WAPA cannot pay debt without $375M inflow, study says

The U.S. Virgin Islands Water and Power Authority cannot pay its short- and long-term liabilities without an infusion of at least $375 million or other new major shifts, according to a recent turnaround firm study.

EY Parthenon presented the study to the islands' governor, in late January and the report, originally meant to be private, became public Monday.

The report says WAPA's current strategic plan "does not include the ability to repay legacy liabilities and the respective debt service" and it says "WAPA is in the process of engaging a registered municipal advisor to help evaluate financial strategy."

WAPA told The Bond Buyer it was finalizing a contract with an advisor and once the contract was finalized it would make the advisor's name public.

WAPA management is planning to consolidate its current debt and legacy liabilities and provide liquidity in a single term loan, the report said.

WAPA said it is implementing several initiatives, including completing a solar farm on St. Croix and transforming generation in a St. Thomas power plant, that allow increased use of lower cost energy sources.

"Our team looks forward to reviewing the assessment report and the key action items that will be outlined in the forthcoming recommendations report, expected in the next 60 days," said Karl Knight, WAPA CEO, in late January. "This comprehensive process highlights the fragile nature of the authority's finances and the critical need to address the immediate priorities identified during the Energy State of Emergency declared in April 2024."

John Hallacy, president of John Hallacy Consulting LLC, said, "Raising rates is only feasible to a point. Even then attaining sufficient cash flow may not be easy to reach. Some kind of restructuring is likely to be required."

The WAPA power division had $203.6 million in bonds and bond anticipation notes outstanding as of June 30, 2024. It had total liabilities of $1.242 billion.

The WAPA water division had $2.7 million of long-term debt and $109 million of liabilities.

The electric rate in 2024 for a user of 100 kilowatt-hours per month was $0.42/kwh, the fourth highest in the Caribbean.

The report said there were four possible types of solutions to WAPA's problems: government/other financial support, operational improvements, asset monetization strategies, and debt forgiveness from existing creditors.
Neither WAPA nor the U.S. Virgin Islands government is eligible for Chapter 9 bankruptcy. Nor are they covered by the Puerto Rico Oversight, Management, and Economic Stability Act.

The authority's projected improved cash flows "appear to be insufficient to pay debt service and legacy liabilities," EY Parthenon said.

WAPA needs an infusion of $375 million to $498 million, assuming no rate increases and no other major new strategic initiatives, the report said.

Current strategic initiatives lack a detailed action plan and depend on federal funding.

WAPA's current situation, the report said, is one of liquidity shortfalls, delays in paying vendors, high turnover in staff, high financial leverage, structural deficits and electric rates inadequate to cover costs and capital maintenance.