Puerto Rico oversight board authorizes bankruptcy for power authority

By Caroline Salls

Pittsburgh, June 30 – The Financial Oversight and Management Board for Puerto Rico authorized a Title III bankruptcy filing by the Puerto Rico Electric Power Authority (Prepa) on Friday, according to a release from MBIA Inc. subsidiary National Public Finance Guarantee Corp.

National said it believes the oversight board has violated the Puerto Rico Oversight, Management, and Economic Stability Act (Promesa) by authorizing the Prepa filing.

“We believe the oversight board’s decision to authorize a Title III filing for Prepa is ill-advised, improper, and could well have dire consequences for Puerto Rico,” National chief executive officer Bill Fallon said in the release.

“The oversight board has violated Promesa and is now pursuing an agenda that unnecessarily and inappropriately throws away Prepa’s carefully constructed restructuring support agreement.

“A Title III bankruptcy filing could cause lengthy litigation in which creditors would assert all of their rights to achieve payment in full and could result in rate increases that would leave Prepa years away from attracting the private investment necessary to modernize.

“The RSA was the essential first step to achieve viability for Prepa.”

Creditor offer

According to the release, National and other supporting creditors offered to take action that would have provided additional time for discussions to avoid a Title III bankruptcy filing by Prepa, but those actions were rebuffed by Puerto Rico Governor Ricardo Rosselló, Prepa and the Puerto Rico Fiscal Agency & Financial Advisory Authority.

“The oversight board chairman asserted in today’s public hearing that this week, the oversight board offered Prepa’s creditors, including insurers and banks, a similar economic deal as contained in the RSA, but with additional provisions for Title III, but that is simply not true,” Fallon said.

“The proposal had significantly different terms for the monolines, and we believe it was designed to fail, given the timing of the proposal being made immediately before the payment date.”

Budgets certified

According to a separate release from the oversight board, the board has also approved and certified a revised budget for fiscal year 2018 for the commonwealth, along with the proposed budgets for four covered territorial instrumentalities in compliance with Promesa.

The budget for Puerto Rico was to take effect on July 1.

The board said it approved revisions to the budget that were introduced by Gov. Rossello’s representative, Elías Sanchez Sifonte, and were required upon failure by the Puerto Rico legislature to take the corrective actions the board had outlined in a June 27 notice and adopt a compliant budget by June 29.

“The approved budget is realistic and consistent with the certified fiscal plan and the objectives and targets contained in it,” oversight board chairman Jose Carrion said in the release.

“The course has been set; and although it will be challenging, we cannot afford to veer off.”

The oversight board also unanimously approved the budgets of the Government Development Bank (GDB), the Puerto Rico Highways and Transportation Authority (PRHTA), the Puerto Rico Aqueduct and Sewer Authority (PRASA) and Prepa.

The board said Puerto Rico’s previously certified fiscal plans will likely be revised in the future, in which case the certified budgets would have to be revised to comply with any revisions.

In the case of the Prasa, HTA and Prepa, the board specifically requested the governor submit revised fiscal plans incorporating the amendments adopted by the board on April 28 within 45 days. In the case of PRSA, it also requested modifying the plan to reflect line items consistent with the budget certified Friday.

The board said it is yet to consider the fiscal plans and budgets of the Public Corporation for the Supervision and Deposit Insurance of Puerto Rico Cooperatives and of the University of Puerto Rico, as those plans and budgets have not yet been finalized.

Prepa talks ongoing

In addition, Carrion confirmed that dialogue with Prepa creditors is ongoing and emphasized that “notwithstanding the authorization of this filing, the board will continue to work toward a prompt, negotiated settlement with Prepa's creditors – an approach that we believe is in the best interest of all of Prepa’s stakeholders.”

Addressing the board’s rejection of the Prepa support agreement, Carrion said “The RSA created a significant risk it would push electric prices materially higher and endanger the entire Promesa mission of eliminating the fiscal emergency.

“By making it more expensive to live and do business in Puerto Rico, the RSA made it even harder to turn around the commonwealth’s negative economic growth over the last decade,” Carrion said. “If that cannot be changed to sufficient positive growth, no restructuring can be successful.”

The Commonwealth of Puerto Rico announced its Title III petition filing on May 3. The case number in the U.S. Bankruptcy Court for the District of Puerto Rico is 17-03283.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.