The Puerto Rico Oversight Board slashed its allotment for Puerto Rico Electric Power Authority bondholders by more than 50% Friday, saying it could guarantee a payment of just 12.5% of par to non-settling bondholders.
The bondholders are owed $8.5 billion of par value, but the board said Friday PREPA can afford to pay just $2.4 billion to all bondholders, settling and non-settling. This compares to the $5.6 billion that it said it expected PREPA to be able to pay in the plan of adjustment it proposed this winter.
This "may increase the chances of dismissal," Puerto Rico Attorney John Mudd said on his blog page, although he doesn't expect dismissal.
If the judge dismisses the case, bondholders could seek a receiver from the local Puerto Rico courts. At least in theory, the receiver could impose rates to pay off the bonds' debt in full.
Several of U.S. District Judge Laura Taylor Swain's decisions are likely to be appealed to the First Circuit Court of Appeals before a plan of adjustment is approved, a financial professional close to the PREPA bondholders who does not hold any PREPA bonds, said before the board's filing. Approval, he said, will be a long process.
The board's latest proposal came after it approved a new version of PREPA's fiscal plan Friday. The updated amount allowed for bond payment "reflects
"The guiding principle for all debt restructurings is sustainability," said Board Chairman David Skeel. "The Oversight Board has been analyzing carefully and dispassionately how much debt PREPA can pay and made that determination strictly based on the most recent available data."
In its informative motion filed Friday the board said the fiscal plan is projecting "substantially lower" electric demand and "substantially higher" costs in coming years.
The board said it would guarantee a "minimum distribution" of 12.5% of par to non-settling bondholders. Outside of National Public Finance Guarantee, less than 1% of the bondholders have placed themselves in the settling group.
The board said in the plan of adjustment it plans to submit to the court, it would offer a second contingent vehicle instrument payment to non-settling bondholders in addition to the one in the winter's proposed plan of adjustment.
As described in Friday's motion, existing bonds will be replaced with two bonds, Series A and Series B. Series A would be used to pay fuel line lenders and Series B would be used to pay other creditors.
The Series A bonds will be paid off first, but the maturity would be extended beyond the five years found in the winter plan, although how far was not specified. The Series B bonds would continue to have a final maturity of 35 years, but the weighted average life would increase.
Both series would retain a 6% interest rate.
The board said there would be improved bondholder rights with the new bonds, including providing a gross pledge of revenues rather than a net pledge of revenues and a provision whereby PREPA will not be able to use legacy charge revenues to pay operating expenses unless a force majeure event occurs.
The latest developments come just after Swain
The Ad Hoc Group of PREPA Bondholders did not immediately respond to a request for a comment.
