PREPA, board update plan of adjustment to reflect deal with unsecured creditors


The Puerto Rico Oversight Board issued a revised proposed Puerto Rico Electric Power Authority plan of adjustment that incorporates a recent deal with unsecured creditors, which sets aside $254 million more to pay them than the prior plan did.

The revised plan of adjustment, if approved, would pay off unsecured creditor claims using a combination of fixed and contingent amounts.

The revised plan released Friday anticipates PREPA putting $350 million of cash in a trust for the unsecured creditors, with the restructuring’s Series B bonds as a possible backup if there is insufficient cash. The Series B bonds will be split into B-1 bonds with 17-year maturities and B-2 bonds that mature in 35 years.

The PREPA bankruptcy progressed, as the Oversight Board reached a settlement with the Official Committee of Unsecured Creditors.

It also provides up to $140 million if the court reduces non-settling bondholders’ claims and up to $140 million for other reductions in creditor payments, but in no circumstances more than $200 million for both.

The revised plan also says unsecured creditors will be eligible for payment resulting from the court’s avoidance action rulings for particular unsecured creditors and may be eligible for contingent vehicle instrument payments..

As part of the restructuring, a group of investment funds including BlackRock would advance the cash to purchase the restructured bonds. Only the group around Blackrock would normally get the Series B bonds. Series A bonds will be issued to the fuel line lenders. Contingent vehicle instruments would be awarded to some creditors. Most bondholders would be paid primarily in cash at the restructuring’s effective date.

The Official Committee of Unsecured Creditors (UCC), which negotiated the deal with the board, said in October the unsecured creditors had more than $6 billion in claims.

All the creditors are voting on the proposed plan of adjustment this month, but following these changes, the unsecured creditors are more likely to support the plan in their class’s vote making it easier for U.S. District Judge Laura Taylor Swain to approve it.

The updated plan anticipates higher volumetric charges for PREPA residential, commercial, governmental, and industrial customers, including 12.5% to 13% increases in the general residential and industrial volumetric charge for consumption under 425 kilowatt hours per month. These charges will be used to pay off the new bonds.

“The Oversight Board’s agreement with the Official Committee of Unsecured Creditors is another significant step toward confirmation of the PREPA Plan of Adjustment,” said the Oversight Board in a written statement. “The agreement with the creditors’ committee shows the plan of adjustment has become attractive to on-island creditors as well as financial creditors. The Oversight Board has continued to work toward consensual agreements that help end this bankruptcy and stabilize PREPA, and reflect a fair deal for creditors’ allowed claims within PREPA’s and ratepayers’ financial means.”

Separately, PREPA sent amendments to its contract with private electricity generator AES to the Puerto Rico Energy Bureau for approval. This summer, AES defaulted on its municipal bonds issued through a Puerto Rico conduit.

The amendments would lead PREPA to charge more for electricity allowing it to pay AES more. If the Energy Bureau approves the amendments, the Oversight Board would review them.

“If PREPA has the economic capacity to absorb this cost, can’t it pay more to the bondholders?” Puerto Rico Attorney John Mudd asked on the X platform this weekend.

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