PREPA, creditors agree to financial restructuring plan
The Puerto Rico Electric Power Authority announced early Thursday that it has reached an agreement with creditors holding approximately 70 percent of its financial debt on a plan to execute a restructuring that, among other things, will reduce the utility’s principal debt burden of more than $600 million.
As part of the lengthy negotiations that took about 15 months, PREPA amended its previously announced restructuring support agreement, or RSA, to include an agreement with monoline insurers Assured Guaranty Corp. and National Public Finance Guarantee Corp., as well as the Ad Hoc Group of PREPA bondholders — comprising traditional municipal bond investors and hedge funds — its fuel line lenders and the Government Development Bank for Puerto Rico.
“We have made significant progress in our efforts to transform PREPA and today’s announcement is a significant step forward toward achieving a sustainable financial structure for PREPA,” said Lisa Donahue, chief restructuring officer appointed by AlixPartners, which lead the negotiations with the creditors.
The amended RSA provides a structured framework to implement PREPA’s previously announced economic agreements, and also grants the power company five year debt service relief of more than $700 million on its $8.3 billion debt and up to $462 million of surety capacity to be provided at transaction close.
The clause also applies to forward commitments for surety capacity to be provided during the term of the transaction from the monolines to satisfy the debt service reserve fund requirements under the financing agreements previously announced with the Ad Hoc Group.
The restructuring transaction described in the RSA is intended to, among other things, provide a framework for the consensual resolution of the treatment of insured PREPA revenue bonds in PREPA’s recovery plan and to provide bridge financing for PREPA’s Jan. 1st interest payment.
Assured Guaranty’s proportionate share of the PREPA bridge financing is approximately $15 million, company officials said.
“We believe the restructuring transaction outlined in the RSA can be the foundation for a consensual settlement that fosters modernization, long-term sustainable rates for ratepayers and continued access to efficient capital markets financing for PREPA,” said Dominic Frederico, president of Assured Guaranty.
“We are committed to continue working cooperatively with PREPA and other stakeholders to implement the terms of PREPA’s recovery plan,” he said.
Once implemented, the recovery plan will reduce PREPA’s debt obligations, provide meaningful cost savings, and allow for key investment in PREPA’s infrastructure that will help PREPA stabilize rates, Donahue said.
“We will continue to work to make needed changes so PREPA can complete its transformation and provide the people of Puerto Rico with economical, safe, reliable and clean electricity,” Donahue added.
The transaction is subject to a number of conditions and contingencies, including the enactment of the PREPA Revitalization Act, the approval by the Energy Commission of PREPA’s rate structure and the securitization charges, execution of a successful exchange offer, and the achievement of an investment grade rating for the securitization bonds, “the last of which will of course depend on a number of factors, including the overall situation at the Commonwealth,” said Donahue.
The amended RSA also outlines other elements of PREPA’s recovery plan, including new governance standards, operational improvements, rate structure proposal and a capital plan.
“This financial restructuring agreement and PREPA’s transformation will make PREPA a stronger and more modern utility that will provide Puerto Ricans with more efficient and reliable power, increased offerings and stabilized rates,” PREPA Chairman Harry Rodríguez said.