The Puerto Rico Electric Power Authority's $2.3 billion recovery plan has some "unworkable" aspects, according to a financial advisor to the utility's bondholders.
Lisa Donahue, chief restructuring officer for PREPA, presented a restructuring plan Monday in New York as the utility negotiates with forbearing creditors to avoid a default on more than $8 billion of debt, which would be the biggest U.S. municipal bond history. PREPA needs to come up with a plan before a June 4 forbearance agreement deadline expires.
"While elements of the plan were positive from our perspective, there were also aspects that were unworkable and will require further negotiation," said Stephen Spencer, managing director of New York-based Houlihan Lokey, financial advisor to the PREPA bondholders. "Overall we feel the plan provided a basis for this further collaboration, and we remain committed to finding a fair solution for all parties."
Specific details of the PREPA proposal weren't released. Reuters reported before the plan was presented that it was likely to include some "sacrifices" by creditors such as extending maturities and forgoing interest payments.
PREPA issued a statement summarizing the plan, which provides for a capital investment of at least $2.3 billion over the next five years including construction of the Aguirre Offshore Gas Project. The utility said full plan details won't be released until negotiations have concluded. Discussions on extending the forbearing agreement are also "continuing," with an announcement expected before the June 4 deadline.
"Delivery of the proposed recovery plan today to our creditors is another major milestone and demonstrates that we are continuing to make progress in our efforts to transform PREPA," Donahue said in a statement. "We look forward to continuing to work closely with all of our stakeholders to come to an agreement on the path forward for PREPA."
PREPA said the recovery plan will provide opportunities for third parties to take part in a competitive bidding process in building and operating new power plants. Third parties would also have the opportunity to manage and operate the utility's existing assets.
Chris Foster, managing director at New Oak Capital, said he was encouraged that Donahue is seeking outside capital as part of the recovery plan to reassemble the utility's infrastructure. He emphasized a key to a successful plan will be providing enough of a duration for new notes during the exchange offer.
"They need to be very creative with the structure of new bonds," said Foster. "Creativity wins and gives people what they want."
Chris Foster, managing director at New Oak Capital, said he was encouraged that Donahue is seeking outside capital as part of the recovery plan to reassemble the utility's infrastructure. He emphasized a key to a successful plan will be providing enough of a duration for new notes during the exchange offer.
"They need to be very creative with the structure of new bonds," said Foster. "Creativity wins and gives people what they want."
Standard & Poor's downgraded PREPA to CCC-minus from CCC in late April saying that a default seemed "inevitable" within six months. Moody's Investors Service and Fitch Ratings have also said that a PREPA default is likely.
"We are focused on achieving a consensual restructuring and optimizing our operations for the benefit of the people of Puerto Rico," said Harry Rodríguez, president of PREPA's Governing Board. "The Governing Board extensively discussed the recovery plan with PREPA's advisors and made a fully informed decision before approving the delivery of the recovery plan to creditors."
The Government Development Bank for Puerto Rico said the PREPA plan is a big part of the commonwealth's efforts to turn around a struggling economy.
"PREPA's proposed turnaround plan and the extension of its forbearance agreement with creditors is an important part of our efforts to successfully guide Puerto Rico on a path to fiscal health and stability," said a GDB spokesperson.
