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Puerto Rico gov’t rejects deal from power utility’s bondholders

By on September 28, 2017

SAN JUAN — The Puerto Rico government has rejected a $1 billion short-term financing deal offered Wednesday by a creditor group of the Electric Power Authority (Prepa).

“It was an opportunistic offer that is trying to take advantage of Puerto Rico’s situation after Hurricane María and how the state of Prepa’s infrastructure, not to help in the reconstruction of Puerto Rico, but to strengthen its position in the [bankruptcy] process under Title III [of Promesa],” the governor’s representative to the financial control board, Christian Sobrino, told Caribbean Business.

On Wednesday, the Prepa Ad Hoc Bondholder Group announced it had put forth a $1 billion “debtor in possession” (DIP) financing offer for the power utility, whereby these creditors would secure a first-priority repayment right if the government accepts the deal.

Sobrino criticized the way in which the group made the offer public without discussing its terms with the government, showing “a lack of good faith.”

FEMA says assistance to Puerto Rico power utility to continue regardless of offers

As for the opinion of the island’s fiscal board on the Prepa creditors’ proposal, he said the seven-member panel also showed concerns over the $1 billion deal. Sobrino added that conversations were held between the commonwealth and the board in which they discussed the government’s intent to reject the unsolicited offer.

“The board will carefully consider all proposals in coordination with the government, but it is still very early as we begin to navigate a way forward following the catastrophic impact Hurricane Maria had on the island,” stated on Wednesday Natalie Jaresko, executive director of the board.

In a statement released Wednesday night, the Financial Advisory & Fiscal Authority Agency (Fafaa) also announced that the deal was not viable. It further stated that the government “has been actively working with the White House and Congress to secure the emergency federal assistance and funding required at every level.”

On the Prepa creditors’ proposal, the commonwealth’s fiscal agent also noted that it “creates the unfortunate appearance that such offers are being made for the purpose of favorably impacting the trading price of existing debt.”

Other creditors approach

While the Prepa bondholders’ offer remains the only short-term financing deal made public to date following Hurricane María, Sobrino acknowledged other creditor groups have approached the government with similar interest.

“We have received approaches like any other state in this type of situation, but nobody has reached the level that the creditors of Prepa, whereby they make an offer and then publish it without discussing it with the government,” Sobrino said.

In its statement, Fafaa called for “discretion” from all creditor constituencies and for “all future proposals be properly channeled.”

The central government, Prepa, the Sales Tax Financing Corp. (Cofina), the Highways & Transportation Authority (HTA) and the Employees Retirement System have all commenced bankruptcy proceedings under Title III of the federal Promesa law.

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