OVERSIGHT BOARD ANNOUNCES PRELIMINARY AGREEMENT WITH AD HOC GROUP OF PREPA BONDHOLDERS

OVERSIGHT BOARD ANNOUNCES PRELIMINARY AGREEMENT WITH AD HOC GROUP OF PREPA BONDHOLDERS

Agreement supports consensual restructuring of debt and minimizes long-term economic risk to the people of Puerto Rico

(San Juan, Puerto Rico – July 30, 2018) – The Financial Oversight and Management Board for Puerto Rico (the “Oversight Board”), created by Congress under the bipartisan Puerto Rico Oversight, Management and Economic Stability Act (“PROMESA”), today announced that it has entered into a Preliminary Restructuring Support Agreement (“Preliminary Agreement” or “PRSA”) with the Ad Hoc Group of Puerto Rico Electric Power Authority (“PREPA”) Bondholders, PREPA and the Fiscal Agency and Financial Advisory Authority (“FAFAA”). This Preliminary Agreement represents the collaborative work of the Oversight Board, FAFAA, and PREPA.

The Chairman of the Oversight Board, José B. Carrión, affirmed that “The Preliminary Agreement is an important milestone and a big step forward towards PREPA’s debt restructuring process, which will support the privatization and transformation of PREPA into a modern, world-class utility.”

“We are hopeful that the terms and financial concessions agreed to with this group of PREPA bondholders can lead to a fair consensual transaction that adjusts their ultimate level of recoveries with the success of the utility. As we move forward with PREPA’s debt restructuring and further reduce uncertainty and risk, investors will gain confidence in its ability to achieve a sustainable future, which in turn furthers Puerto Rico’s recovery,” Carrión added.

Unlike previous proposed resolutions with PREPA creditors, this Preliminary Agreement, which requires bondholders to discount significantly their current bonds, aligns the future debt payments with the reality of the economic recovery of Puerto Rico, while also minimizing the long-term financial risk to PREPA ratepayers. Under the agreed upon economic terms, bondholders will exchange their outstanding PREPA bond debt for two classes of new securitization bonds. The Tranche A bonds will be exchanged at 67.5 cents on the dollar and are expected to mature in 40 years, while the Tranche B “growth” bonds will be tied to the economic recovery of Puerto Rico and will mature in 45 years. The Tranche B Bonds will be exchanged at 10 cents on the dollar.

The terms of this new Preliminary Agreement have addressed the concerns of the Oversight Board of potential cost increases to ratepayers by setting a fixed transition charge each year to be borne by consumers and transferring the long-term demand risk to the bondholders. In support of the process underway to make viable the transformation of PREPA, this PRSA will result in savings upwards of 30% in debt service over the first 20 years relative to the previous Restructuring Support Agreement (RSA), without requiring rate increases to cover debt service in the event electricity usage declines.

As the next step, the Oversight Board will be working collaboratively with the Ad Hoc Group of PREPA Bondholders and the Government on the implementation of this Preliminary Agreement, including the development of a definitive Agreement. The Board will focus added attention on further dialogue with other PREPA creditors, including the monoline insurers and fuel line lenders, with the objective of completing a consensual restructuring of outstanding debt.

More information will be posted on the Board’s website www.juntasupervision.pr.gov.