Puerto Rico creditor group, power utility contractor object to a proposed $1.3 billion loan
SAN JUAN – The Ad Hoc Group of General Obligation Bondholders and a Puerto Rico Electric Power Authority (Prepa) subcontractor objected on Thursday to a proposed $1.3 billion loan to the public utility that will come from the commonwealth’s coffers.
The bondholder group claims the loan will constitute “a raid of commonwealth’s funds” and that Prepa has not shown a need for the proposed loan. The Puerto Rico’s Financial Oversight and Management Board said that if the utility does not have the funds by the week of Feb. 16, when it will run out of cash, it risks having to suspend service.
The fiscal oversight board filed an emergency motion earlier this week to hasten the evaluation of the post-bankruptcy petition loan for Prepa. Opponents of the loan had until Thursday to file motions. Replies are due Friday.
In opposing the loan, the bondholder group said that, typically, debtor-in-possession loans are limited to the minimum amount required.
Although the fiscal board asserts that the commonwealth “expects” that the amount extended to Prepa from the commonwealth’s own cash reserves will not exceed $550 million, and that the remainder of the contemplated $1.3 billion will be funded from federal loans, the bondholders said the higher amount is not linked to the commonwealth’s receipt of federal loan funding; thus, the commonwealth could extend up to $1.3 billion from its own cash reserves.
Documents included in the fiscal board’s request for the loan do not “justify why $550 million should be borrowed immediately,” the bondholders said, adding Prepa will have sufficient cash until the week of Feb. 23, when it needs $26.9 million, and a total of $254.6 million though the end of March. “Yet the Proposed Loan seeks to borrow more than twice that amount from the Commonwealth’s coffers, with no stated reason,” the bondholder group reiterated.
“Among the $480.9 million claimed to be needed in a 15-week period, $124.5 million is for concededly Ineligible Uses,” the creditors argued. “This includes $28 million in Estimated Gross Overtime, $26.8 million in Contract Labor – Title III, and $69.7 million in net Emergency Expenditures. Stripped of those expenditures, the schedule sets forth only $356.4 million in needed cash across a 15-week period.”
Documents assume emergency expenditures the week of April 6 of $93 million that will not be reimbursed by FEMA, the bondholders stressed. “There is no explanation as to what this is, much less why PREPA would incur such significant unreimbursable liability.”
The bondholders also objected a disposition in the proposed loan that would prevent creditors from challenging the loan.
Arc American Inc., an Indiana-based company that worked in repairing transmission lines following the passage of Hurricane Maria, said Prepa owes it $19 million in labor, materials and services.
While Arc said it did not object to the financing, it objected to its terms because under the wording of the proposed loan, it is unlikely the company will be able to recover anything on an administrative expense claim.
“The patent unfairness of preferring Puerto Rico and PREPA’s professionals over those subcontractors like Arc, which already have extended credit and already have conveyed huge benefits to the Puerto Rican people, is compounded by the inescapable fact that Arc is being deprived of its rights under the Bankruptcy Code to share pro rata with all administrative expense claims after having already extended credit and done its work,” the firm said.
“Contractors going forward have the opportunity to get paid under the $1.3 Billion Facility or walk away. Arc, retroactively, is being stripped of that business decision. Approving the Motion in its current form will be devastating financially to Arc and similarly situated post-petition contractors and subcontractors with administrative expense claims for work and services that have already benefitted PREPA and the citizens of Puerto Rico,” the contractor added.
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