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Uncertainty looms over Puerto Rico’s power utility

By on June 30, 2017

SAN JUAN — Puerto Rico’s financial control board unanimously approved Friday that the island’s Electric Power Authority (Prepa) could seek bankruptcy protection under Title III of the federal Promesa law.

Yet, it is still uncertain when and if the board would ultimately file in federal court a Title III bankruptcy petition for Prepa.

“We chose not to implement Title III immediately [because of] ongoing negotiations,” said board Chairman José Carrión during the governing body’s eighth public meeting held in San Juan. He didn’t comment further on the negotiations.

Earlier Friday, Gov. Ricardo Rosselló announced the government had requested the board to commence a Title III bankruptcy case for Prepa, to ensure that the utility’s services are not disrupted.

“Prepa wishes to make a plan to adjust its debts consistent with the provision of liquidity in accordance with what is established in the Fiscal Plan,” reads the governor’s letter to the board, which adds that the administration wants to continue “good faith” negotiations, but under a Title III process.

In a 4-3 vote—so far the only action it has not taken unanimously—the board rejected earlier this week a restructuring support agreement (RSA) between Prepa and its creditors that had been three years in the making. The board didn’t certify the agreement as a “qualifying modification” under Title VI of Promesa, thus putting on hold the overhaul of the utility’s roughly $9 billion in debt.

Prior to striking down the RSA, the board delivered Prepa creditors recommended changes to the RSA that, if accepted, would have paved the way for an eventual certification, but parties failed to reach a deal.

A group of Prepa bondholders stated that before the RSA expired Wednesday, they had offered an extension to the agreement, as well as additional liquidity to fully cover a $450 million debt payment due July 1, in a bid to keep negotiations alive.

“Unfortunately, other parties simply rejected our offer […] with limited explanation given,” reads a statement released Friday by the Prepa Bondholder Group. It adds that the offer is still on the table and the group doesn’t intend to sue the government, “unless and until a Title III process [begins], which would simply leave us no choice.”

As of Friday afternoon, only two bond insurers, National and Assured, had filed a legal action against the board over Prepa’s RSA, seeking to have the court declare that Promesa calls for the approval of the deal as it was preexisting agreement.

Moreover, sources say the Ricardo Rosselló administration rejected creditors’ offer to extend the RSA and additional liquidity for the July 1 payment, because it seeks to have Prepa commence a Title III bankruptcy proceeding.

Bishop: Puerto Rico fiscal board deviated from plan with Prepa deal rejection

On Friday, the government representative to the board, Elías Sánchez, said that the administration hadn’t participated of the most recent talks.

Following the RSA’s expiration, the government has said Prepa doesn’t have enough funds to make the $450 million payment and at the same time maintain operational stability.

“They are lying. They do have money and certain bondholders offered to cover the July 1 payment. It would be self-inflicted default,” one source told Caribbean Business.

Gov. Rosselló also announced Friday that Prepa is negotiating with one of its main suppliers to ensure continuous delivery of fuel during a Title III process.

Senior Reporter Eva Lloréns Vélez contributed to this story.

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