Today Metro reported that PREPA’s fuel supplier Petrobras America, cut off credit unless paid. Also, Noticel reported that on Friday that PREPA’S banks cut-off part of its’ lines of credit, forcing the agency to take $100 million from its Capital Improvement Fund (Fondo de Mejoras Capitales) to pay for fuel. This brings several questions to the forefront.
In 2013, PREPA issued $673,145,000 in Revenue Power Bonds, Series 2013a In its prospectus, PREPA states the Trust Agreement with Bondholders creates a Construction Fund and the proceeds of the type of bonds issued in 2013 for Improvements (which is what the Prospectus says) is to be deposited there and is to be held in Trust by the agency (page 119-120 of the PDF of the Prospectus).
If the proceeds of the bond issue was to be used for Improvements and assuming PREPA used $100 million of that Construction Fund for the purchase of fuel, was this contrary to the Prospectus and/or the Trust Agreement with Bondholders? If it is a violation, is it fraud? Is it a civil or criminal violation? Already Eduardo Bhatia, President of the PR Senate has stated it is illegal If it civil, who has standing? Clearly, the bondholders but will they act now or wait to see what happens? Will the SEC intervene?
Maybe more important is the fact that Metro’s original story states that the GDB is in New York negotiating PREPA’s restructuring. Would this be a violation of the Trust Agreement? How will this restructuring come about? These questions are far from being answered by the secretive PR administration any time soon. It is up to the federal agencies and the news media to do their homework.