CUC balks at CDA conditions in loan talks

The Commonwealth Utilities Corp. disagrees with some of the requirements the Commonwealth Development Authority is proposing during the agencies’ negotiations to settle a $177.5 million loan, according to CDA’s legal counsel.

During a board of directors meeting yesterday, Ben Santos told the members that CUC’s legal counsel was concerned about two issues, preferred stock agreements and an extra vote on the CUC’s board of directors.

Public Law 16-17, which seeks to privatize the utility company, allows CUC to issue $45 million in preferred stock to CDA. CUC owes CDA $61.6 million in loan principal and $115.9 in interest, for a total of $177.5 million.

Santos said CUC’s legal counsel has concerns about the preferred stock having priority over CUC’s other creditors. The CDA board of directors wanted the provision in case the utility company acquired loans and extended its assets for security, making CDA subservient, he added.

“It’s very important that CDA has priority over other creditors and CDA has a major say-so on those items,” Santos said.

CUC also objected to allowing CDA two votes for financial issues as part of CUC’s board of directors, Santos said, adding that he anticipated CUC would object.

Currently, CUC does not have a board of directors but the law requires the utility company to create an eight-member board with one CDA representative.

According to Santos, CDA is requesting the extra vote on matters regarding privatization, approval of performance contracts, and remedies in default situations.

“We’re asking for this type of addition, or weighted vote, in terms of the board deciding issues in respect to CUC’s finances because we wanted to have that paramount authority over certain things,” Santos said, adding that he believes CDA should continue to pursue the requirements.

“I know it’s a sticking point, but I believe this is something that can be worked through, and I will do my best to endeavor that this is CDA’s board point of view,” he said.

Santos, who received CUC’s views Tuesday, said he will set up a meeting to try to come to an agreement so the privatization law can go into effect.

“I believe that if we can resolve this and push to have this purchase agreement executed, we can implement the terms of the law that requires this be put in place,” Santos said. “So once it’s in place any discussion to privatize, if that be the direction CUC will take, will certainly have CDA on board.”

In testimony prepared for the Public Utilities Commission’s effort to set new power rates, Georgetown Consulting said fiscal year 2007 records show CUC is insolvent, which is principally related to CUC’s default of repayment terms for its CDA loans.

“This default is a major financial event and, until cured, will prevent CUC access to traditional short- and long-term credit makers,” the report states.