This past week was an incredible whirlwind for PREPA. The Forbearance agreement with bondholders required PREPA to provide a business plan by December 15, 2014 and a “recovery program or debt enforcement plan” by March 2, 2015. It complied with neither. Ms. Lisa Donahue informed the public that PREPA had requested an extension until June to provide them but the forbearing bondholders remained silent.
During the weekend of March 27-29, PREPA and the bondholders continued negotiations to see if the authority would have to pay the banks $671 million once the Forbearing Agreement expired on March 31st. What we got was an agreement to extend the period to negotiate and the Forbearance until April 15 but at any time during this period 25% of the holders of interest could terminate the agreement.
During the negotiations, some say March 15, the Amendment to the Forbearance says March 26, the bondholders gave PREPA a proposal by Houlihan Lokey, PA Consulting and GE which was released to the public on March 31 The gist of the proposal is that these entities will provide funding to finish Aguirre, not increase rates and add more employment and renewable energy sources. Sounded great, maybe too great.
PREPA and Ms. Lisa Donahue were not happy with the disclosure of the offer by Houlihan & Co. Obviously, losing control of the plum of generation, the Aguirre plant and having to buy the electricity it generates does not seem to be appreciated by PREPA. Ms. Donahue hinted that the disclosure to the public was not complete but provided no new information. As usual, Governor García Padilla maintained his silence as if it were not with him or he was not in charge of Puerto Rico. Or perhaps he is waiting for Congress to amend Chapter 9 so he can continue controlling PREPA? The only problem is that Congress will not very likely act within the next eleven days, which is all the time left.
All this leaves the Puertorrican consumer floundering around. The consumer of electricity knows that PREPA has been floating around the idea of a rate increase and Houlihan’s offer seems to put that to rest. If PREPA does not accept the Houlihan offer, passed down with what one can assume is the Bondholders’ blessing, it could force them to withdraw from the agreement and proceed to sue the authority. What could happen later? The banks could sue PREPA for the $671 million and eventually win. Since the banks are not bondholders, the could not trigger the 1974 Trust Agreement remedies or 22 L.P.R.A § 207(b) remedies. As little as 25% of the Bondholders could, however, request a receiver pursuant to the aforementioned section and proceed to administer PREPA, with the probable power to raise rates. Whether this receiver would have the power to get into an agreement with Houlihan is questionable, however. When the Aqueduct and Sewer Authority of PR was to be administered by another entity, legislation had to be enacted. But if the Houlihan offer is declined, Bondholders may have no other recourse. Moreover, all this must be decided on or before April 15, 2015.
In any event, Houlihan’s offer should be carefully examined. The problem is that PREPA is as opaque as usual and will not provide the consumer with the information we need in order to understand what is being offered and if it is good or not so good. It seems that our political leaders have once again decided to deny us knowledge.