PREPA’s Problems after the FTI Report

PREPA bravely posted the FTI Capital Advisors, delivered to Forbearing Bondholders on November 15 in its website on November 17. Kudos for transparency. The report, however, shows a bleak picture. Although it tries to put the blame for the utilities problems in its customers, it is clear that is not the case. The problem, as much in PR, is the Government. According to the report and depending where you read, PREPA has 288 government clients, which includes all municipalities, PR’s public corporations and the government in itself. At page 16, the FTI report states that public corporations debt with PREPA is $212.5 million as of 9/30/14. At page 18, the FTI report states the debt owed to PREPA by the Government is $76 million. At page 20, the FTI report states the debt owed to PREPA by the municipalities extends to $421 million dollars. If we add them all, this amounts to $712.5 million, much greater than the $534 over 120-days accounts receivable of all other clients, see page 11 of the FTI report.

FTI has excellent ideas on how to recover accounts receivables from customers, including being more aggressive in disconnecting service and more lax in reconnecting and credit checks on new accounts, but is decidedly timid in how to recover from the Government. It states the obvious, PREPA needs the income, it could cut service to non-essential government agencies, etc., but comes far short of dealing with the fact that the Executive dominates every part of the government, including public corporations and will not allow the utility to cut its supply. Given the dire straights of the Government’s budget and collection shortfalls, this area is not likely to change. It even suggests writing off the old debt and assigning it to the consumer. The question now is how is PREPA going to handle this situation in its business plan of December 15? If the solution is as lame as the one’s provided by FTI, will the Forbearing Bondholders demur? Questions, questions galore and no answer in sight.