HAMILTON, Bermuda--(BUSINESS WIRE)--Assured Guaranty Ltd. (NYSE:AGO)(together with its subsidiaries, Assured Guaranty) released the following comments regarding the Puerto Rico Oversight, Management and Economic Stability Act (PROMESA) Oversight Board’s rejection of the Puerto Rico Electric Power Authority (PREPA) Restructuring Support Agreement (RSA).
On June 27, 2017, after nearly three years and millions of dollars spent by creditors and the Commonwealth (approximately $80 million by Puerto Rico) on a consensual PREPA RSA that was approved by two Puerto Rico governors, the Puerto Rico Legislature, and the Puerto Rico Energy Commission, the PROMESA Oversight Board failed to perform its ministerial duty of certifying the RSA for Title VI execution.
Commenting on the RSA rejection, Dominic Frederico, President and CEO of Assured Guaranty said, “This is yet another example of a rogue Oversight Board that continues to violate sections of PROMESA, which in this case clearly deemed the RSA a Preexisting Voluntary Agreement outside the scope of Oversight Board renegotiation.”
As outlined in the June 15, 2017 letter to the Oversight Board from U.S. Congressman Rob Bishop, Chairman of the Natural Resources Committee, which drafted and sponsored the PROMESA legislation, the PREPA RSA qualified as a Preexisting Voluntary Agreement under Section 601(g)(2)(b), thereby obviating any substantive action or approval by the Oversight Board.
After the Oversight Board participated in the extraction of further concessions from creditors by the Rosello administration earlier this year, the Board’s turnabout and current rejection of the RSA effectively engineers a probable Title III bankruptcy at the utility, putting Puerto Rico’s energy consumers at risk of higher costs and long-term litigation. The Oversight Board’s actions will have negative consequences for years to come for PREPA with regard to its ability to access the capital markets, to purchase fuel at reasonable rates, and to modernize the current system so that it could provide efficient energy to PREPA customers.
“The clear intent of PROMESA was to restore fiscal responsibility, credibility, and access to capital markets, while arriving at consensual resolutions wherever possible and providing a safe harbor for this lone existing deal. This rejection of the PREPA RSA makes clear that the Oversight Board is not seriously seeking the consensual resolutions with creditors that PROMESA was intended to encourage. The rejection of this consensual agreement will force PREPA into years of litigation, costing millions of dollars and driving up costs for customers,” said Mr. Frederico.
“Over the last three years,” he continued, “the PREPA creditors, through the RSA and prior forbearance agreements, have already provided more than $1.2 billion in liquidity, and the RSA was set to provide further refinancing and deferrals for an additional $2.2 billion in debt service relief, as well as $850 million in debt reduction and a drop in the necessary rates charged to consumers. The RSA would have provided room for capital improvements and operational reform, giving PREPA significant breathing room to modernize its facilities and stabilize its finances.”
Fuel prices have declined significantly over the last three years, dropping PREPA’s rates from 28.8 cents/kWh to a low of 16.6 cents/kWh, allowing PREPA to pass along over $2 billion in fuel cost savings to its customers. Rather than attempt to reduce rates consensually to the extent possible, and restore credibility and fiscal responsibility while honoring the contractual obligations it can, the Oversight Board is aggressively attempting instead to renege on as many obligations in Puerto Rico as it can.
Assured Guaranty will vigorously exercise its rights and remedies as guarantor of PREPA Special Revenue bonds, which benefit from special protections under bankruptcy law.
Payments to holders of PREPA bonds insured by Assured Guaranty will continue to be paid without interruption for the life of the bonds. Assured Guaranty unconditionally and irrevocably guarantees full and timely payment of scheduled debt service, in accordance with the terms of Assured Guaranty's insurance policies and, upon payment, takes over the rights of the insured bondholders. With $12 billion in claims-paying resources* across its group of companies, which includes an $11 billion investment portfolio that alone generates approximately $400 million of annual investment income, Assured Guaranty's liquidity and capital position are very strong.
*Aggregate data for operating subsidiaries within the Assured Guaranty Ltd. group. Claims on each subsidiary’s insurance policies / financial guarantees are paid from that subsidiary’s separate claims-paying resources. Details of the components of claims-paying resources are set forth in the most recent Assured Guaranty Ltd. Financial Supplement, which may be found at Assuredguaranty.com/agldata.
Any forward-looking statements made in this press release reflect Assured Guaranty’s current views with respect to future events and are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such statements involve risks and uncertainties that may cause actual results to differ materially from those set forth in these statements. These risks and uncertainties include, but are not limited to, those resulting from Assured Guaranty's inability to execute its strategies, including its loss mitigation and risk remediation strategies, and negative developments that may impact Assured Guaranty's liquidity and capital, and therefore its ability to make claim payments on time and in full, including less demand for Assured Guaranty's financial guaranty product, or adverse developments with respect to its insured or investment portfolio, and other risks and uncertainties that have not been identified at this time, management's response to these factors, and other risk factors identified in Assured Guaranty’s filings with the Securities and Exchange Commission. Readers are cautioned not to place undue reliance on these forward-looking statements, which are made as of June 28, 2017. Assured Guaranty undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.