Advisors of the Board and the Fiscal Agency and Financial Advisory Authority (FAFAA) held an emergency meeting last night, after Judge Laura Taylor Swain did not give way to the emergency loan that was requested for the Electric Power Authority (PREPA).
The meeting took place last night at the offices of the firm Proskauer & Rose in New York, learned El Nuevo Día, where the lead attorney of the Board, Martin Bienenstock, as well as staff of the FAFAA and government´s legal and financial advisors were trying to define how to get money for PREPA and avoid its closure that could happen in a matter of days.
Last night, Swain said that she was not pleased to deny the loan, and stressed that "lights cannot go out in Puerto Rico" after the hardships that citizens have suffered after Hurricane Maria.
She said the Board was able to demonstrate that PREPA "is on the verge of a severe cash crisis and that its operations will have to be significantly reduced in about a month without a cash injection."
But the judge explained that she denied the request of the Board because that federal agency did not prove that PREPA needs the $1 billion loan and because the terms were not consistent with the applicable rule of law.
Yesterday morning, the Board tod Swain that it was reducing its request of $1.3 billion to $1 billion that the judge rejected anyway.
After denying the motion, Swain opened the door for the government to submit another proposal, and suggested that PREPA request a third of the initial amount, about $ 300 million.
"Failure cannot be an option for Puerto Rico," Swain said.
Immediately, the executive director of FAFAA, Gerardo Portela Franco, told El Nuevo Día in written statements that the agency "is analyzing Judge Swain´s ruling in order to decide the next steps to follow."
"Our aim continues to be promoting the interests of the people of Puerto Rico and that PREPA operations are not interrupted," Portela Franco added.
Another setback for the Board
The adverse ruling for PREPA came after almost seven hours of Swain hearing the arguments of the parties, who met at the Southern District of New York Court.
There, government and creditors agreed that Puerto Rico cannot stay in the dark, but they did not reach an agreement on how to avoid that outcome.
With her ruling, Swain gave a new and strong setback to the Board regarding the PREPA Title III process.
Last November, under the provisions of the federal PROMESA law, Swain ruled against Noel Zamot becoming PREPA Transformation Officer and, about two weeks ago, rejected a request from the Board about the now-rejected loan. At the same time, Swain denied a request from the federal agency to limit the analysis of the transaction to its convenience and provided the rights of thecreditors were protected.
Unless the Board, in collaboration with the creditors, promptly finds a solution as instructed by the judge, the ruling means that PREPA will have to cease operations in stages, according to PREPA’s financial advisor Todd Filsinger.
According to Filsinger, if they run out of cash, the emergency plan outlines the reduction of electricity generation in PREPA, shutting down several power plants gradually, at a rate of about 500 megawatts, and thus suspending service to homes, businesses and industries.
In contrast, hospitals, police, fire and gas stations would be energized.
PREPA would also begin suspending its employees and ceasing the rest of its operations. The emergency plan would have to be implemented once PREPA has $ 100 million left in cash, said Filsinger.
"We have to preserve cash as much as possible," said Filsinger, whose statements did not prevent Swain's adverse ruling.
"The moment for a liquidity injection is now, and Puerto Rico cannot wait any longer," said Joseph Davis, PREPA's lawyer and Greenberg Traurig's partner, admitting that the public corporation has opted not to pay suppliers and contractors who have been repairing the electric grid for months since hurricane María.
The $100 million mark
However, Filsinger's argument seemed to weaken when the lawyers representing the objectors confronted him with his own projections.
In response to questions from Gregory Horowitz, attorney for the Mutual Fund Group, Filsinger accepted that between February and May, PREPA's cash will not be below the $ 100 million mark.
While the Board´s initial motion assured Swain that the loan was necessary because PREPA would run out of money by mid-February, yesterday, Filsinger said that, by the end of this week, PREPA could be around $ 144 million.
Then, the lawyers representing PREPA said that the public corporation would not have money as of March 9.
Portela Franco in a difficult position
The Board and the government also faced problems when the lawyer of the Ad Hoc Group of General Obligations (Ad Hoc-GO) Lawrence S. Robbins questioned Portela Franco.
Robbins asked Portela Franco if he knew that a law approved by the government of Puerto Rico in 2016 states that public corporations must get up-to-date on the payment of their electricity bills or define a payment plan with PREPA to achieve that. Government agencies debt with PREPA is around $ 223 million. Portela Franco said was did not know about that legislation.
On repeated occasions, Portela Franco said he did not understand the questions and, to Robbins' questions, he denied that the organic law of FAFAA provides the governor authority to order the immediate payment of the obligations of corporations or other entities under the direction of the agency.
Portela also admitted that he did not directly participate in the negotiations regarding the controversial loan.
Thomas Moers Mayer, lawyer of the Ad Hoc-PREPA group, warned Swain that, despite Martin Bienenstock´s arguments -Board attorney- the language in the contract of the controversial loan did not require the Board to return to Court in case changes were made to said contract at the time of refinancing it or if PREPA used the money for items other than operational expenses.
Then, Moers Mayer said that his clients were ready to loan PREPA $ 544 million, a sum that would be available no later than next Wednesday.
Information not disclosed
In addition to technical arguments about the loan, yesterday at the hearing several nuances came to light about how the Board´s lawyers and advisors, FAFAA, as well as the creditors, interact and make decisions that are not informed to the citizens who pay for their fees.
For example, the representative of Ambac Assurance referred to an email between Portela Franco and the Department of Treasury that dates back to last December which said that the federal government would not lend money directly to PREPA.
Similarly, another lawyers of Greenburg Traurig said in open court that the Governing Board of PREPA already gave its approval to Filsinger to implement the emergency plan this weekend.
If the government and the Board do not have any financing alternative for PREPA in the coming days, Swain requested the parties to submit a report on the issue that would be discussed at the general hearing on March 7.
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