Unsecured creditors, Oversight Board battle on PREPA deal

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The Puerto Rico Unsecured Creditors Committee is wrangling with the Oversight Board and the local government on the continuation of the year-old Puerto Rico Electric Power Authority restructuring deal.

At stake are the authority’s roughly $8.3 billion of bond debt and hundreds of millions more of other debt.

PREPA plant Guayanilla
PREPA plant in Guayanilla, Puerto Rico, which has since been damaged by the January earthquakes.

On Monday the Unsecured Creditors Committee requested that Puerto Rico bankruptcy Judge Laura Taylor Swain terminate the motion to approve the Restructuring Support Agreement, which outlines the bond deal.

On April 2 Swain postponed her court’s movement toward holding a hearing on the matter. The board has said that how the COVID-19 pandemic and its impact on the Puerto Rican economy will play out is unclear. These things will impact PREPA’s finances, it has said. On Thursday a board spokesman told The Bond Buyer that the board believes that due to the virus “everything has changed” in Puerto Rico. The board is finalizing an economic analysis of the impact of the COVID-19 on Puerto Rico.

On Monday the committee told Swain, “Based on the impact of COVID-19, the [board’s May 15] PREPA Status Report, and PREPA’s recent public statements, it is now clear that the PREPA RSA is no longer viable and that no hearing on the current PRREPA 9019 Motion will ever take place.”

The committee also pointed out that the board had expected to only move the agreement forward with the approval of the local legislature. The legislature hasn’t yet approved it, the committee said.

The committee asked Swain to terminate the board motion for the agreement “without prejudice to the Oversight Board renewing such motion at a later time.”

On Thursday afternoon the board and Puerto Rico’s Fiscal Agency and Financial Advisory Authority filed a reply asking Swain to keep the motion postponed. They also asked her to order the government parties (themselves) to submit a status report on or before July 31 on PREPA’s financial situation and their proposed next steps in the 9019 motion. FAFAA is the financial arm of Puerto Rico Gov. Wanda Vázquez’s government.

The government parties gave Swain four reasons to reject the committee’s request.

First, they said that a decision to terminate the deal shouldn’t be made without fully informing the parties of the “alternatives and consequences.” This is particularly true because the virus’ impact on the economic future remains unclear.

Second, termination of the Restructuring Support Agreement “may well result in these Title III cases reverting to extensive litigation.” Before the government parties chose to terminate the agreement, they’d want to have discussions with parties, they said.

Third, “the committee does not identify any manner in which it is prejudiced by maintaining the status quo, as no such prejudice exists.”

Fourth, “the committee’s request should be denied as an attempt to end-run the court’s order terminating the committee’s claim objection, in which the court held the committee could not proceed with a claim objection while the 9019 motion remains pending.”

On Thursday Moody’s Investors Service Senior Analyst Jennifer Chang told The Bond Buyer that since March PREPA customer collections first went down and then stabilized. If collections go down for too long, it would be a problem, she said. Chang is Moody’s lead analyst for PREPA.

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