Prepa’s Fiscal Plan says utility could get $795M in savings
SAN JUAN –– The proposed modifications to the Puerto Rico Electric Power Authority’s Restructuring Support Agreement that will be implemented through Title VI of the Puerto Rico Oversight, Management & Economic Stability Act (Promesa) to bind non-participating creditors to the deal, may bring $795 million in savings on debt service payments for five years.
The information is contained in a draft of the utility’s fiscal plan that is slated to be presented Tuesday, a copy of which was obtained by Caribbean Business. Prepa reached a Restructuring Support Agreement (RSA) with creditors holding more than 70% of outstanding debt in December 2015 that provided for, among other items, a 15% cut in the debt.
Prepa’s Revitalization Corporation and supporting creditors, including the insolvent Government Development Bank (GDB), extended the RSA in December 2016 to allow the parties to reach an agreement on the means of implementing the accord. That agreement was further extended until the end of March.
Prepa, the Ad Hoc Group (AHG), Monolines, and fuel-line lenders had various discussions during January 2017, with respect to additional changes required of the RSA that included effectuating the transaction through Promesa’s Title VI, including binding non-participating creditors, which are 30% of the creditors.
The discussions also included modifying certain debt payment terms from the original RSA, to provide additional rate relief during the first five years and to level out future annual cash flows required for debt service. The fiscal plan says the securitization or bond exchange negotiated in the RSA, which will be paid through a 3-cent transition charge, is slated to be done by July.
In the original RSA, around $700 million of non-forbearing bonds did not participate. Under Promesa, 100% of Prepa’s non-forbearing uninsured bondholders are required to participate in the deal, which means an additional $700 million of bonds will be subjected to the 15% principal haircut and only interest payment over the next five years.
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The most notable part of the revised terms was that in the original deal, Prepa’s Revitalization Corp. had to receive an investment grade rating as a condition prior to the closing of the securitization. Under the new discussions, there is no initial minimum rating threshold, which means it will be easier for the Corporation to move along with the securitization.
The original deal establishes that the Ad Hoc Group (AHG) pays only interest payment on the principal debt for five years and the principal is paid over subsequent 20 years with a 15% haircut on current balances. The revised terms determine that bond payments will still be for interest only for 5 years and will be subject to the 15% principal haircut.
Under the RSA, the interest of the bonds, of which the deal mentions two types, can vary from as little 4.0% to 5.5% for first five years. After the discussions, the parties agreed to have fixed rates.
As stated in the revised terms, the AHG backstop commitment for tender offer was no longer required. The AHG agreed to work in good faith to backstop new money securitization bonds [ascending to $250 million] required to fund closing costs on terms to be mutually agreed upon.
The current RSA allows fuel-line lenders (Marathon, Solus, Firstbank) the option to term out over 6 years or exchange into securitization at the same terms as the Ad Hoc Group (‘AHG’). With these terms, the exchange into the securitization will be at par with 5-year interest only (FY18 – FY2022) and a 25 year amortization beginning in year six.
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Fuel-line lenders could also term out at 5.75% interest or receive new securitization bonds at the same rates as AHG. Under the revised terms, they may be receiving current interest bonds (CIBs) at 4.75% interest which is a 1.0% reduction from the existing RSA.
Scotia, another fuel-line lender, had the option to term out over six years or exchange into securitization at same terms as the AHG. The proposed revised terms call for an extension of the term to eight years, an increase of 2 years over the existing RSA.
As to the debt interest, Scotia can term out at 5.75% interest or receive new securitization bonds at the same rates as AHG. The revised terms call for an interest rate of 5.25%, which is a .50% reduction from the existing RSA.
Regarding the Debt Securitization Restructuring Fund DSRF), the Monolines were slated to provide Surety up to a capped amount of approximately $442 million. Prepa will fund 1% of the DSRF and any additional surety required above the monolines cap. The surety is set to be replaced over 9 years beginning in the third year after the securitization closes under certain conditions.
Under the revised terms, the Monoline’s Surety cap is scheduled to be increased by $95 million to cover additional surety needs driven by the participation of all uninsured bondholders in the deal. Banks provide surety equal to 1.5% of all exchanged fuel line debt ($496 from Marathon, Solus, and FirstBank) to cover additional surety needs above the Monoline Surety cap. Prepa’s 1% DSRF commitment remains unchanged.
See also: Prepa in 2017 A.D.—After Donahue
Other modifications to the RSA advocate changes to six series of bonds. While there were no terms to the 2017 securitization, the proposed revised terms demand relenting of up to $299 million with all forbearing creditors participating. The fiscal plan also calls for a 5.24% interest for Syncora, a 7.0% interest for Assured and National and 8.0% interest for the Ad Hoc Group of creditors.
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