After four postponements and, above all, three restructuring agreements, the negotiations of which cost the treasury millions of dollars, the Fiscal Oversight Board (JSF) has put an end to the mediation process with the groups of creditors of the Electric Power Authority (AEE).
Upon expiration of the term to extend the mediation process until September 30, the Board informed the federal district judge Laura Taylor Swain his decision in an urgent motion filed at the stroke of midnight.
In making such a statement, the Board suggested to Swain, who has presided over Puerto Rico’s bankruptcy process for five years, that he give way to the litigation regarding the validity of the debt issued by PREPA and the payment rights and priorities. that the bondholders of the public corporation claim to have.
The organization proposed to Swain to begin the judicial process as soon as next September 30 with the rigorous amendments to the adversary processes and that were stopped by previous agreements between the parties.
Under the proposed schedule, the various stages of the litigation would continue through the remainder of 2022, including the presentation of evidence and the trial on its merits. The judicial process would end by April 2023, according to the calendar suggested by the Board.
“The (BOB) needs to restructure PREPA’s debt through an Adjustment Plan that allows PREPA to reduce access to markets at reasonable prices,” reads the motion, which adds that the balance of the financial reorganization of PREPA must be an electric company that provides a reliable service to the population.
In its brief, the Board assured that it is still interested in reaching a consensual agreement, but in the face of the impasse, the “practical” solution is to resolve the controversies that prevent reaching an agreement.
According to the document, the Board chose to end the negotiations when it was unable to consolidate an initial understanding with the municipal insurers National Public Finance Guarantee Corp., Assured Guaranty Corp. and Syncora Guarantee, Inc. as well as with the bondholders organized by PREPA (Ad Hoc- PREPA).
“The parties have marked differences as to what a reasonable agreement should be,” reads the Board’s motion.
“The objective of the (BOB) has always been to reach an agreement that reduces PREPA’s debt to affordable levels,” said the president of the Board, David Skeelin a statement published minutes after the filing of the motion in court.
“The cost of any repayment of the debt would fall on PREPA subscribers, and the (BOB) carefully analyzed what we can expect Puerto Rico residents and companies to pay for electricity. Electric rates are key to the economic future of Puerto Rico,” Skeel stressed.
El Nuevo Día learned that the investment firms, owners of over $500 million in lines of credit granted to PREPA for the purchase of fuel, did not accept the conditions proposed by the Board.
However, sources from this newspaper assured that both the Ad Hoc-AEE and the municipal insurers were willing to continue the negotiations.
Last night, The Wall Street Journal anticipated the failure of the negotiations.
split decision
“An agreement to get out of bankruptcy and avoid costly and prolonged litigation with PREPA’s largest creditors was clearly within reach, but instead of reaching an agreement, the Board has withdrawn at the last minute,” lamented the director of the JSF, Justin Petersonwho spoke on behalf of the dissenting votes within the body.
The Communications strategist and co-founder of DCI Group called the agency’s determination “extremely disappointing.”
Peterson recalled that in the past eight years, thousands of savers in the United States and Puerto Rico have not received a penny for the bonds they bought from PREPA and have been treated without care,” said the Communications strategist, appointed by the former president. Donald J. Trump.
The manager also argued that a consensual agreement was the best solution for all parties, because it would have served to materialize the investments of the private sector in the island’s electrical system and that they would be key to generating clean energy at an affordable cost.
“All of this (private sector investment) can be delayed for years due to the Board’s preference for litigation rather than settlement,” Peterson said.
critical situation
The Board’s decision comes just as millions of US citizens in Puerto Rico are preparing for the passage of tropical storm fiona and they remain on edge before the possibility of the electrical system collapsing, as happened about five years ago with the passage of Hurricane Maria.
Likewise, although there were no guarantees of success, the Board suspended negotiations with PREPA’s main creditors just days after the agency and the Mediation Team at PREPA said otherwise.
“The Board believes that progress has been made with PREPA bondholders and municipal insurers, particularly with respect to the structure of certain securities that would be issued as part of any consensus adjustment plan,” the Board said in a letter to the Board. judge on September 1.
Negotiations also come to an end while in Puerto Rico, a debate is raging over the permanence of the electricity operator LUMA Energy.
Currently, the Canadian-American consortium operates under a supplemental agreement subject to PREPA exiting the bankruptcy process on or before November 30. At that time, as El Nuevo Día reported on August 31, it is LUMA, the party that could terminate its obligations as operator of the electricity grid, although the government could request that the contractual relationship be maintained.
In the 34-page document, the Board praised the Mediation Team; He was optimistic that Swain will appoint them again and maintained that clarifying the rights of creditors should contribute to presenting a PDA agreed between the parties.
On September 8, after a request from the mediating judges -Shelley C. Chapman, Robert D. Drain and Brendan L. Shannon- and a motion from the Board to that effect, Swain gave the parties until 11:59 p.m. on Friday, September 16 to complete the negotiations. In said order, Swain also granted the Mediation Team the discretion to continue at the negotiation table until September 30, subject to the judges informing the court of the new postponement.
This morning, the judicial file of the Title III process in PREPA did not report any notice by the mediating judges, but rather the urgent motion of the Board.
Thus, the Board has opened the door to the judicial struggle that it sought to avoid since last May. Then, despite the fact that the Unsecured Creditors Committee (UCC), the Union of Workers of the Electrical and Irrigation Industry (Utier) and the PREPA Retirement System told Swain, on several occasions, that resolving legal controversies regarding the debt of the public corporation did not prevent them from continuing at the negotiating table, the Board insisted on postponing such a scenario. On each occasion, Swain assented to the prosecuting agency’s requests.
Until last July 20, according to the annual report of the Board, the professionals who charge their fees to Puerto Rico taxpayers for participating in the Title III process had invoiced some $1,217 million.
In that report, where it was hoped to complete PREPA’s restructuring by consensus, the Board estimated that between fiscal years 2018 and 2026, the bankruptcy process in Puerto Rico will cost some $1.6 billion.