Assured Guaranty, a monoline insurer for Puerto Rico Electric Power Authority debt, reacted to the administration’s announced plans to privatize the utility by saying agreeing on an “on an experienced, highly qualified manager able to impose order, transparency and accountability” is long overdue.
“Assured Guaranty, like all of Puerto Rico’s residents, is eager for PREPA to be operated more efficiently and reliably. Along with many other stakeholders, we have promoted operational improvements and a wide range of reforms for years,” the company said in a statement.
It is long overdue for the Commonwealth, the Financial Oversight and Management Board for Puerto Rico, and creditors “to agree on an experienced, highly qualified manager able to impose order, transparency and accountability on PREPA.”
Once that happens, a variety of new strategic alternatives can be explored, including ideas such as those mentioned by Gov. Ricardo Rosselló in his announcement Monday about plans to privatize the utility in three phases over the next 18 months.
“As we continue to try to move forward constructively, all parties should keep in mind that bondholders and monoline insurers are secured creditors of PREPA. For years Assured Guaranty has offered forbearance agreements, liquidity, and concessions as reflected in the Restructuring Support Agreement that was approved by two successive Puerto Rico administrations,” the company noted.
However, the Oversight Board rescinded on that RSA, something Assured stated was against the Puerto Rico Oversight, Management and Economic Stability Act and Congressional direction, which prompted legal action.
“Furthermore, when creditors had no option but to exercise their rights under Commonwealth law to install a competent and professional independent receiver for PREPA who could implement sound, depoliticized management and an effective long-term energy generation and transmission strategy, both the Oversight Board and Commonwealth objected,” Assured noted.
A qualified, experienced receiver might have begun improvements many months ago that could have given the electricity system more resilience to withstand and recuperate from hurricanes, the monoline stated.
“A respected receiver could have also acted as a credible coordinator of federal aid for PREPA. Instead American citizens in Puerto Rico continue to suffer,” Assured noted.
PREPA bonds are secured by a lien on the system revenues, and supported by covenants and Puerto Rico law ensuring that rates must be sufficient to cover all costs including debt service.
“Under PROMESA and the U.S. Constitution, the system cannot be sold free and clear of the lien on revenues unless the lien is discharged through full payment of the bonds, there is adequate coverage of debt service after any sale of assets, or the bonds are given the full value of their collateral through a confirmed plan of adjustment,” Assured established.
“Rather than force litigation, or operate in secrecy, we urge the Commonwealth and Oversight Board to collaborate meaningfully with stakeholders on consensual plans,” it added.
Given recent and continuing revelations about PREPA — including the apparent uncovering of unutilized restoration materials in a PREPA warehouse, the infamous Whitefish contract, and other allegations of impropriety — any new privatization partners or investors will rightly first look at respect for the rule of existing law, and the credibility and transparency of both island leadership and the Oversight Board, Assured stated.
“We continue to look forward to engagement from the Commonwealth and Oversight Board to consensually help improve PREPA and the quality of life of Puerto Rico residents,” it concluded.