After agreeing a restructuring agreement with its main creditors and in accordance with the requirements of the Oversight Board (OB), the Puerto Rico Electric Power Authority (PREPA) has already received "notes of interest" from several private companies that want to develop power generation projects on the Island, confirmed yesterday the executive director of the public corporation, Ricardo L. Ramos.
The approach of these companies, of which Ramos did not offer names or sources, comes as the PREPA prepares to go, for the first time since 2013, to the capital market in an attempt to issue up to $8,350 billions in bonds.
“The investors have whetted their appetite. There are investors who want to develop infrastructure projects for PREPA under current conditions. Certainly, interest has improved with the signing of the Restructuring Support Agreement (RSA) and because we are not part of Title III (territorial bankruptcy) of the government”, he said.
Ramos noted that the RSA provides for the public corporation to request, on or before July 1st , the Title VI process of the PROMESA, in order to carry out a "consensual restructuring" with its principal creditors (Bondholders, insurers and fuel credit lines).
Regarding the projects that the private companies would develop, he indicated that they would be "in tune" with the Integrated Resource Plan of the PREPA, which contains the improvements to the electricity grid for the next five years.
"They are mostly combined cycle generation projects, with an efficiency close to 54%, and using fuels such as natural gas and propane. The current efficiency is 34%, "he quoted.
He added that the projects would also "allow compliance" with the Mercury and Toxic Air Emission Standards (MATS) enacted by the Federal Environmental Protection Agency (EPA) to reduce air pollution and global warming.
"We are talking about projects that will avoid us millionaire fines, which, if we have to pay them, would be reflected in the energy cost," warned Ramos.
In terms of technology, he said, projects would incorporate "flexibility requirements" to allow the integration of more renewable power generation.
"These new plants (stations), for example, will have to be turned on and off fast, and they will have to be equally efficient at both 50% and 100% production. We need technology that is coupled with the variability (intermittency) of renewable sources”, he added.
When would the projects be operating?, El Nuevo Día asked and Ramos replied that, possibly, in the term of three to three and a half years.
He said that on April 28th , when the OB approved with amendments the fiscal plan of the PREPA, authorized that the projects are governed by Title V of PROMESA, which typifies them as "critical" and enables an expeditedprocess of permits.
"We had presented a more traditional scenario, but the OB asked us to reduce the permitting cycle by 50% and the execution cycle by 25%. That puts us with projects in operation within three to three and a half years,”, he remarked.
"When the bonds issue is achieved, we can will be able to do two things: to have more offers, and that the cost of the projects will fall ... as a result, my cost of the public-private partnership will also be reduced," added Ramos.
The official said that, starting July 1st , when the Title VI process of PROMESA is activated, the negotiations "will be directed at 99%" to achieve the issuance of so-called restructuring bonds. The expectation of the PREPA is the transaction to be achieved the first week of September.
To sum up, this is an exchange of "bad debt" for "good debt." The issue of bonds would be done through the Corporation for the Revitalization of the Electric Energy Authority, created by Law 4-2016 to absorb the debt of the PREPA.
The issue would be through the securitization mechanism, which means that it would have a source of insured repayment; In this case, the electricity bill.
To do this, the Energy Commission of Puerto Rico has already approved the formula for a "transition charge", which 1.5 million PREPA customers would start paying three months after the issue.
Fernando Padilla, director of restructuring under the office of the executive director of the PREPA, estimated that the bond issue would range from $ 7,650 billion to $ 8,350 billion. The difference is that, under the PROMESA law, 30% of non-RSA creditors could be forced to restructure their debt.
"The money would go to investing in public-private partnerships for generation projects, mostly to that," Padilla said.
Ramos, meanwhile, insisted that the signing of the RSA and the approval of the fiscal plan of the PREPA "lead us better" to the issuance of bonds. "Both have a positive impact on the reputation of the PREPA, and will be reflected in the credit notes," he declared, referring to the need for rating agencies to grant the new bonds an investment grade.
The PREPA has unsuccessfully attempted to issue bonds since the last quarter of last year. The situation for the public corporation was complicated when, on September 30th , the OB included it in the list of institutions covered by PROMESA. The transaction, therefore, needs the endorsement of the entity that controls the country's finances.
The last issue of PREPA bonds was in summer 2013, for $633 million. This transaction, like a similar one a year earlier, is the subject of an investigation by the Securities and Exchange Commission (SEC) for alleged irregularities.
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