Bond Insurer Urges Receiver for Puerto Rico’s Bankrupt Utility

By | July 20, 2018

MBIA Inc.’s National Public Finance Guarantee is urging Puerto Rico’s federal board to consider putting a receiver in charge of the island’s bankrupt power utility after the electricity provider lost two chief executive officers last week amid an uproar over their salaries.

The Puerto Rico Electric Power Authority needs politically independent leadership, lawyers for the bond insurer wrote to the federal board in a letter dated July 17. Management at Prepa, as the utility’s known, fell into disarray last week as its chief executive officer resigned after four months on the job and his replacement quit one day after the agency announced his appointment.

National is seeking to work with the federal board to install independent management that will work on the utility’s debt restructuring and overhaul the authority.

“We request to discuss with the oversight board how best to achieve this objective for the good of the island — through the receivership statue or other agreed-upon means,” Marcia Goldstein, an attorney at Weil, Gotshal & Manges, which is representing National, wrote in the letter. “Without emergency measures now, Prepa’s problems will grow worse as long-term solutions will become more difficult to achieve.”

The letter comes as the House Committee on Natural Resources plans to hold a hearing on July 25 about Prepa’s recent management changes. Rob Bishop, the Republican chairman of the panel, sent a letter Thursday to Governor Ricardo Rossello inviting him or a member of his administration to testify at the hearing to “provide context to the events of the past week,” Bishop wrote in the letter.

Implementing a receiver for Prepa may be difficult. U.S. District Court Judge Laura Taylor Swain in November rejected the federal board’s request to install its own executive to run the utility, which is struggling to rebuild its power grid after Hurricane Maria devastated the island.

Rossello on Thursday appointed Jose Ortiz as Prepa’s new chief executive officer. Ortiz previously oversaw the Puerto Rico Aqueduct and Sewer Authority and is a former chairman of Prepa. He will make $250,000, a third of the $750,000 base promised to the last nominee, Rafael Diaz-Granados. After that package prompted an outcry, Diaz-Granados withdrew the day after he was named.

National insures $1.15 billion of Prepa debt through 2035, according to the insurer’s website. The utility is seeking to reduce $9 billion of debt through bankruptcy.

Prices on some Prepa bonds have continued to increase even during the utility’s leadership changes. Prepa debt maturing in 2042 traded Thursday at an average 42.5 cents on the dollar, up from about 30 cents at the start of 2018, data compiled by Bloomberg show.

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