Puerto Rico board says it won’t improve offer to PREPA creditors

The Puerto Rico Oversight Board is saying it will not improve its offer to creditors of the Puerto Rico Electric Power Authority.

The board will continue to offer $2.6 billion to creditors, the same as it did early last year, said Board Executive Director Robert Mujica, Jr. By comparison, board Attorney Martin Bienenstock said in March PREPA owes $15 billion to the creditors, excluding money owed to the pension system.

The board is willing to offer roughly the same deal to the bondholders as it did last winter, Mujica said.

Mujica said the board’s PREPA fiscal plan “will permit setting creditor recoveries materially in line with the prior plan of adjustment.”

The prior plan of adjustment paid non-settling bondholders at 4% of the principal due and an even smaller portion if pre-bankruptcy petition and post-petition interest were factored in.

It paid several settling investment funds, with BlackRock Financial Management being the largest, a base of 12.5% with contingent vehicle instruments conceivably pushing the recovery to more than 40% of principal. And it paid a tiny fraction of retail bondholders who accepted an earlier board offer, 50% of principal.

The offers might be adjusted slightly upwards because they assumed a better offer to National Public Finance Guarantee, which has since withdrawn from the deal it reached with the board, said a board source.

PREPA unsecured creditors will also be awarded the payments they have settled on, Mujica said.

Mujica said he expected the commonwealth of Puerto Rico government rather than a PREPA rate increase will pay for the deal. The board’s newly created fiscal plan, released Tuesday, indicates PREPA has no net revenues to pay debt service. Instead, Mujica said he planned to hold conversations with new Gov. Jenniffer González Colón about ways the commonwealth could contribute the money.

The commonwealth has large monetary reserves and González Colón has talked about using these reserves to pay PREPA creditors and bring the 7.5-year bankruptcy to a close. Mujica said he hasn’t yet started the conversations.

The amount of net revenues available is important because the First Circuit Court of Appeals has repeatedly ruled and affirmed in the last several months that the bondholders have a perfected lien on PREPA’s net revenues.

PREPA’s average generation facility is 40 years old, Mujica said. The authority has suffered from decades of lack of investment. The system’s reliability was deteriorating over the past year, he said.

The new fiscal plan looks more objectively at the system’s needs than past fiscal plans did, Mujica said. The past ones assumed a fixed amount of money was available from rates, since it seemed they were going to remain stable and this fact affected the amount the plan projected would be needed for updating and fixing the system. Now the Puerto Rico Energy Bureau is considering revising the island’s electrical rates.

For PREPA to pay all the debt due and all the pensions it has promised, PREPA would have to increase rates by 10 cents per kilowatt-hour, Mujica said. On top of that, it would have to increase rates substantially to renovate the generation, transmission, and distribution system.

The resulting increase couldn’t be done without substantially harming Puerto Rico’s economy and people, Mujica said.