PREPA parties remain far apart according to disclosures

The Puerto Rico Oversight Board and the bondholders opposed to the proposed plan of adjustment remain far apart, according to disclosures on the EMMA web site Tuesday night.

U.S. District Court Judge Laura Taylor Swain earlier this week extended the bankruptcy stay and set a Dec. 11 omnibus hearing to hear the opposing bond parties’ motion for relief from the stay.

The opposing bond parties, which include Assured Guaranty, MBIA, and GoldenTree Asset Management, and Syncora Guarantee, in early October asked for a deal with two bond classes, one with a sweep of excess cash flow but no scheduled amortization or set maturities and the other with a cash swing mechanism and payment-in-kind interest.

The group, called the co-op group, also offered $2.5 billion in financing for PREPA to use either for capital expenditures or to pay some of the other non-bondholding creditors.

The board responded that the co-op group’s “framework is not a proposal.” Many key things are undefined, it deviates from the fiscal plan in some ways and its assumptions are wrong, the board said.

The co-op group said the contingent vehicle instrument the board offered had a net present value of 3.5% of the petition claim.

The board offered the opposing bond parties, which includes Assured Guaranty, MBIA, Syncora and Golden Tree, 12.5% of their claim at the time of the bankruptcy petition in early August.

By contrast, the opposing bond parties were seeking 88.6% of the petition claim, with the provision their demand would go up if it were not paid in the next few months. The claims would be paid with new bonds, which would include a 6% coupon. The co-op group offered $2 billion to PREPA at that time for capex and other uses.

In the EMMA disclosure, the group said it seeks reimbursement of unspecified fees and expenditures.

“Essentially the Oversight Board wants to maintain their current, unconfirmable plan of adjustment with a small increase in recovery for objecting bondholders,” said Cate Long, principal at Puerto Rico Clearinghouse. “This would totally vitiate the secured status of the PREPA revenue bonds.”

Both sides use differing electric load projections, she noted, with the board’s expects it to collapse, while GoldenTree, Assured Guaranty, and MBIA rely on the expectations “from a 2024 integrated load plan prepared by LUMA (on which LUMA’s capex projections are presumably based) resulting in significantly higher load and recovery for bondholders.”

The board tends to “vastly underestimat[e] projected future revenues to short bondholders,” Long said, noting Puerto Rico’s fiscal plan projected a $3 billion cash surplus, but the commonwealth has a $10 billion surplus.

The board, in a statement to the Bond Buyer, said the proposed plan of adjustment “provides creditors with a fair recovery given the difficult circumstances PREPA finds itself in.” The board is willing to give bondholders contingent value instruments to provide additional recovery if PREPA performs better than expected.

“The framework disclosed by the bondholders who refuse to consent to the plan contains multiple vague and unspecified terms but shows the group continues to be unwilling to accept that PREPA cannot afford the terms they demand,” the board said.

Meanwhile, PREPA parties await the First Circuit Court of Appeals’ decision on whether to rehear its June ruling that the bond parties had a lien on the authority’s net revenues.