The creditors of Puerto Rico Electric Power Authority are allowing the authority to delay its application for a rate calculation mechanism for the new restructured debt corporation.
PREPA announced Wednesday night that it had reached a deal with its creditors to delay the deadline for the application to March 30 from March 23.
In the deal that PREPA has reached with its creditors its existing debt is to be restructured and then reissued through a newly created outside corporation.
In the planned application to the Puerto Rico Energy Commission, the authority will apply for a securitization transition charge and adjustment mechanism for the corporation. The transition charges are charges that will appear on electrical consumer bills separate from PREPA’s charges. Revenue from the transition charges will be used to pay off the corporation’s restructured debt.
In the application due by March 30, a newly-formed entity called the PREPA Revitalization Corp. will be applying for the right to set up the transition charges and adjustment mechanism, not for a specific charge. Following this application to the Energy Commission, it is expected that PREPA will apply separately to the Commission for a change in the rates it charges. Assuming the methodology for establishing the transition charges and adjustment mechanism are approved by the Commission, the Corporation’s transition charges will adjust based on a formula, independent of the Commission and separate from any adjustment to PREPA’s own rate.
The adjustment mechanism will be a formula to be used by the corporation periodically to adjust the transition charges so that they will be adequate to pay off the debt. This mechanism is to be used at least semi-annually.
PREPA is currently required by its agreements with its creditors to apply for an increase in its rates by April 18.
PREPA has about $8.4 billion in bond debt outstanding. Any restructuring or default in this debt would be the greatest municipal bond default in United States history.
