Puerto Rico fiscal board requests $1.3 billion general fund loan for power utility

SAN JUAN – Contending the Puerto Rico Electric Power Authority (Prepa) is at risk of having to shut down next month, the Financial Oversight & Management Board has asked the U.S. District Court in an urgent motion to allow the utility to borrow $1.3 billion from the general fund.

Prepa’s general fund cash balance was about $187 million on Jan. 19 and is projected to fall into negative territory by the week ending Feb. 16. By May 4, the cash balance is projected to be negative by about $481 million, according to the urgent motion filed Saturday.

Without an additional source of liquidity, the motion says Prepa will likely shut down its operations in whole or in part in the near term.

Any shutdown would be devastating to Puerto Rico, which would once again see its residents living without power, businesses shuttering, and restoration and recovery efforts slowing following Hurricane Maria.

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“Prepa is facing an imminent liquidity crisis…. To address this liquidity crisis and avoid disrupting electric services to the people of Puerto Rico, Prepa is seeking approval for financing in the form of a revolving credit facility to be provided by the Commonwealth of Puerto Rico,” the motion reads.

The fiscal board noted that the commonwealth will initially give Prepa $550 million, which could be increased in increments of $250 million, but only after the approval from the government and board but not the court.

Despite Prepa’s publicly disclosed liquidity crisis, no financing of the magnitude of the request is readily available, the motion reads. Shortly after hurricanes Irma and Maria, a group of bondholders offered Prepa $1 billion in financing.

However, the offer was turned down because it was tied tied to a roll-up of $1 billion in existing bonds into an additional $850 million of post-petition financing, which would have resulted in a senior credit facility of $1.85 billion, out of which $1 billion in cash would have been available for advancement to Prepa. Besides coming with a high interest rate, “the proposal also required the appointment of a receiver and had the potential to limit the electric grid’s future transformation.”

The proceeds of the loans will be used to pay for Prepa’s operations, including employee payroll and benefits, facilities maintenance costs that are not capital expenditures or infrastructure improvements, and normal operational materials, supplies, fuel and power supplies, as well as vendor and services payments.

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