About half of the bond investors and insurers of Puerto Rico Electric Power Authority are near to supporting a deal to restructure the utility's more than $8 billion of debt.
Bond insurer Assured Guaranty said Tuesday that it was close to signing a “definitive” restructuring support agreement with the Puerto Rico Oversight Board. The insurer’s lawyers made the statement in a filing in PREPA’s Title III bankruptcy case that was also signed by lawyers for the board, Puerto Rico Fiscal Agency and Financial Advisory Authority and PREPA.
As of February 2017 PREPA had $8.3 billion in bond debt outstanding. Assured insures $848 million of PREPA bonds.
If the insurer approves on the restructuring agreement, it could be a decisive step to completing a PREPA bond restructuring that has been since spring 2015. On April 1, 2015, PREPA drew on its debt service reserves, in contravention of its bond indenture. Since then its bond insures, bondholders and other creditors have been alternating between discussions with PREPA and fighting it in court concerning how to restructure the debt.
Under the Puerto Rico Oversight, Management and Economic Stability Act, an agreement signed by those holding at least half of the par value of outstanding bonds would have a good change of passage.
A group of known as the Ad Hoc Group of PREPA bondholders reached a preliminary Restructuring Support Agreement for PREPA’s debt in July 2018. This was a preliminary deal for restructuring the debt. Since then there have been back room negotiations to bring one or more of the bond insurers into participating.
In an alternate effort, bond insurers had filed a motion in the Title III court in summer 2017 for a receiver. In September 2017 Title III Judge Laura Taylor Swain issued a ruling that said that she had no right to appoint a receiver and questioned the wisdom of doing so.
In August 2018 a three judge panel for the U.S. Court of Appeals for the First Circuit reversed Swain’s denial of the bond insurers’ request for relief from Title III’s automatic stay and called for “further proceedings consistent with this opinion.” The panel judges said that the bondholders and bond insurers should petition Swain to reconsider in light of their decision and the passage of time.
In October 2018 National Public Finance Guarantee Corp., Assured Guaranty Corp., Assured Guaranty Municipal Corp., and Syncora Guarantee Inc. filed their motion for a PREPA receiver with the U.S. District Court for Puerto Rico, where the Title III cases are being heard.
The case for a receiver currently has a deadline of April 12 for the respondent (the Oversight Board as representative for PREPA) to respond to the insurer motion for a receiver. On Tuesday Assured, the board, PREPA, and FAFAA filed a motion to delay the pre-hearing deadlines by two weeks.
The moving parties “are in the final stages of documenting and executing the agreement” for a debt restructuring, they told the court.
“Moving forward with the current schedule my destabilize the moving parties’ settlement and divert needed resources just when they are reaching the proverbial goal-line,” the moving parties stated.
After months of negotiations among the moving parties and the Ad Hoc Group of PREPA Bondholders, Assured is now close to signing on to a negotiated revised RSA. According to the motion, National and Syncora, which insure less than 15% of PREPA's bonds, aren't supporting the new RSA.
In the RSA negotiated in July bondholders would exchange outstanding PREPA debt for two new classes of new securitization bonds. Tranche A, which is expected to mature in 40 years, would be exchanged at 67.5 cents on the dollar of existing bonds. A second group of Tranche B “growth” bonds, which would be tied to the economic recovery of Puerto Rico and mature in 45 years, would be exchanged for 10 cents on the dollar of existing bonds.
The terms of the revised RSA under negotiation have not been released. Assured said that the terms of the revised RSA would be made public if and when a definitive RSA was reached.
On Wednesday morning Swain set a deadline of 2:00 p.m. Wednesday for filing opposition to the motion to extend the deadline and 5:00 p.m. for replies to the opposition.
