The Puerto Rico Electric Power Authority announced Monday the extension of the AlixPartners’ contract to continue the ongoing progress on the comprehensive transformation and debt restructuring of the utility through Dec. 15, 2016, for $6.7 million in fees.
With this new contract extension the utility expects to obtain $32 million in recurring savings and $39 million in cash liquidity, it said in a statement.
As part of the contract extension agreement, AlixPartners will continue to assist PREPA in its transformation and Lisa Donahue will remain in her role as PREPA’s chief restructuring officer. The extension “will enable AlixPartners to provide specialized guidance for upcoming initiatives contemplated as part of PREPA’s transformation,” the power company said in the statement.
“AlixPartners will remain with PREPA leading the restructuring process and ultimately secure a sustainable capital structure and long-term business plan. It is important for PREPA to keep the continuity and forward movement of the process uninterrupted at this time,” said PREPA board Chairman Harry Rodríguez.
“Today’s contract extension will allow PREPA to continue a path toward a self-sustaining power utility in service of the people of Puerto Rico,” he said.
Last week, PREPA’s Association of Retired Employees opposed the board’s intensions to extend the agreement with AlixPartners, saying the utility should spend the money on maintenance and repair of transmission and distribution lines.
PREPA said management is “working diligently” with AlixPartners on several initiatives that will continue to provide cost savings, operational efficiencies, improved customer service and a safe workplace for employees.
To date, PREPA has obtained approximately $202 million in recurring savings and $212 million one-time cash relief to improve the company liquidity from these improvements, the utility said.
There are also several work streams in process required to implement the deal with the supporting creditors under the Restructuring Support Agreement, which will be led by AlixPartners.
The key milestones toward such implementation include: the analysis required in connection with the Puerto Rico Oversight, Management and Economic Stability Act (PROMESA) and the fiscal oversight board, the completion of the securitization transaction, the rate case currently pending before the Energy Commission, the documentation of the restructured fuel line facilities, PREPA’s new governing board transition and the RFP process to solicit third-party investments for energy generation, the utility said.
“The securitization transaction in particular is an essential component of PREPA’s restructuring and the many tasks to complete it include a judicial validation process, the evaluation of the securitization bonds by the rating agencies and the IRS, as well as the documentation of the mechanism to exchange existing PREPA indebtedness into new securitization bonds,” the company stated.
The implementation of PREPA’s restructuring deal under the RSA will deliver substantial benefits to PREPA’s capital structure, including debt service savings of $1.1 billion in Fiscal Years 2017-2021, near-term relief from debt payments and availability of funds for improvements which are all key to restore fiscal health, the company noted.
Further, the recent relending transactions with the RSA supporting creditors of $110 million and $415 million in connection with the bond payments due on Jan. 1 and July 1, 2016, respectively, “have proven essential to allow PREPA to make its debt service and continue to operate normally,” the company said.
“These agreements will deliver substantial benefits to PREPAs capital structure which include $600 million principal reduction from the deal with the RSA supporting creditors, cumulative debt service relief in excess of $700 million within the first five years and surety of up to $441 million of debt service reserve funds required for the securitization bonds,” PREPA stated.
The new extension elevates the amount to $43.5 million under the contract with AlixPartners since hired in September 2014 to lead the PREPA restructuring process.