prepa’s revenues and also superpriority over other creditors in payment. The revolving credit line had an initial zero interest rate that rose to 3%, which opponents said is below market value for a bankrupt utility.
Prepa and the fiscal board submitted a new request for a lower loan of $300 million with a 5% interest rate. The new loan goes not give Prepa a priming lien over revenues but kept the superpriority provision.
Prepa’s trustee, U.S. Bank National Association, filed a limited objection to the loan proposing some changes. The main change calls for loan payments to the commonwealth prior to the termination date of the loan, which are either “the effective date of a plan of debt adjustment, termination of Revolving Credit Commitment or acceleration of the loan,” be paid to the extent cash flows support it.
The Ad Hoc Group of Bondholders had objected the new loan contending that its provisions did not resolve its opposition to the commonwealth’s “squandering of its own resources to subsidize Prepa, which it said was a distinct legal entity with its own assets and creditors.
“Once again, the Commonwealth has offered to extend financing to PREPA on terms that are manifestly unfair to the Commonwealth (and its own creditors). The proposed interest rate of 5 percent is well below market for an unsecured loan to a financially distressed instrumentality such as PREPA, and the proposed 30-year maturity term is unheard of in the context of debtor-in-possession financing,” the Ad Hoc Group said.
“Especially given that PREPA, AAFAF [Fiscal Agency and Financial Advisory Authority], and the Oversight Board appear to have conducted no analysis whatsoever to determine whether such favorable terms are necessary for PREPA to maintain its operations—and there is no plausible reason to think that they are—the proposed repayment terms represent an unjustified transfer of resources from the Commonwealth to PREPA,” the group added.
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