Muni analysts said they are skeptical a capital investment proposal by the Puerto Rico Electric Power Authority's forbearing bondholders will solve its financial problems.
PREPA, which owed $8.3 billion in revenue bonds on March 31, entered a forbearance agreement with bondholders last August after drawing on reserves to make a semi-annual bond payment in July. The agreement was scheduled to elapse on March 31 but the bondholders agreed in late March to extend it to the end of April 15.
The forbearing bondholders have offered PREPA as much a $2 billion in financing for new capital investments. On Wednesday night PREPA chief restructuring officer Lisa Donahue said PREPA had concerns about the bondholder proposal and that the bondholders had released an incomplete presentation of the plan.
"It's certainly a positive that [the forbearing bondholders] are working through challenges and offering financing," said Fitch Ratings managing director Dennis Pidherny. However, "at this point we are not convinced that the ultimate resolution to the authority's challenge will not involve some sort of restructuring of the authority's existing debt."
Pidherny noted that the bondholders plan includes building natural gas infrastructure, raising rates, and adding renewable sources of energy and that these are all part of an ultimate solution to PREPA's problems. However, "It's a challenge to opine on a plan we haven't seen."
Standard & Poor's Director Jeffrey Panger also wanted to see the proposal, including forecasts and cash flow, before commenting on the plans chances of success.
However, Panger said that the use of forbearing bondholders additional loans to finance a switch from oil to gas fired power plants would be a positive over the long-term. It would lower PREPA's operating costs, thereby freeing up money to pay back the bondholders.
Municipal Market Analytics managing director Robert Donahue remained cautious about PREPA: "News reports continue to circulate about a favorable agreement between PREPA, its creditors, and other stakeholders, including unions. MMA, an independent research firm not involved in these high stakes negotiations, advises its clients to remain cautious in positioning bonds until a credible, official announcement is made, with public documents available for review.
"Any 'success' in a PREPA restructuring has to be considered in the context of the broader commonwealth economy," Donahue continued. "In short, much uncertainty over this credit's direction remains."
In other news related to the forbearing bondholders, on Monday the Government Development Bank for Puerto Rico indicated that PREPA forbearing bondholder group had changed. Four funds part of Appaloosa Management L.P. and two funds part of Redwood Capital Management, L.L.C. are no longer forbearing.
Among those joining the forbearing group are three funds that are part of Goldman Sachs & Co., several Marathon funds, and Penteli Master Fund, Ltd.
The list of current forbearing bondholders is found in the agreement extending the forbearance to the end of April 15 from the end of March 31, which the GDB posted online Monday.
