Virgin Islands representative suggests Water and Power Authority debt restructuring
The U.S. Virgin Islands’ non-voting representative to Congress has called for the local government to declare an emergency concerning the Water and Power Authority and suggested that the authority’s debts may need to be adjusted.
Virgin Islands Delegate Stacey Plaskett made the request in a letter sent to Gov. Albert Bryan and Senate President Novelle Francis on Wednesday. According to Plaskett the authority has $252 million in bond debt and $633 million in total debt outstanding.
According to the Virgin Islands Consortium news website, almost every day for several weeks there have been blackouts on St. Thomas and St. John, the Virgin Islands’ two main northern islands. According to State of the Territory News web site there have also been interruptions to the territory’s water service.
“I write to express grave concern regarding the viability and sustainability of the Virgin Islands Water and Power Authority,” Plaskett wrote. “Power outages are symptoms of more insidious problems facing the authority.”
“WAPA is out of options and must be radically reformed,” Plaskett wrote. “I suggest that the Office of the Governor, the 33rd Legislature of the Virgin Islands, the Virgin Islands Public Service Commission, and the Office of the Delegate to Congress, work together to petition for financial and technical assistance from relevant federal agencies to enable WAPA to chart a new course.
“Indeed, WAPA may need to seek federal court intervention as the authority’s operation are under duress by several of its vendors/creditors, creating an unfair advantage and negotiation toward other creditors and the people of the Virgin Islands,” Plaskett continued.
Further on in the letter, Plaskett said that the court may be willing to “intervene and help adjust WAPA’s debts.”
Currently there is no bankruptcy system available to WAPA, said Chapman Strategic Advisors Managing Director James Spiotto.
Though some members of Congress originally considered including the Virgin Islands as eligible for the act that became the Puerto Rico Oversight, Management, and Economic Stability Act, the Virgin Islands government ultimately succeeded in exempting the islands from most of the act’s provisions. When the act was being put together, the Virgin Islands’ government was worried that if it were made eligible for the act, the government would have a harder time borrowing.
Since PROMESA was enacted, infrastructure in both Puerto Rico and the Virgin Islands was devastated by a pair of hurricanes in 2017.
In the current situation there are several possible steps forward to address WAPA’s finances, said Spiotto, an expert on U.S. municipal bankruptcy. The federal government could be called on to provide some aid, something that Plaskett is calling for.
If the debt is to be adjusted, the authority could seek to get 100% consensus of a given class of creditors, Spiotto said. At this point, many creditors are demanding payment and this seems an unlikely solution.
Alternately, Congress could make WAPA a covered entity of PROMESA, Spiotto said. Within this the authority could seek some creditor support with Title VI’s consensual process, which doesn’t require support of 100% of a creditor class. Alternately, it could seek to adjust debts within Title III bankruptcy.
Without eligibility for PROMESA, a court couldn’t adjust the authority’s debts, Spiotto added. A court could appoint a receiver to take over the authority. This might provide better management. As a practical matter if WAPA didn’t have the money, some of the debts might not be paid for a period.
Given that there are intermittent power outages the situation is serious, Spiotto said. It is better that all parties take quick and decisive action than to delay this, he said.
Along with possibly seeking aid from a federal judge, Plaskett suggested that the authority take five steps. First, it should request forgiveness of the $94 million federal Community Development Loan. Second, seek technical assistance from the Department of Agriculture Rural Utility Service. Third, utilize U.S. Department of Energy expertise.
Fourth, petition the U.S. Department of Housing and Urban Development to consider increasing the $67.6 million to improve the resilience and hardness of the system. Fifth and finally, she said the local government should demand implementation of the Insular Areas Act authority to provide a cost share waiver for Federal Emergency Management Agency public assistance to the islands.
Plaskett wrote, “Regarding WAPA’s financial management, I am disturbed by what would appear to be pressure to make ‘day to day’ ‘business as usual’ decisions which do not address core deficiencies and the insolvency of the authority. ... Operationally, WAPA has no one on its executive team with the requisite municipal power generation expertise and experience.”
On Thursday, Senate President Francis released a statement that said: “Plaskett’s call to declare a state of emergency is just one option available to the territory.” He “urged for all parties to proceed with caution . ... We must also consider the short and long term implications of declaring a state of emergency, especially without discussions with WAPA, Gov. Bryan and subject matter experts about creating greater risk for WAPA’s financial operations or the lack of guarantees that the federal government will provide the needed resources and financial support.”
Francis said that his Senate had already scheduled a hearing of the whole body on Oct. 1 to receive testimony from WAPA and the islands’ Public Service Commission.
WAPA, the PSC and Bryan didn’t respond to a request for a comment.
WAPA’s senior debt is rated Caa1 by Moody’s Investors Service and CCC by Fitch Ratings.