The $869 Million Millstein Question


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In one of my previous blog post, I discussed that PREPA had made a deal with Free Point Commodities, LLC, to buy fuel for its plants and that Stone Point Capitol has investments in Free Point Commodities, LLC, AND in Millstein & Co., Jim Millstein is also is the Chief Executive Officer of Millco Advisors, LP, and Millstein & Co., which raises several flags.


Both Bloomberg and Business Wire have reported that Jim Millstein is involved in the restructuring of PREPA. In addition, sources tell me half of the meetings dealing with the PREPA restructuring have been in his office.


Upon further investigation, the timing of the Stone Point Capitol investment in Millstein & Co. is disturbing. In July 9, 2015, both parties announced that the former had acquired a minority interest in the latter. It also states “Millstein & Co. will use proceeds of the investment to bolster its principal investment business.” This means the transaction brought actual cash to Millstein.


On August 24, 2015, PREPA announces that it has reached a $869.6 million deal with Free Point Commodities, LLC. We all know that negotiations for such a huge contract take much more than 46 days so when Stone Point Capitol purchased an interest in Millstein & Co., these negotiations with its subsidiary were ongoing or about to begin.


Question is, what involvement, if any, did Jim Millstein have in the negotiations of such an important fuel contract? Did the purchase of an interest in Millstein & Co. have anything to do with the contract negotiations of this contract? The people of PR have a right to know what are its advisors up to. Explanations are in order.








On Friday night we all went to bed thinking PREPA had obtained a new extension but woke up to the end of the Forbearance Agreement. On the one hand, PREPA says the bondholders wanted further guarantees before they lent it $115 million such as the approval of the Energy Board to the rate increase, which would take months without PS 1523 being approved. On the other hand, the bondholders blame PREPA for the break-up of negotiations.


What happened? What are the implications of what we know? Let’s see the history of this problem.


PREPA realized in June of 2014 that it would not be able to pay its bondholders in July. The Board brought the problem to the Governor and it decided to take the money to pay bondholders from reserves. This was a technical default of the 1974 PREPA Bondholders Agreement. Due to this, PREPA and its bondholders sat down to talk. On August 14, 2014, PREPA announced agreements with its creditors, the so-called “Forbearance Agreement”, which included that the company had to hire a restructuring officer that would be approved by the Forbearing Bondholders. As per the agreement, on March 2, 2015, PREPA was to deliver a business plan and the agreement was to expire on March 31. On March 30, PREPA announced a 15-day extension on the Forbearance Agreement. On April 15, it announced another 15-day extension and on April 30, 2015, one until June 4, 2015. On June 1, PREPA presented to bondholders the Recovery Plan but not to the public.


On June 5, PREPA announced another extension to the Forbearance Agreement until June 18, 2015. On June 18, another extension was announced until June 30, 2015. On July 1, 2015, an extension was announced until September 15. On September 2, 2015, PREPA announces agreement with 35% of its bondholders. On September 21, an extension was announced until October 1, 2015, which was again extended to October 15, which was again extended on October 23 until October 30. It was extended again until November 3. On November 3, the Restructuring Support Agreement (RSA) is announced and on November 10, 2015, Ms. Lisa Donahue testified before the PR Senate Energy Commission on behalf of the PREPA Revitalization Act, which implements parts of the RSA. The RSA states RSA that PREPA must make a rate review request from the PR Energy Board no later than December 21 and that the Legislature must approve the bill no later than November 20 2015. It also states that the rate increase must be in place on or before March 1, 2016 pages 31-32 of the RSA.

Since the bill, PS 1523, had been filed on November 4 and had 159 pages, the legislators, with good reason demurred. Subsequently, everyone assumed Governor García Padilla would call for an extraordinary but he refused. The RSA was extended to December 17 and then December 23 and finally to January 22. On December 23, PREPA announced an agreement with the monolines and now had 70% of bondholders on line with the RSA.

Continuing with these events, Ms. Donahue told the US Congress on January 11, 2016 that PREPA could not get a better deal in Chapter 9 or that its rates would go down under that regime starting at 1.07 minutes Moreover, she said PREPA would run out of money to pay for fuel and that there would be blackouts.  See also Ms. Donahue’s testimony at 1.19 minutes.

What does all this mean? Why has a deal with 70% of bondholders on board, vital to PREPA gone down the tubes? We don’t know yet but there are various possibilities. I have always believed PS 1523 did not have the votes to be approved in the House where a group of six leftists legislators could with three votes block any legislation. Also, the PR Legislature wanted to change the bill substantially. Obviously, this is not what bondholders wanted to hear.

Today, Governor García Padilla made a press release emphasizing the need for the PREPA bill to be approved, but he forgets he did not call for an extraordinary session to discuss the law in December, wasting precious time. In addition, he said, “Our legislature has requested more time to bring to the table other options, other proposals.” After 18 months of negotiations, it is surprising and irresponsible for the legislature to require time to bring about “other options, other proposals.” Good or bad, Ms. Donahue is the person designated by PREPA to do the negotiations, which were approved by the PREPA Governing Board. To change things now would mean months of negotiations and the distinct possibility that bondholders would not accept them.

The more we read of this press release, the more it is obvious that the Governor does not have control of his Legislature. Also, although the Governor acknowledges the need for the agreement due to the difficult situation with PRASA and the Government’s debt, he arrogantly says at the end of the press release “I warn creditors, at the same time, it is not time for pressure games. I accept reasons, not pressures.”

It almost seems that the Governor, PREPA and their advisors have decided to scuttle the agreement in order to push Congress for a Chapter 9. It was clear that this agreement belittled the need for PR to have access to bankruptcy. By playing the blame game, PR could be hoping to move a reluctant Congress. The problem with that is that now creditors can claim that PREPA did not negotiate in good faith, a requirement of Chapter 9, see, 11 U.S.C. § 109(c). Bondholders accepted haircuts, offered to provide money, granted several extensions to continue negotiating, all to naught. In any event, this situation will make the eligibility issue a mayor battle if Chapter 9 was authorized for PR.

Question is, what now? Bondholders could decide to buckle and accept PREPA’s refusal and continue negotiating a deal until July when the company must pay over $400 million in bonds as well as over $700 million to banks for fuel purchase. On the other hand, bondholders could get tough and file on Monday a request in federal court for the appointment of a receiver to run PREPA and get paid. Or they could do both. Who wins? The lawyers involved in the litigation. Let’s see what happens.

El Acuerdo de Bonistas de la AEE

El acuerdo del Ad Hoc Group (que posee aproximadamente el 35% de los bonos en circulación de la AEE) con la AEE conlleva lo siguiente:

  • El Grupo Ad Hoc de bonistas intercambiará todos sus bonos de rentas por nuevos bonos titularizados(securitization notes) que deberán obtener calificación crediticia de “investment grade”y representarán el 85% del valor de los títulos que intercambian.


  • Los bonistas  tendrán la opción de recibir (i) bonos de titularización (securitization bonds)que pagarán un interés en efectivo a una tasa de entre 4.0% y 4.75%, dependiendo de la calificación crediticia que reciban(“Bonos opción A”) o (ii) bonos de titularización convertibles (convertible capital appreciation securitization bonds) que capitalizaran intereses durante los primeros cinco años a una tasa de entre 4.5% y 5.5%, y pagaran intereses corrientes no capitalizables y en efectivo a partir del quinto año (“Bonos opción B”).


  • Los Bonos opcion A pagaran únicamente intereses durante los primeros cinco años y los Bonos opción B capitalizaran intereses pero no recibirán pagos de intereses en efectivo durante los primeros cinco años. Todos los bonistas no asegurados tendrán la misma oportunidad de participar en el canje. 
  • El Ad Hoc Group de tenedores respaldará, conforme a términos que serán acordados de buena fe, un financiamiento que le permitiría a la AEE adquirir en efectivo los bonos que poseen los acreedores que no suscribieron los acuerdos de indulgencia.


Esto lo que quiere decir es que el 35% de bonistas van a cambiar sus bonos. Sugiere que la AEE buscará financiamiento para comprar el resto de sus bonos, obviamente al precio de Mercado (como 50% de su valor), pero no puede obligar a los tenedores de estos bonos a venderlos a ese precio. Obviamente estos bonistas quieren el 100% de su valor o el pago de la obligación. O sea, que este acuerdo no es ni siquiera con la mayoría de los bonistas y claramente no obliga al resto. Falta mucho por recorrer.