Puerto Rico Utility Restructuring Hearing Postponed
Fiscal Board, Agency request delay to allow for Passage of Enabling Legislation
SAN JUAN — U.S. District Judge Laura Taylor Swain granted a request by the Financial Oversight & Management Board (FOMB) and the Fiscal Agency and Financial Advisory Authority (Aafaf by its Spanish acronym) to cancel a Jan. 14 hearing on the Puerto Rico Electric Power Authority (Prepa) restructuring support agreement (RSA) to allow the commonwealth Legislative Assembly to approve RSA-enabling legislation.
In the ruling issued late Tuesday afternoon, Judge Swain does not set a new date for the hearing on the $8.3 billion Prepa restructuring deal. The federal judge—who is overseeing the commonwealth’s debt restructuring process under the Puerto Rico Oversight, Management and Economic Stability Act (Promesa)—set a deadline schedule for filing motions for discovery, declarations, exhibits, cross-examination witnesses and objections that begins Dec. 20 and ends Jan. 10.
The ruling represents the eighth amendment to the order issued by Judge Swain to evaluate the agreement with the Ad Hoc group of Prepa bondholders and municipal insurer Assured Guaranty Corp., which concluded in May. This is the fifth postponement of a hearing considering final approval of the RSA.
In September, the FOMB and Aafaf announced also having reached an agreement with bond insurers Syncora Guarantee Inc. and National Public Finance Guarantee Corp. to join the RSA. With the addition of the two insurers, the RSA has the approval of about 90 percent of the uninsured bonds and all of Prepa bond insurers, which exceeds the minimum 67 percent threshold needed for approval.
The execution of the RSA would constitute the third debt agreement under Promesa’s Title III bankruptcy process after the court approved settlements for the Government Development Bank in November 2016, and the Puerto Rico Sales Tax Financing Corp. (Cofina by its Spanish acronym) in February this year.
The Legislative Assembly is scheduled to reconvene Jan. 13, a day before the originally scheduled RSA hearing. Gov. Wanda Vázquez, who backed the hearing’s postponement, has not called for a special session this month to consider the matter.
Attorney Rolando Emmanuelli Jiménez, who represents the Irrigation & Electrical Workers Union (Utier by its Spanish acronym) in a federal lawsuit to invalidate FOMB decisions, said there was “an apparent consensus between the attorneys of all parties involved” that the RSA hearing should be rescheduled for March 30, although he added that no such motion has been filed.
He said the FOMB and Aafaf requested the hearing postponement to buy enough time to convince lawmakers to approve the controversial RSA, which entails a series of unregulated rate hikes for a 47-year period that would cover all Prepa customers, including residents and businesses generating their own power. Majority New Progressive Party (NPP) lawmakers have come out against the agreement with bondholders.
“In accordance with the RSA and the expectation of the bondholders that everything has been set and done, what’s going to happen now is that the board’s, Aafaf’s and the bondholders’ lobbyists will pressure lawmakers to approve [RSA] enabling legislation, which will lead to rate increases of at least 4.6 cents per kilowatt hour,” the attorney told Caribbean Business. “I think the Legislative Assembly will have to define if they are going to be responsible for an electricity rate increase that would be devastating for Prepa, the economy of Puerto Rico and consumers, particularly the most vulnerable. We will see what lawmakers will do in an election year.”
The RSA requires the legislature to set up a “special purpose vehicle” (SPV) separate from the public utility that would issue securitization bonds replacing existing bonds. The debt service on the new securitization bonds would be covered with additional revenue from surcharges that start at about 2.8 cents and rise to 4.6 cents by year 22 and afterward. The RSA states that the surcharge can be raised up to 25 percent to compensate for contributions in lieu of taxes and subsidies granted by Prepa.
The bondholder agreement also requires lawmakers to wholly or partially exempt the SPV from 17 commonwealth laws that enforce government accountability and regulate public procedures and financial transactions, including the law that created the Puerto Rico Energy Bureau (PREB), so that this agency may only rubber-stamp the fee hikes or any decisions made by the SPV. PREB, the regulator created to look out for consumer interests by reviewing Prepa rate hikes, has ordered the public utility to reimburse millions of dollars to customers for overbilling since it was established in 2014.
Emmanuelli said that in the event the Prepa RSA is rejected by lawmakers or Judge Swain, all parties would go back to the negotiating table.
“We have to make this clear because there is a lot of fearmongering here,” he said. “This hearing will be to authorize a transaction. The board alleged that [Prepa] bonds were not worth anything, but after negotiations, they are now worth 60 cents each. It’s a bad deal. The situation is extremely suspicious and unjust for the country.”
NPP Rep. Víctor Parés Otero, chairman of the House Economic Development and Planning, Telecommunications, Public-Private Partnerships and Energy Committee, told Cybernews on Wednesday that Gov. Vázquez had not submitted any RSA-related administration bills nor had consulted lawmakers on the matter.
“I’m going to be completely clear on this, the famous agreement has to be laid out in legislation, in a bill, and sent to the House of Representatives and the Senate for detailed evaluation. That has not happened,” Parés said. “The Legislative Assembly begins the study of the agreement when we are presented with this bill, not before. For this reason, any argument suggesting that we have not acted on this is totally false.”
The NPP lawmaker said that his committee would not endorse any plan to increase Prepa rates, in conformity with House Speaker Carlos “Johnny” Méndez’s stated position against rate hikes.
“That’s not going to happen, period,” he said.
Parés said that any RSA-related bill should be clear and specific on the impact the agreement could have on the commonwealth’s coffers and public services, and, above all, how the RSA would be “a secure source of savings for the people.”
“Any suggested agreement that comes from the executive branch must have a breakdown— specific and with real payment sources—that outlines the savings that any agreement will generate and how this substitutes other budget items,” the lawmaker said. Anything “less than that will not be acceptable to us.”
Assured Guaranty Corp., Assured Guaranty Municipal Corp. and National Public Finance Guarantee Corp. had filed on Monday a motion requesting that Judge Swain deny the postponement request, arguing that the hearing has already been delayed on five occasions between May 22 and Nov. 1. While the monoline insurers in the RSA did not object to moving imminent deadlines requested by “certain parties,” they said this should not be done at the expense of losing the Jan. 14 hearing.
“…[T]he Supporting Parties should not be forced to wait any longer before obtaining the certainty and peace of mind that can only be achieved through Court approval of certain RSA provisions,” the motion reads.