P.R. gov’t reaches preliminary restructuring support agreement with PREPA bondholders
The Financial Oversight and Management Board for Puerto Rico, the Puerto Rico Electric Power Authority, and the Fiscal Agency and Financial Advisory Authority have reached an agreement with the Ad Hoc Group of PREPA bondholders.
The agreement is contained in a preliminary restructuring support agreement and term sheet, Gov. Ricardo Rosselló confirmed. The collaboration amongst the parties to the RSA represents a necessary step for a complete overhaul and transformation of the energy sector in Puerto Rico, he added.
“This RSA represents a great step forward in the transformation of the energy sector of Puerto Rico. As we have stated in the past, the restructuring of PREPA’s debt and obligations is critical to completing our vision for a consumer-centric energy sector with financially viable rates that promote economic development on the Island,” said Rosselló.
“The RSA is the result of good faith negotiations, consistent with our Administration’s policy of reaching consensual agreements,” he said.
The Administration estimates that the terms to the RSA will achieve more than $3 billion in debt service savings for the upcoming 20-year period as compared to the restructuring agreement negotiated under the prior administration. Under the new RSA, bondholders will have the opportunity to exchange their outstanding PREPA bonds for two classes of new securitization bonds.
The Tranche A bonds will be exchanged for approximately 67.5 percent of the bondholder’s outstanding debt, while the Tranche B “growth” bonds will be tied to the economic recovery of Puerto Rico. The terms of the RSA also place a capped fixed transition charge, thereby eliminating the risk of unforeseen increases to ratepayers.
“This negotiated agreement — the first of its kind in the Commonwealth’s restructuring – is a significant positive achievement for all parties involved. Our group has always welcomed the opportunity to reach a fair and consensual restructuring solution for PREPA, and by working together with the Oversight Board and the Government of Puerto Rico we have taken an important step towards collectively achieving that goal, the Ad Hoc Group of PREPA Bondholders said in a statement.
“By addressing PREPA’s legacy debt a pathway can be cleared to accelerate the transformation and long-term viability of the utility,” the group stated.
“Under the terms of the agreement, our recoveries are now tied to PREPA’s sustainable success, and we are pleased to take part in a transaction which we are confident will ultimately further the economic revival of not just the utility, but the Commonwealth and its people,” the group added.
The proposed RSA will further enable PREPA to take the steps necessary to modernize its operations and implement the administration’s transformative energy policy, including attracting new private investment through the concession of the T&D systems and privatization of the current generation fleet, Rosselló said.
The parties to the RSA have agreed to work collaboratively and in good-faith over the upcoming weeks to negotiate a definitive restructuring support agreement consistent with the term sheet included in the preliminary RSA.
The Oversight Board, PREPA and AAFAF will continue working to build additional support of PREPA’s other creditors, including the monoline insurers and fuel line lenders.
“The Preliminary Agreement is an important milestone and a big step forward toward PREPA’s debt restructuring process, which will support the privatization and transformation of PREPA into a modern, world-class utility,” Oversight Board Chairman José Carrión said.
“We are hopeful that the terms and financial concessions agreed to with this group of PREPA bondholders can lead to a fair consensual transaction that adjusts their ultimate level of recoveries with the success of the utility,” Carrión added.
“As we move forward with PREPA’s debt restructuring and further reduce uncertainty and risk, investors will gain confidence in its ability to achieve a sustainable future, which in turn furthers Puerto Rico’s recovery,” he added.
As the next step, the Oversight Board will be working collaboratively with the Ad Hoc Group of PREPA Bondholders and the government on the implementation of the preliminary agreement, including the development of a definitive agreement.