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Prepa Restructuring at Risk, Lawmakers won’t Pass Revitalization Act in Time

By on January 21, 2016

SAN JUAN – The Puerto Rico Electric Power Authority (Prepa) Revitalization Act, the cornerstone legislation that will help enable the restructuring of the utility’s $9 billion debt, will not be approved before a Jan. 22 deadline imposed under a deal with a majority of its creditors.

“That deadline was one negotiated by Prepa. We did not negotiate that deadline. I have always said we were going to pass the bill before the end of the month,” said Rep. Jesús Santa, chair of the House Special Committee on the New Public Policy on Energy, which is in charge of reviewing the Prepa bill.

Santa said that while Prepa Executive Director Javier Quintana is aware of the situation, he did not know what impact it would have on the utility’s restructuring process with its creditors.

Prepa recently struck a restructuring support agreement (RSA) with 70% of its creditors. Through the RSA, the utility’s obligations would be cut by more than $600 million, with a large share of investors taking losses of about 15% by exchanging their existing Prepa bonds for new ones, through a mechanism known as securitization. Under the latter, the new bonds would be secured by a special charge on Prepa clients’ bills that would directly cover debt service on the new bonds. The RSA also provides for relief on the utility’s debt-service over the next five years, amounting to roughly $800 million, while freeing up cash to modernize its aging powerplants.

The House and Senate have been working for weeks on a final draft of the Prepa bill, along with officials from the executive branch.

“The amendments are there. It is just that the lawyers want to make sure the final wording is correct,” Santa said.

He added the final draft won’t include an amendment proposed by Senate Energy Affairs & Water Resources Committee Chairman Sen. Ramón Luis Nieves, which sought to allow the Prepa Revitalization Corp. — the new public entity that will issue the new Prepa bonds as provided by the RSA — be able to file for bankruptcy.

“The securitization will be done through that [new] corporation, and it would not make sense to allow it to file for bankruptcy because then it is not a securitization, it is something else,” Santa said.

The lawmaker, however, said the securitization mechanism under the bill will only be for current debt and the new corporation will not be allowed to issue new debt.

As anticipated by Caribbean Business, lawmakers will address in a separate bill all aspects related to the incorporation of renewable energy into the utility.

“If we don’t get the legislation, we are definitely back to the table with the creditors,” Prepa Chief Restructuring Officer Lisa Donahue recently told Caribbean Business, adding that the legislation is crucial to the restructuring deal with its creditors.

By Eva Lloréns Vélez

Luis J. Valentín contributed to this report.

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