Sunday, December 5, 2021

One Giant Leap for Debt Restructuring

By on March 10, 2016

In the feral negotiations with 18 different creditor groups being corralled by the commonwealth of Puerto Rico’s advisers, there are formidable challenges ahead in securing deals among competing claims. This frantic context is what makes the separate initiatives to transform the island’s utility companies so essential. Although the Puerto Rico Electric Power Authority managed to secure passage of the Revitalization Act, formidable challenges remain to achieve an investment-grade rating in the debt exchange contemplated in the Restructuring Support Agreement. And then, there is still the issue of bringing in the retail holdouts that comprise close to 30% of the creditors that AlixPartners is yet to bring into the fold.

On the same level, there is the Puerto Rico Aqueduct & Sewer Authority (Prasa), the revitalization of which is of utmost importance, again, because it includes a securitization mechanism.

As this newspaper was going to press, the Prasa Revitalization Act was scheduled to make its way to the House floor, where it was slated to undergo amendments. House Bill 2786 has been a bone of contention from the outset, as it became the target of competing views between the Legislature and the central government, namely the Government Development Bank (GDB).

Popular Democratic Party Rep. Rafael Hernández, who co-authored the bill, is bound and determined to push the Prasa bill through with the securitization mechanism, while the GDB believes talks with creditors are essential in establishing a long-term plan to overhaul the utility.

As it now stands, the Prasa bill would establish a new corporation with the sole purpose of issuing new debt for the utility, backed by new charges in customers’ water bills. The measure provides investors with security that they will be paid. Without investment, Prasa is sunk.

Although some 20 pages of amendments came down the pike as of presstime, Caribbean Business sources have said it is likely Prasa’s Revitalization Act will pass in the House. The biggest sticking points—to make certain there are no rate hikes until 2018 and to eliminate Prasa’s customers (We the People) as co-debtors—have reportedly been ironed out. Once passed, the bill will make its way to the Senate. Who knows what will happen there.

Because our debt has now gone beyond the stratosphere, Prasa’s revitalization would seem to be one small step for the cash-strapped utility, but it is one giant leap for debt restructuring because it contains important securitization triggers that will help the utility gain access to capital markets as it continues to restructure.

Let’s be honest—Prasa is yet one more financially battered public corporation that has some $4 billion in debt and has yet to pay some $150 million it owes to contractors—the shock waves sent through an economy spiraling out of control is devastating.

The Prasa Revitalization Act could help deliver liquidity; suppliers would be paid and the capital improvements program commenced in 2015, which was put on hold, could then be completed. Most importantly, the securitization in the measure would help return the utility back to the market. This will ease Prasa’s revamping without putting additional pressure on the GDB to outlay some $180 million that it does not have on July 1. That will be significant in the grand scheme of things as Puerto Rico continues to restructure without having to dump every credit class into a trashbin of a deal that pretends to slash more than $49 billion in debt by some 45%.

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