The Puerto Rico Electric Power Authority has released more details about the duties it will assign to a new chief restructuring officer.
The additional
One analyst saw the officer's scope of responsibilities as positive for bond holders, two saw it as negative, and a fourth said it raised more questions than provided answers.
PREPA, with more than $8 billion in bond debt and in the midst of a financial and liquidity crisis, announced the forbearance agreement Thursday. Among other things, the agreement announced that the authority would appoint a "chief restructuring officer" by Sept. 8.
On Tuesday, PREPA said the chief restructuring officer would work alongside the authority's chief executive and chief financial officers. It listed a scope of duties with 13 responsibilities for the CRO including communicating and negotiating with PREPA's creditors, leading the creation of a business plan, and overseeing the improvement of business operations.
AllianceBernstein senior vice president Joseph Rosenblum said the scope of duties left him with more questions than answers.
"What are the expectations that one person can lead a restructuring that seems to have defied all previous efforts?" he asked.
"Who asked for the establishment of that position?" he said. "What are they looking for?"
Joan Vidra, managing director of Opportunities Emerging & Frontier Markets Advisory, LLC, responded positively to the scope document. "The more consensual the process is, I think the more productive, however we still have yet to see what happens and who is appointed. The imminent appointment of a restructuring officer is a necessary step," she said.
"The fact that the financial problems in PREPA are being tackled in a holistic, comprehensive way bodes much better for the eventual financial health of the concern," Vidra said.
Two analysts were more pessimistic about the CRO. Both Michael Ginestro, director of municipal research for Bel Air Investment Advisors LLC, and Robert Donahue, managing director at Municipal Market Advisors, raised concerns about the power of the existing management.
Ginestro said that unless there was a sea change in PREPA's management, the situation at PREPA will not change much. He said he was concerned about the willingness of its leadership to introduce major changes in all aspects of its operations.
Donahue said, "The scope of the chief restructuring officer's authority appears limited. On seven of the 13 listed powers, the CRO will work 'alongside' PREPA's CEO and CFO. Rather than a czar with broad powers regarding union contracts and fuel purchase oversight, for example, the CRO appears to be working largely within a PREPA management structure which has not been particularly effective in implementing necessary reforms."
Ginestro noted that the CRO will have many responsibilities. He said he was not optimistic that the CRO will able to successfully restructure PREPA in a few months.
Ginestro noted that it was strange that the scope does not specify that the CRO is to create a debt restructuring plan.
In an emailed response to questions from The Bond Buyer, PREPA spokesman Abimael Lisboa Félix said, "The CRO will bring significant financial expertise as well as an extensive knowledge of the public utility sector in order to contribute to the development of PREPA's new business plan and to accelerate PREPA's path to becoming a self-sustaining business. Working closely with PREPA's board and management team, the CRO will offer additional insights and experience to help accelerate PREPA's transformation and ensure that the utility is able to efficiently implement the changes necessary to achieve its financial and operating targets."
In response to Rosenblum's question about who asked for a CRO to be hired, Lisboa Félix said that as part of its agreements with the creditors' group, PREPA committed to appoint a CRO.
The El Vocero de Puerto Rico web site and others have suggested that PREPA will hire someone from FTI Consulting for the position. FTI has been PREPA's primary restructuring advisor since at least April, said an FTI source.
PREPA was asked if the officer be hired on a competitive basis or if PREPA already has a firm or person in mind for the CRO position.
"The selection process is competitive," Lisboa Félix said. "PREPA's board is seeking the most qualified person for the position."
The Bond Buyer pointed out that the scope of the position calls for the CRO to engage in "negotiations with PREPA's creditors" and asked what that meant for creditors.
"PREPA has not made any decision regarding the Recovery Act and will not speculate as to its possible use," Lisboa Félix said. "PREPA is exploring all available options to ensure it is achieving the best possible outcome for its employees, customers, creditors and suppliers."
