Prepa reaches restructuring deal with two insurers
SAN JUAN – The Puerto Rico Electric Power Authority (Prepa) announced Thursday, Dec. 24, that it has reached an agreement with two of its monoline bond insurers, bringing them onboard the restructuring support agreement (RSA) that already includes a majority of its other main creditor constituencies.
Out of the three Prepa monolines — MBIA’s National, Syncora and Assured — only Syncora remains out of the deal. In all, the restructuring accord now includes holders of 70% of Prepa’s roughly $9 billion debt. A group of Prepa bondholders, fuel line lenders and the Government Development Bank (GDB) had previously agreed to restructuring terms with Prepa.
Sources had told Caribbean Business earlier this week that the utility had been ironing out final details on a term sheet with the monolines that could bring them into the fold. Several deadlines under the RSA had been extended until Dec. 23, including a drop-dead date to reach a deal with the insurers.
Prepa and its creditors were also discussing how debt payments totaling about $302 million due in January would be made. The latter would include a relending mechanism, as it was done back in July when the insurers bought bridge bonds that provided liquidity to the utility and helped it meet a $415 million payment. Prepa Executive Director Javier Quintana told the Associated Press Thursday that the utility will meet the $302 million payment.
“[Prepa] would have a binding agreement with the creditor groups that also includes a relending so that Prepa can have its cash position protected and the monolines can minimize their risk. They are going to do a scoop and toss so that the Series 2015A [bonds] can be paid without a problem. Prepa would be paying those $100 million and then the monolines would be doing a relending,” a source told Caribbean Business earlier this week.
While heralding the agreement reached with the two monolines, the utility’s chief restructuring officer, Lisa Donahue, warned the RSA is still subject to various conditions and contingencies. “Chief among them are the enactment of the necessary legislation, the approval by the Energy Commission of Prepa’s rate structure and the securitization charges, execution of a successful exchange offer, and the achievement of an investment grade rating for the securitization bonds, the last of which will of course depend on a number of factors, including the overall situation at the commonwealth,” she stated.
The Prepa Revitalization Act — key legislation that would enable the utility’s restructuring agreements with its creditors — still awaits the Legislature’s consideration. Gov. Alejandro García Padilla has yet to call a special legislative session for lawmakers to tackle the bill before year’s end. The restructuring accord between Prepa and its creditors now provides for a Jan. 22 deadline to pass the legislation, Bloomberg reported. At least two separate sources have told Caribbean Business there are significant concerns over legislative support for the Prepa bill since it has been heavily amended.
“Securitization needs to happen [for the RSA to hold] and the Revitalization Act is essential to that. Without it, we would have to start from scratch with yet another deal. The creditors are giving Prepa room for the measure to make it to the floor, and they realize how messed up things are right now within the context of Puerto Rico politics. It is a complicated deal,” a source told Caribbean Business last week.
As for some of the terms under the RSA, in addition to the $700 million in debt-service savings over the next five years and a 15% haircut, or $600 million reduction in principal, in exchange for safer debt, the deal will now include bond insurers providing up to $462 million as a reserve, or surety, for the new securities. The RSA also outlines other elements of the utility’s recovery plan, including new governance standards, operational improvements, rate structure proposal and a capital plan, according to Prepa.
BY PHILIPE SCHOENE ROURA & LUIS J. VALENTÍN