Puerto Rico Electric Power Authority chief restructuring officer Lisa Donahue told commonwealth lawmakers she hasn't yet decided what to do about the authority's debt.
Donahue made the comment during testimony to the Puerto Rico Senate Energy Issues and Water Resources Committee Tuesday morning about progress on restructuring PREPA. The forbearing bondholders' proposal "starts with the very premise that the bond debt is paid in full and on time and there's no change to that, which may or may not be the ultimate result, but it prematurely presumes that," she said.
Later, Puerto Rico Senator Miguel Pereira Castillo summarized Donahue's earlier prepared testimony by saying that she was intending to improve PREPA's cash flow, modernize its generation facilities, and lower its debt. Pereira Castillo asked if that was what she was proposing.
"I think the only thing I didn't say in my written testimony was the lower the debt part," Donahue said. "I'm waiting for the whole plan to figure where the debt fits into the complete plan."
PREPA last year hired Donahue, a global co-leader at AlixPartners, and a small AlixPartners team on a temporary basis to help guide a transformation of the authority. Among other things, the power company needs billions of dollars in capital investment to upgrade its plants and other facilities. PREPA has $8.3 billion of bond debt.
PREPA's troubles became apparent in early July 2014 when it announced that it had drawn on its debt service reserve to make a debt service payment on July 1. In August it reached forbearance agreements with its bondholders and insurers, its bank creditors, and the Government Development Bank for Puerto Rico.
In considering possible sources of additional financing, the authority is considering using government money, independent power providers, the U.S. Department of Energy, and traditional municipal bond funds as well as possible support by bond insurers, she said Tuesday morning.
The forbearing bondholders proposed that General Electric both build and provide some financing for a new plant. Donahue said this was an additional possible source of money. "We're looking at a bunch of puzzle pieces to figure out how to do the financing," she told the Senate committee.
Donahue said that rather than considering the debt, she had spent most of her time at PREPA dealing with operational issues.
On Thursday Donahue told The Bond Buyer that PREPA planned to make its July 1 debt service payment. Moody's Investors Service has said that the authority owes $400 million on that date.
Donahue said she and her team from AlixPartners planned to give the forbearing bondholders an economic plan on June 1. She told Senate President Eduardo Bhatia Gautier that the team would present a comprehensive set of recommendations to the committee on July 15.
At the hearing, committee chairman Ram-n Luis Nieves said that Donahue and the AlixPartners team had missed the forbearance agreement's Dec. 15, deadline for a business plan for the creditors and a March 2, deadline for a "recovery plan." People have said the AlixPartners team has missed a lot of milestones, Luis Nieves said. He asked how Donahue responded to this.
Donahue said a lot had been accomplished. She acknowledged that the recovery plan had not been submitted, but said that the forbearance plan had only asked for a partial business plan on Dec. 15 and that this was delivered.
Luis Nieves disagreed, saying that the plan had called for a full business plan.
Donahue said that while the plan that the forbearing bondholders presented in late March has some good parts she also had some objections. In general it has some "aggressive assumptions," she said.
Specifically, she said that the bondholder proposal assumes electrical use will increase starting in January 2016 by 5% and that the authority will pay all debt on time and in full. She also expressed doubt about the bondholders' projection that any new debt the authority takes on in the immediate future will not have to be amortized.
The bondholder plan assumes the PREPA system absorbs renewable energy faster than is likely, she said, and its cost assumptions for power purchase agreements is much lower than in PREPA's experience.
Finally, the forbearing bondholders' plan's solution to U.S. Mercury and Air Toxics Standards' requirements won't work in the PREPA's plants, she said.
