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Puerto Rico Electric Power Authority

Monday, Nov 27, 2017

Puerto Rico Electric Power Authority
(Formerly Puerto Rico Water Resources Authority) Power Revenue and Power Revenue Refunding Bonds 1CUSIP NOS. (See Attached Exhibit A)

Please forward this notice to beneficial holders.

U.S. Bank National Association serves as successor trustee (solely in such capacity, the “Trustee”) under that certain Trust Agreement dated as of January 1, 1974 (as amended, supplemented or otherwise modified from time to time, the “Trust Agreement”), by and between it as Trustee and Puerto Rico Electric Power Authority (the “Authority”) as issuer pursuant to which certain Puerto Rico Electric Power Authority Power Revenue and Power Revenue Refunding Bonds (collectively, the “Bonds,” and holders thereof, the “Bondholders”) have been issued and are outstanding. Reference is hereby made to the Trustee’s prior notices (collectively, the “Prior Notices”). Capitalized terms used and not otherwise defined herein shall have the meanings given to them in Prior Notices or in the Trust Agreement, as applicable.

Developments in the Authority’s Title III Proceedings Prior to Hurricanes Irma and Maria. In Prior Notices you were informed about the Authority’s ongoing debt adjustment proceedings (the “Title III Case”) pending in the United States District Court for the District of Puerto Rico (the “Court”) under Title III of the Puerto Rico Oversight, Management, and Economic Stability Act, also known as “PROMESA.” The Majority Bond Group, consisting of the Ad Hoc Group of PREPA Bondholders and the Monolines, has been active in the Title III Case, and the Trustee has been consulting with them in connection with positions it has been taking as Trustee on your behalf. No plan of debt adjustment has yet been filed by the Financial Oversight and Management Board appointed under PROMESA (“Oversight Board”), and the treatment of the Bonds in any future plan remains uncertain at this time. The Authority has not deposited any funds with the Trustee since the inception of the Title III Case on July 2, 2017, claiming that there were no available Revenues after the payment of Current Expenses within the meaning of the Trust Agreement. On August 9, 2017, the Court heard arguments for and against a joint motion for relief from the automatic stay (the “Lift Stay Motion”) filed by the Majority Bond Group seeking to exercise the statutory right following a payment default on the Bonds for the appointment of a receiver for the Authority. The Trustee filed a joinder in support of the Lift Stay Motion. On September 14, 2017, the Court entered an opinion and order denying the Lift Stay Motion on the grounds that PROMESA prohibited lifting the automatic stay for purposes of permitting the appointment of a receiver without the consent of the Oversight Board. The Court’s decision is currently being appealed to the First Circuit Court of Appeals by members of the Majority Bond Group. 

Effects of Hurricanes Irma and Maria and Ongoing Recovery Efforts. As widely reported in news media, Puerto Rico was struck by two successive hurricanes in September 2017 sustaining damage to infrastructure and resulting in a challenging humanitarian crisis. The Authority’s System sustained damage from Hurricane Maria which has resulted in an island-wide power outage that persists today to a significant degree. The Authority’s efforts to restore power have been slow and problematic. To assist in the recovery efforts, the Authority had entered into a $300 million contract with a small company from Montana called Whitefish Energy Holdings, LLC, instead of relying upon the established industry practice of calling upon mutual assistance agreements with other utilities on the U.S. mainland. The controversial Whitefish contract is now the subject of various inquiries and investigations. On November 17, 2017, the Governor of Puerto Rico Ricardo Rosselló called for and obtained the resignation of the Authority’s executive Director Ricardo Ramos, as a result problems with the recovery effort. Justo González has been appointed as the acting Executive Director for the Authority. The Trustee has requested general information from the Authority in a letter dated October 10, 2017, regarding the extent of system damage, the status of ongoing efforts to repair that damage, and the steps that the Authority or the Oversight Board have taken or intend to take in connection with the submission of insurance claims or requests for federal assistance. The Trustee has not received a substantive response to that request. The historic humanitarian crisis facing the population of Puerto Rico in the wake of Hurricane Maria has affected the Authority’s Title III Case in a number of respects. Various matters have been continued or deferred. These include a motion by the Oversight Board to set a bar date for filing proofs of claim. There is currently no deadline for the filing of proofs of claim

1 Trustee is not responsible for the selection or use of CUSIP numbers. It is included solely for holder convenience.

The Motion Seeking Appointment of Chief Transformation Officer. On October 26, 2017, the Oversight Board filed an urgent motion (the “CTO Motion”) in the Authority’s Title III Case seeking to take direct con-trol of the Authority’s operations, including its recovery efforts and related federal disaster relief funding, through the appointment of Mr. Noel Zamot as the Authority’s Chief Transformation Officer. Mr. Zamot is currently serving as the Oversight Board’s Revitalization Officer. The Oversight Board argued that PROMESA allowed it to unilaterally grant Mr. Zamot full executive control over the Authority’s operations and finances, reporting only to it, but the Governor of Puerto Rico and the Authority’s board and management contested the Oversight Board’s right to do so. The Ad Hoc Group of PREPA Bondholders filed an objection to the CTO Motion, in which the Trustee joined. The Monolines also filed limited objections. On November 13, 2017, the Court held a hearing on the CTO Motion and following argument held that the Oversight Board did not have statutory authority to displace the Authority’s board and management. 

Voluntary Dismissal of Revenue Adversary Proceeding. On October 13, 2017, the Majority Bond Group voluntarily dismissed an adversary proceeding (a bankruptcy term for a separate lawsuit) brought against the Oversight Board and the Authority seeking to establish the Trustee and Bondholder legal rights in “special revenues” to secure repayment of the Bonds, subject to being reinitiated later. 

Federal Relief Grant Funds. In connection with the anticipated receipt of federal grant money under the Staf-ford Act, the Oversight Board filed a motion on October 15, 2017, in the Authority’s Title III Case for an order protecting the federal grant money from creditor claims inconsistent with its intended use and providing the federal government, and in certain circumstances the Commonwealth, with super-priority claim rights in the event that federal grant money is used improperly. Following limited objections by creditors, consensual lan-guage was incorporated into a Court order dated October 26, 2017, protecting the federal government without prejudice to the rights of creditors in the Title III proceedings, including the Authority’s Title III Case. All doc-uments filed in the Authority’s Title III Case are available free of charge on the website maintained by Epiq at http://dm.epiq11.com/#/case/PR1/info.

Revised Fiscal Plan Process. During its October 31, 2017 meeting, the Oversight Board adopted a schedule for revision of the Authority’s fiscal plan in light of the damage and disruption of Hurricane Maria. The Over-sight Board’s schedule requires the Authority to submit a revised 5-year fiscal plan no later than December 22, 2017, for consideration by the Oversight Board. The schedule provides for certification of the revised Authority fiscal plan to occur in early 2018.

Mediation Process. The Trustee is a participant in a mediation process being conducted by the mediation team consisting of Judge Barbara Hauser and four other federal judges in connection with the Title III Case and related cases. Information provided to the Trustee in connection with the mediation process is subject to confidentiality restrictions.

Failure to Pay October 2, 2017 Payments. On October 2, 2017, the Authority was required to pay quarterly interest payments on certain series of Bonds in the approximate aggregate amount of $12.8 million, and it failed to do so. To the extent applicable, Bondholders holding insured Bonds received payment from the funds drawn under the relevant insurance contract. In connection with outstanding Build America Bonds, the Trustee has received and is holding certain federal subsidy payments. 

Important Limitations on Trustee Duties in the Absence of Directions. The powers and duties of the Trustee under the Trust Agreement are limited. Please be advised that neither the Trustee nor its legal counsel represents you in connection with any claims that you may hold arising out of the purchase or sale of your Bonds. You may wish to get independent legal advice with respect to any claims that you may have related to the Bonds other than for the payment of principal and interest by the Authority from Revenues. Please be further advised that to date, the Trustee has not been directed by any Bondholders investigate or prosecute any potential claims that might exist with respect to the Bonds, including claims against third parties whose negligence or misconduct may have adversely affected your prospects for recovery on the Bonds. Absent a formal direc-tion made to the Trustee in accordance with the Trust Agreement, the Trustee is not required and does not in-tend to investigate or prosecute such claims on your behalf. Through the passage of time claims, including claims against third parties, may be lost by reason of applicable statutes of limitation or otherwise.

Miscellaneous. The Trustee may conclude that a specific response to particular inquiries from individual Bondholders may not be appropriate either because the disclosure in question may not be in the best interest of all Bondholders or may not be appropriate without equal dissemination of information to all Bondholders. Additionally, the Trustee may be subject to confidentiality restrictions with respect to certain information. To the extent that the Trustee participates in a mediation process, it may not be permitted to disclose information derived from or pertaining to that process.

The Trust Agreement provides that the fees and expenses of the Trustee, if not otherwise paid by the Authority, are payable from amounts held by the Trustee prior to the payment of Bonds. The Trustee intends to use funds held by it under the Trust Agreement for that purpose to the extent payment is not received timely from the Authority. The Trustee makes no recommendations and gives no investment, legal or tax advice, and Bondholders should not rely upon the Trustee as their sole source of information for any decisions in relation to the Bonds. The Trustee does not report on ratings changes. The Trustee’s duties are limited to those expressly set forth in the Trust Agreement. 

Funds held by the Trustee under the Trust Agreement may include investment or advisory services provided by it and/or an affiliate. As such, the Trustee and its affiliates receive compensation for the investment advisory, custodial, distribution and other services provided. A schedule that explains the services and costs, including the rate, formula and method of calculating such compensation, is available by contacting the Trustee. 

Bondholders with questions regarding this notice, or seeking additional information, should direct them in writing to Julie Becker, Vice President, U.S. Bank National Association, 60 Livingston Avenue, St. Paul, MN 55107. Bondholders with other questions may contact Bondholder Services at (800) 934-6802, option #4; or, at their web site, located at www.usbank.com/corp_trust/bondholder_contact.html. U.S. Bank National Association, November 27, 2017

If you have any questions or desire updated information contact your GMS Account Executive. Information taken from sources deemed reliable. This update does not purport to include all available information

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