Prepa Restructuring Support Agreement Terminated
SAN JUAN – As the deadline for the passing of the Puerto Rico Electric Power Authority’s (Prepa) revitalization bill was blown Friday, the Restructuring Support Agreement (RSA) between 70 percent of the authority’s bondholders and the power utility came apart. Prepa announced early Saturday that the RSA and related Bond Purchase Agreement (BPA) with creditors have terminated. The restructuring of Prepa’s $8.2 billion debt also hinged on lawmakers passing legislation to enable the RSA by Friday, which they failed to do.
“In light of the Legislative Assembly’s ongoing deliberations over the Prepa Revitalization Act, Prepa asked creditors to extend the legislative enactment deadlines under the RSA and the BPA by three weeks. Under these agreements, creditors had agreed to relend to Prepa $115 million in interest that Prepa had paid to them on January 1, 2016 as the parties continued to work towards consummation of the proposed restructuring,” Prepa says in its statement.
“Although other creditors agreed to the requested extension, the Ad Hoc Group of Bondholders did not. Instead the Ad Hoc Group imposed additional conditions on their $115 million relending obligation, even though Prepa had rejected these same conditions in December 2015 before making the January 1, 2016 interest payment. In addition, certain of the Ad Hoc Group members rejected any extension of the relending obligation at all, thereby reducing the relending proceeds to less than the agreed-upon $115 million,” the power utility’s news release adds.
“We are disappointed that the Ad Hoc Group did not grant our requested extension,” stated Lisa Donahue, Prepa’s Chief Restructuring Officer. “Prepa remains willing to continue discussions with the Ad Hoc Group and other stakeholders.”
“Extending the legislative enactment deadline under the agreements would not have prejudiced the Ad Hoc Group. The Legislative Assembly was actively working with Prepa on the legislation. Prepa’s request was only to extend the legislative enactment deadline to give the legislature more time to review the bill, while maintaining the creditors’ rights to review the law to determine if it satisfied the terms of the RSA,” Prepa explained.
Meanwhile, in their own statement, Prepa’s bondholders said, “Today the Prepa Bondholder Group put forward an offer to extend the RSA until February 12th in order to give the Puerto Rican legislature more time to pass the Prepa Revitalization Act. Based on our direct and positive conversations with Puerto Rican lawmakers, we are optimistic that the bill will be passed and it was our desire to be as supportive of the legislative process as possible. In addition, we also offered to extend our Bond Purchase Agreement with Prepa, under which RSA creditors would provide $115 million in additional financing once the energy commission approves the securitization charge, with a deadline of May 23rd. This amendment to the BPA reflects a milestone that was previously agreed upon, and was included in order to help ensure the deal would get done – as the energy commission approval is a vital element of the agreement.
“Unfortunately, Prepa is choosing not to extend the RSA. Over the approximately 18 months that we have been negotiating this plan it has consistently been our desire to reach a fair, collaborative agreement that would benefit all stakeholders, including the people of Puerto Rico. The plan has been described as fair to all parties and beneficial to Puerto Rico – not only by key legislative leaders but by other decision-makers in the Commonwealth. This is why we were willing to offer these further concessions, recognizing the complexities of the legislative process. “While it is extremely disappointing and perplexing that Prepa has chosen to take this stance, we continue to remain open to reaching a deal with Prepa and it is our sincere hope that they reconsider their position and assume postures beneficial to the people of Puerto Rico.”
The bondholders “want to stay in the agreement but they want to change the scope of the negotiation, conditioning the bond purchase agreement to a series of items that were not in the original agreement,” a source with knowledge of negotiations told Caribbean Business on Friday. The monoline bond insurers were still onboard with the original deal.
The bondholders sought to change the conditions of the $115 million re-lending as a condition to extend the RSA. The relending mechanism utilizes bridge bonds similar to those used in July that provided liquidity to the utility and helped it meet a $415 million payment.
“They are insisting on renegotiating the conditions of the re-lending agreement. They were supposed to fund approximately 10% of the cost of the re-lending,” the source had said, “And [the bondholders] are saying that they will only extend the relending obligation conditioned to the Puerto Rico Energy Commission’s approval of the entire securitization deal. And that is going to take months.”
Prepa insists on maintaining the RSA and the re-lending. Although the bond insurers who came into the fold in December remain onboard, they do not want to fulfill that commitment without the creditors.
Sources close to the negotiations said the move was an eleventh hour arm-twisting to pressure Prepa to guarantee that the deal would get made as quickly as possible. The source said the sooner the Prepa bill were passed, the sooner the terms in the securitization deal would be locked in.
Sources also told Caribbean Business that the leadership in both chambers of the Puerto Rico Legislature were working hard to secure passage of the bill, but the rate restructuring remained a bone of contention. The bondholders want to guarantee that the electric rate structure will not wind up in the hands of a body that creditors fear will cause revenue gaps. The legislators had asked the creditors to grant them several weeks to consider key aspects of the bill.
“That [Jan. 22] deadline was one negotiated by Prepa. We did not negotiate that deadline. I have always said we were going to pass the bill before the end of the month,” Rep. Jesús Santa (PDP-Caguas), head of the Special House Committee on a New Public Policy on Energy, had told Caribbean Business.
Through the RSA, the utility’s obligations would have been cut by more than $600 million, with a large share of investors taking losses of about 15% by exchanging their bonds for new securities that were going to be made possible through the bill. It also included five-year liquidity relief of debt-service obligations of nearly $800 million. The restructuring also aims to free up cash so the utility can modernize its power plants.
The House and Senate have been working for weeks on the final draft of the Prepa revitalization bill, along with officials from the executive branch. Prepa CRO Donahue had warned that if lawmakers did not pass the Prepa revitalization bill, debt negotiations would have to start all over again.