(Bloomberg) -- There remains no clear path on how to best reduce the debt of Puerto Rico’s power utility, a mediation team warned US District Judge Laura Taylor Swain, who is overseeing the seven-year bankruptcy.
Recent negotiations have failed to bring about an agreement on how to restructure $9 billion of Puerto Rico Electric Power Authority debt or develop a framework on how to litigate certain disputes, the mediators wrote in their report that was filed Monday to the court. Litigation, as of now, would probably result in appeals and prolong the process, the mediators said.
“The mediation team believes there is simply no prospect for any mediated or consensual resolution here — and a litigated result is years away,” according to the mediation team’s report. “This is nothing short of a tragedy for the people of Puerto Rico.”
Swain may decide to bring up the issue at a court hearing set for Wednesday. In recent hearings she’s asked the parties to strike a debt deal or agree on a way to litigate issues that would move the restructuring process forward. Neither of those have happened, according to the mediation team.
Prepa, as the utility’s known, is the main supplier of electricity on the island. Its bankruptcy has been delayed by the commonwealth’s own restructuring, natural disasters and the pandemic. While creditors haven’t been paid in years, island residents pay some of the highest electricity rates in the US. Blackouts are common as the electrical grid is old and fragile.
The US Court of Appeals for the First Circuit last month ruled — for the second time — that bondholders have a lien not just on reserve accounts but also on the utility’s future net revenue as well. A federally appointed financial oversight board that manages Puerto Rico’s budgets and its bankruptcies last month asked the court for another rehearing on the issue.
An ad hoc group of bondholders that includes GoldenTree Asset Management, Assured Guaranty Inc., and National Public Guarantee Corp. has proposed trading in their Prepa securities for new 50-year bonds, with a portion of that debt repaid only if the utility has sufficient net revenue available, according to documents posted on the Municipal Securities Rulemaking Board’s website. The group is also offering to lend Prepa $2.5 billion through a bond sale to help the utility modernize its grid.
“The bondholders have proposed to resolve the Prepa case on terms that will promptly advance the interests of Puerto Rico in having a reliable power system, while ensuring that both electricity charges are fair and affordable and that the bondholders’ rights are respected,” the group said in a statement last week.
The parties still disagree on how much Prepa is able to repay over time. The oversight board is reviewing customer data from Luma Energy, which is managing the grid, and US Census Bureau for a debt sustainability analysis. That will be included in Prepa’s fiscal plan for 2024, which the board is seeking to approve by Dec. 31, according to a status report the oversight board filed to the court on Monday.
“The bondholders who refuse to consent to a Prepa plan of adjustment reiterate their vague and unspecified terms to resolve Prepa’s bankruptcy but continue to be unwilling to accept that Prepa cannot afford the nearly full recovery of the $8.5 billion claim they demand the people of Puerto Rico to pay,” the oversight board said in a statement Monday.
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