The Puerto Rico Electric Power Authority (PREPA) Bondholder Group announced that its members have offered a debtor in possession (DIP) financing loan to the public corporation to help address the urgent need to repair the power grid in the wake of Hurricane María, following Hurricane Irma.
This loan would include $1 billion in new cash from the bondholders, as well as relief on existing bonds, the group said.
This new funding would allow PREPA to provide the required matching funds under various grants from the Federal Emergency Management Agency (FEMA), enabling PREPA to qualify for at least $3 billion, and up to $9 billion, of FEMA funds.
The bondholders have communicated to PREPA a firm commitment to fund this loan facility as soon as possible, and would require no principal or interest repayment for up to two years.
As part of this loan, PREPA will be able to cancel $150 million of outstanding debt. The Bondholder Group would agree to exchange an additional $1 billion of existing bonds for only $850 million of new DIP notes, with no principal or interest payments over the next two years — bringing the total capital commitment under the agreement to $1.85 billion.
“The PREPA Bondholders have consistently attempted to work constructively with PREPA, the government of Puerto Rico, and the Oversight Board to forge a path towards rehabilitating PREPA’s operations and finances — and today’s commitment reflects this,” said Stephen Spencer of Houlihan Lokey, the PREPA Bondholder Group’s financial advisor.
“Our thoughts are with the people of Puerto Rico and its residents during this difficult time and we hope that this capital commitment will provide bridge financing and matching funds as required by FEMA legislation while supporting the Commonwealth’s recovery,” he said.
Hurricane María knocked out 100 percent of the electrical service on the island last week. While the government has said generators were not affected, hundreds of towers, utility poles and cables were toppled by the sustained Category 5 winds.