OVERSIGHT BOARD FILES THIRD AMENDED PLAN OF ADJUSTMENT TO SUBSTANTIALLY CUT PREPA’S DEBT
Reduces PREPA’s Debt by Almost 80%; Agreement with Substantial Number of Bondholders; Reflects Court Order Reducing Claims and Fiscal Plan Debt Sustainability Analysis; Substantially Lower Legacy Charge for PREPA Customers
San Juan, PR – August 25, 2023 – The Financial Oversight and Management Board for Puerto Rico announced today that it filed the third amended Plan of Adjustment to reduce more than $10 billion of total asserted claims by various creditors against the Puerto Rico Electric Power Authority (PREPA) by almost 80%, to the equivalent of $2.5 billion, excluding pension liabilities.
The third amended Plan includes a Restructuring Support Agreement (RSA) with funds and accounts managed by BlackRock Financial Management Inc. and its affiliates, with Nuveen Asset Management LLC, Franklin Advisers, Whitebox Advisors LLC, and Taconic Capital Advisors LP, who together hold over 40% of the uninsured PREPA bonds. The Oversight Board also amended its previous agreement with bond insurer National Public Finance Guarantee Corp. Combined with other previous agreements and settlements that remain in place, approximately 43% of PREPA’s creditors support the third amended Plan.
“This third amended Plan is truly a breakthrough,” said the Oversight Board’s Chairman David Skeel. “After the most intense negotiations and mediation in the entire Puerto Rico debt restructuring process, we built a Plan with substantial support from creditors that will enable PREPA to end its long bankruptcy. This Plan will provide creditors with a fair recovery given the difficult circumstances PREPA finds itself in but without overburdening the people of Puerto Rico. The amended Plan we are proposing is necessary for PREPA to remain a sustainable utility, continue critical investments, and complete the transformation of Puerto Rico’s energy system to provide reliable energy and support Puerto Rico’s economic growth and fiscal stability.”
The Oversight Board would like to thank the Honorable Shelley C. Chapman and her mediation team for their assistance in the process to reach consensual agreements to support the third amended Plan.
The amended Plan reflects the recent order by the U.S. District Court for the District of Puerto Rico reducing the total bondholder claims from around $8.5 billion to an allowed claim amount of approximately $2.4 billion. It also conforms to the previously disclosed debt sustainability analysis in the revised PREPA Fiscal Plan certified in June 2023 that is based on the most recent projections of PREPA’s operating costs and future demand for its services.
Under the amended Plan, bondholders who sign the RSA would receive a base recovery of 44.4% on their claim as allowed by the court (or 12.5% of their asserted claim at the time PREPA entered the bankruptcy proceedings under Title III of PROMESA). The bondholders agree to support the amended Plan and not object to confirmation by the U.S. District Court or appeal after confirmation. Bondholders who decline to sign the RSA will receive 12.5% of their allowed claim (3.5% of their asserted claim).
Under the amended agreement with National, the bond insurer would recover a base amount of 68.4% of its share of the allowed bond claim (or 19.27% of its asserted claim).
The Plan includes two contingent value instruments (CVI). Bondholders would receive the revenue from the fixed fee element of the PREPA legacy debt charge if PREPA repays its new bonds sooner than the expected 35 years and electricity demand exceeds the PREPA Fiscal Plan projections. Bondholders would also receive a share of the savings in the cost of fuel generated by the operator of PREPA’s power plants for the term of the operator’s agreement.
General unsecured creditors would recover approximately 13.5% of their claims, which was unaffected by the U.S. District Court’s ruling on bondholder claims.
The prior Plan Support Agreement (PSA) with PREPA’s Fuel Line Lenders to receive new Series A bonds, a Settlement Agreement with holders of approximately $75 million in uninsured PREPA bonds, and a plan support commitment from Vitol Inc. remain in place.
The BlackRock managed funds and accounts, Nuveen, Taconic, Whitebox, and Franklin have committed to purchase the new Series B Bonds to be issued by PREPA under the amended Plan for $1.6 billion in cash. This will enable PREPA to pay certain creditors under the Plan in cash rather than in new bonds. The Series B Bonds will carry an average annual interest rate (coupon) of approximately 7% and will be paid by a hybrid legacy charge consisting of a flat connection fee and a volumetric charge that would be added to PREPA customers’ electricity bills based in part on their electricity usage.
In the third amended Plan, this PREPA legacy charge is substantially reduced from the previous Plan. The estimated PREPA legacy charge for customers not currently benefiting from subsidized electricity rates would now be, on average, about $8.71 a month, a 5% increase in the overall electricity bill based on the updated data in the PREPA Fiscal Plan.
The PREPA legacy charge would exclude qualifying low-income residential customers from the connection fee and the volumetric charge for up to 425 kilowatt hours (kWh) per month, the usage for median income households in Puerto Rico according to data provided by LUMA Energy and other sources. Almost half of PREPA’s roughly 1.4 million residential customers would not pay any PREPA legacy charge if their consumption remains under 425 kWh per month.
For non-subsidized residential customers, the proposed PREPA legacy charge would be:
- A flat $1 per month connection fee.
- $0.007 per kWh for up to 425 kWh per month of electricity provided by PREPA, and $0.027 per kWh for electricity above 425 kWh per month.
For commercial, industrial, and government customers, the PREPA legacy proposed charge would be:
- A connection fee of $1.25 per month for small business customers and smaller industrial companies, and up to $112.50 per month for large businesses proportional to their current rate.
- Between $0.013 and $0.027 per kWh per month for electricity provided by PREPA.
The proposed PREPA legacy charge remains subject to approval by the Puerto Rico Energy Bureau (PREB), the independent energy regulator.
The Oversight Board took many factors and significant data into consideration to determine the PREPA legacy charge, and carefully analyzed how much Puerto Rican households pay for their energy needs as a share of their income.
In June, the Oversight Board certified a revised Fiscal Plan for PREPA that reflect updated projections for electricity demand and costs. The projections PREPA and grid operator LUMA Energy submitted to the Oversight Board for the new Fiscal Plan included a higher cost forecast than previously projected, including costs related to the mandated energy efficiency initiatives.
The PREPA pension treatment remains unchanged under the third amended Plan. PREPA retirees will be paid in full for all benefits earned through the effective date of the Plan. After that date, no further benefits can be earned under the defined benefit plan by existing or new participants. Current PREPA employees and those who previously moved to government employment but remained in PREPA’s plan will be able to enroll in the government’s defined contribution plan.