Wednesday, October 16, 2019

Loan conditions called into question during Prepa omnibus hearing

By on February 15, 2018

Gerardo Portela, executive director of the Fiscal Agency and Financial Advisory Authority (FAFAA) (Juan J. Rodríguez/CB)

Government officials and their advising firm Rothschild testified Thursday in U.S. District Court that they did not conduct an analysis to determine if the commonwealth could lend $1 billion to the Puerto Rico Electric Power at terms that were less favorable to the utility.

The revolving credit line was lowered from the original $1.3 billion to $1 billion by the Financial Oversight and Management Board late Wednesday.

Puerto Rico Fiscal Agency & Financial Advisory Authority head Gerardo Portela as well as Rothshild Executive Dustin Mondell admitted that they represented both Prepa and the commonwealth in the transaction despite the two entities being in opposing sides of loan. Therefore there was no “arms length” type of negotiation.

Under the terms of the deal, the commonwealth got a prime lien of Prepa revenues, meaning that it has a priority in payment over all creditors. Prepa expects to complete the restructuring of its $9 billion debt in the bankruptcy court by 2019, which means it may have to pay that loan at the time. The proposed $1 billion revolving credit line the commonwealth is slated to give Prepa a 30-year maturity, even though the utility is in the middle of a bankruptcy process, where such loans are often discharged.

Although there is a law from 2016 that requires all public corporations to pay Prepa their utility bills, Portela said he was unaware of the law and it was recently that he sent letters to some of the public corporation debtors to collect their outstanding debt. However, in letters he sent to the entities, he asked for amounts that were lowered than what Prepa documents say they owed. For instance, Portela tried to collect $920,000 from the Cardiovascular Center when the entity owes $12 million.

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Portela could not answer why the commonwealth did not give the money directly to the public corporations so they could pay Prepa instead of lending $1 billion to the utility. He also could not say why the government, which has broad powers under an emergency legislation, did not issue an order so all agencies can pay amounts owed to Prepa.

Ironically, the credit revolving line contains terms that allowed it to be refinanced by another a private entity or FEMA. During testimony, it was revealed that the U.S. Treasury Department will be willing to give the island a disaster loan if its general revenue accounts fell below $800 million. The goverment’s TSA account is currently about $1.5 billion. In giving Prepa the revolving credit line, it could qualify for the disaster loan.

Meanwhile, Prepa officials insisted that unless they get the loan, the utility will have to start cutting power as early as this weekend.

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