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Puerto Rico power utility begins ramping down service despite filing $300 million interim financing

By on February 16, 2018

SAN JUAN – U.S. District Court Judge Laura Taylor Swain has scheduled a hearing for Feb. 20 over the $300 million financing request for the Puerto Rico Electric Power Authority (Prepa).

Even if Judge Laura Taylor Swain approves the new financing, Prepa officials have said they only have funds to operate until March and will insist on a higher amount of financing in upcoming weeks.

After Judge Swain denied Thursday the public power utility’s request to borrow a $1 billion revolving credit line from the commonwealth, Prepa and the island’s financial oversight board began plans to reduce electricity service, arguing that cash availability is very low.  As of Friday, Prepa had $144 million left.

“After the hearing, PREPA began to implement plans to ramp down PREPA’s power production and shut down certain generating units in order to conserve its limited cash resources. This exacerbated the risk to an already fragile system and leaves it vulnerable to outages and resulting in brownouts on the island. Unless PREPA obtains access to additional liquidity by mid-next week, PREPA will be forced to further reduce its load and reduce personnel,” an emergency petition filed in court reads.

Judge to consider lower $300 million emergency loan to Puerto Rico power utility

The utility also began to negotiate with Puerto Rico’s Treasury secretary about the revised terms of the financing to avoid more problems with the utility system’s service even though government officials still want the commonwealth to have a priority rank over creditors as part of the financing, something the judge rejected.

“Movants anticipate submitting a further request for approval of a larger financing within two to four weeks because the instant proposed financing is projected to be consumed before the end of March 2018. Movants will undertake to justify the terms of any further financing in accordance with the Court’s ruling of February 15, 2018,” they said.

On Thursday Judge Swain said the fiscal oversight board, Prepa and the government failed to show fairness to all stakeholders or provide a financing size tailored to Prepa’s needs. She left the motion open to allow for amendments to the proposed loan that would eliminate provisions that prevented the court from approving material changes. She also encouraged the government to work with potential third-party lenders.

The new request allows for a financing of $300 million at a 5% interest rate. The initial $1 billion loan for Prepa had zero interest. The newly proposed $300 million financing still gives the commonwealth a super priority rank in payment over all creditors, something Prepa’s bondholders had objected. The proposal also eliminated a provision that insulated it from being challenged in court.

 

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