Puerto Rico governor kills PREPA deal

Puerto Rico Gov. Pedro Pierluisi told the Puerto Rico Fiscal Agency and Financial Advisory Authority to withdraw from the bond deal for the Puerto Rico Electric Power Authority, opening the door for the Oversight Board to negotiate a deal independent of the local government.

“It’s very unfortunate that the legislature chose to not pass legislation” for the deal, said Board Member Justin Peterson, speaking for himself Tuesday afternoon. The 2019 RSA would have cut the debt, locked in a transition fee, and created the certainty about PREPA’s financial future needed to fund capital investment, Peterson said.

In the last few weeks, the local legislature leadership expressed opposition to the deal, which the board reached with bondholders in spring 2019. The deal required the legislature to approve a bill that would institute certain things from the RSA.

In late February the governor in a meeting with the board raised the possibility of renegotiating the deal because conditions had changed since 2019.

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Pierluisi said there “needs to be a considerable reduction to the corporation’s debt and changes to the provisions of the RSA, and … charges to private generation should not be imposed.”

At the board's February meeting, Chairman David Skeel said he was aware of the legislature’s desire to modify the current RSA to make it more friendly to consumers, but said the agreement could not simply be modified. If it could not be adopted in the existing form, the board would have to negotiate a completely different RSA with the bondholders, to be called “Plan B,” whichwould not require the local legislature to pass legislation, Skeel said.

Peterson said the board will negotiate with bondholders, but because of the legislature’s failure to act, the next deal will be more expensive for Puerto Rican electricity consumers.

The board said, given the legislature's refusal to approve the needed bill, it welcomed the governor's action.

Puerto Rico House of Representatives Speaker Rafael Hernández Montañez and Representative Luis Raúl Torres Cruz, president of the House Energy Committee, Tuesday put out a statement supporting Pierluisi’s withdrawal from the PREPA deal.

A lawyer for the Ad Hoc Group of PREPA Bondholders did not immediately respond to a request for a comment. On Feb. 18, the group asked PREPA bankruptcy Judge Laura Taylor Swain to direct the board to quickly negotiate a Plan B that would not involve the local legislature.

The bondholders asked Swain to impose an April 15 deadline to file a proposed PREPA Plan of Adjustment, a June 15 deadline for a decision on the disclosure statement, an Oct. 15 deadline for court confirmation of the plan, and a Nov. 30 deadline for enactment.

In the days following the Ad Hoc Group’s filing, the board said it might be open to mediation with the bondholders for a Plan B, but said their deadlines were too tight.