Lisa Donahue

PREPA DEAL GONE WRONG

 

 

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.

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LAS FUNCIONES DEL RESTRUCTURING OFFICER

Hoy la escritora Mayra Montero, cuyas columnas usualmente admiro, publica una que denota falta de conocimiento del Forbearance Agreement y de la Ley 71-2014, conocida como la “Ley para el Cumplimento con las Deudas y para la Recuperación de las Corporaciones Publicas de Puerto Rico” (quiebra criolla).  Y ella no es la única con esta posición ya que varios analistas radiales y periodistas siguen con este sonsonete.

Lisa Donahue no es un síndico. Un síndico es una persona nombrada por ley, por el Tribunal o por contrato para administrar un bien a nombre y beneficio de otro.  Es una figura que viene a PR del Common law norteamericano y que se usa muy poco aquí. Su uso en PR es mayormente en la Corte de Quiebras y a través de la Regla 66 de Procedimiento Civil Federal.

Aunque es una imposición de los bonistas y bancos el que se nombrase un Restructuring Officer, sus funciones fueron claramente delineadas en el Forbearance Agreement, específicamente a las páginas 73-74. Estas son:

The Chief Restructuring Officer (“CRO”) shall report to the Board of Directors (the “Board”) of the Puerto Rico Electric Power Authority (“PREPA”).

The CRO shall work alongside PREPA’s CEO (Executive Director) to develop, organize and manage a financial and operational restructuring of PREPA on terms to be approved by the Board.

The CRO shall, subject to applicable law and regulations:

1.  Provide overall leadership of the restructuring process.

2.  Serve as the primary point of contact on behalf of PREPA in communications and negotiations with PREPA’s creditors.

3.  Provide expert testimony with respect to any case filed by PREPA under provisions of Chapter 2 and/or Chapter 3 of the Puerto Rico Public Corporation Debt Enforcement and Recovery Act.

4.  Serve on and participate in the Integrated Resource Plan (“IRP”) committee.

5.  Lead PREPA’s process to develop a comprehensive business plan (the “Business Plan”) which will serve as the underpinning for the overall Restructuring.

6.  Work alongside PREPA’s CEO to improve PREPA’s worker protection and safety record

7.  Work alongside PREPA’s CFO to lead the efforts for any revenue improvement and cost reduction plans that are necessary or appropriate for the implementation of the Business Plan.

8.  Work alongside PREPA’s CFO to oversee and implement cash and liquidity management/preservation activities.

9.  Work alongside PREPA’s CEO to improve analysis, tracking and collection efforts and related processes for accounts receivables.

10. Work alongside the CEO to review, refine and implement improvements to PREPA’s capital expenditure plan, including the timing and amount of capital expenditures.

11. Work alongside the CEO to develop generation, transmission, distribution and other operational improvements

12.  Attend and participate in all meetings of the Board.

13.  Subject to the approval of the Board and CEO, appoint additional officers that report to the CRO, with responsibilities for specific operational and financial aspects of the Restructuring.

Esta lista de funciones claramente denota que Ms. Donahue trabaja para la AEE, hará recomendaciones pero la Junta tendrá la última palabra. Ella NO trabaja para los bonistas. El Forbearance Agreement si indica, sin embargo, tendrán acceso razonable a ella, ver página 9 del acuerdo.

Sus funciones principales serán de servir de enlace con los bonistas, servir de perito en los Capítulos 2 y 3 de al quiebra criolla y ser la líder del “business plan” que la AEE tiene que entregar a los bonistas para el 15 de diciembre. Este business plan es importante y consta de;

 The business plan (the “Business Plan”) will be based in part on the integrated resource plan referenced in Section 4(e) of this Agreement, as well as the work of PREPA, including a chief restructuring officer or similar officer, once appointed, and PREPA’s advisors in respect of operational and financial improvements for PREPA. The Business Plan will include, but will not be limited to (i) a monthly set of financial projections (profit and loss statement, balance sheet, cash flow statement) for the fiscal year beginning July 1, 2015, a quarterly set of financial projections for the fiscal year beginning July 1, 2016, and annual projections for the three (3) fiscal years beginning July 1, 2017, (ii) projections for maintenance, development and environmental capital expenditures during the period covered by the Business Plan, and (iii) a proposed set of cost saving and revenue enhancement initiatives to be evaluated for implementation prior to and during the period covered by the Business Plan. For purposes of clarity, the Business Plan shall not include a proposed capital structure for PREPA or proposed adjustments to the existing debt of PREPA. (acuerdo a la página 9)

En otras palabras, lo que le interesa a los bonistas es como la AEE va a reestructurar su negocio para poder pagar lo que debe. El business plan NO incluye una suspensión o cambio de las obligaciones financieras de la AEE y por ende no es la función de Ms. Donahue. Sin lugar a dudas solo lo puede hacer siendo más eficiente, lo cual también beneficia a los consumidores. Claramente, esto contempla que se aumente la tarifa. Antes de que linchen a Ms. Donahue, recordemos que bajo la Ley 57-2014, conocida como la Ley de Transformación y Alivio Energético de Puerto Rico, en su inciso 6.25, establece que la Junta de Energía, no más tarde de 180 días de que se firmará, tiene que comenzar la revisión de la tarifa de electricidad y no puede tardar más de 6 meses. Esto comenzaría al final de octubre de 2014 hasta abril de 2015.

Mayra Montero nos dice en cuanto a los municipios que “la señora Donahue les echará enseguida el ojo. Y no sólo les echará el ojo: los alcaldes tendrán que buscarse la vida procurando que sea el sufrido pueblo trabajador el que pague directamente por la electricidad que ellos derrochan. Ahora la pagamos también, pero con intermediarios.” Sin embargo, el Forbearance Agreement nos dice que la AEE deberá:

 “hire FTI Consulting, which shall consult in good faith with the Forbearing Creditors in the course of its work to ( w) examine, evaluate and make recommendations with respect to PREPA’s billing practices, (x) examine, evaluate and make recommendations with respect to collection of the outstanding receivables owed to PREPA by the Commonwealth, and the public corporations, agencies, municipalities or other instrumentalities of the Commonwealth, (y) examine, evaluate and make recommendations with respect to CILT, and (z) develop and recommend “best practices,” and a proposed timeline for implementing such best practices, in a report to be produced to PREPA no later than November 15, 2014 (with a copy to the Forbearing Creditors) “(página 15 del acuerdo. CILT es la contribución en lugar de impuestos que paga la AEE a los municipios)

Irónicamente, la Ley 57-2014 (sección 2.10) requiere que la Junta de Energía no más tarde de 180 días de que se firme la ley tiene que emitir regulaciones sobre la contribución en lugar de impuestos. Pequeño conflicto entre los acuerdos y la ley, lo que demuestra que el proyecto emblemático del Senador Bhatia es letra muerta.

Así que Ms. Donahue no va a tener que bregar con los municipios o el gobierno central. Eso lo hará otro. Más aún, Mayra Montero, la prensa y los analistas no entienden la interacción del Forbearance Agreement, la inercia de la AEE y la quiebra criolla.

Claramente Ms. Donahue hará múltiples recomendaciones que serán antipáticas al gobierno de Alejandro García Padilla y la AEE aceptará algunas y otras las rechazará. Ms. Donahue comunicará sus recomendaciones a la Junta de la AEE y a los bonistas. El 15 de enero de 2015, el 25% de los Forbearing Bondholders podrían decidir no seguir con el acuerdo y este se disolvería, esto es 30 días después que se entregue a ellos el business plan. Esto llevará a la AEE a la quiebra criolla. Muchas personas bien conectadas me han indicado que todo este embeleco del Forbearance Agreement y el restructuring officer es solo una manera de la AEE ganar tiempo para luego ir a la quiebra criolla.

Aún si los bonistas continúan el acuerdo, no hay duda se usará la quiebra criolla. Bajo el Capítulo 2 o 3, no solo la AEE detiene el pago de las deudas que desee, si no que puede aumentar las tarifas sin tener que esperar a la Junta de Energía, que carece en este momento del personal para evaluar cualquier cambio, puede alterar los términos de los convenios colectivos de sus uniones y hasta puede vender partes de su estructura. Más aún, si leemos a los analistas financieros de USA que siguen esta controversia, vemos que todos concurren que los bonistas sufrirán un recorte. Ya que el 30% de ellos son boricuas, esto afectará a muchas cooperativas y retirados, aumentando la miseria aquí. Los que tal vez no les importe mucho los recortes es a los hedge funds (conocidos como fondos buitres) ya que compraron a grandes descuentos y aún cuando se le recorte, ganarán dinero siempre y cuando la AEE pague sus deudas. A esto hay que añadir que para abril de 2015 la AEE tendrá que cumplir con las regulaciones de emisiones de mercurio. Sabemos que la AEE ha dicho que no puede cumplir y por ende tendrá que pagar multas que no puede evadir con la quiebra criolla. Ahorra por un lado, y paga por el otro.

Solo si examinamos los documentos de los acuerdos y las leyes que se han recientemente aprobado entenderemos las funciones de Ms. Donahue. No manda, pero sus recomendaciones tendrán peso. Veremos si la AEE las adopta.