SAWS: Banks Not Cooperating On Renegotiating Vista Ridge Loan

Apr 18, 2016

By mid-week the San Antonio Water System (SAWS) expects to know whether it will be able to easily move ownership of the Vista Ridge pipeline to a different company. Because of financial problems current owner Abengoa has agreed to sell 80-percent of the water project to Garney Construction, but an outstanding loan complicates matters, and has forced SAWS to consider other options.

As the contract manager for the 142-mile pipeline, Abengoa Vista Ridge took out a $120 million loan to purchase pipe, though SAWS CEO and President Robert Puente says the pipe is nowhere to be found.

Now, as financially-troubled Abengoa seeks to turn over most of its interest in the project to Garney Construction someone has to be responsible for paying back the $120 million loan.

Puente says private companies working on the pipeline and SAWS are asking the banks to reduce fees, the loan amount, and interest rate so Garney can afford to take over Vista Ridge.  

“So if the project Garney is taking over, that burden is lessened, then it actually helps the overall project come to fruition,” said Puente.

But Puente says the banks don’t seem too interested in renegotiating the loan. He says that could leave Abengoa in charge of a pipeline it can’t afford to build.  Or, Puente says, SAWS could “pull the plug” on the current contract with Abengoa.  Following is part of TPR’s conversation with Puente April 12, with information he confirmed April 16:

Reporter:  Under what circumstances would you pull the plug? 

Puente:  If the banks that lent out this $120 million don’t come to the table and  start being more flexible with the terms they are negotiating with Garney. 

Reporter:  So they aren’t being flexible at this point?

Puente:  They are not.  So we need to make sure they sacrifice like everyone is sacrificing when this kind of scenario was happening. 

Reporter:  So you have $120 million out there that has already been loaned that Abengoa is not able to pay back unilaterally.  So what you’re doing is asking them (the banks) to give a good deal to Garney and its subcontractors.  

Puente:  Correct. 

Puente says that if SAWS cancels the Abengoa contract the banks will be on their own in getting their money back from Abengoa.  Abengoa will be out of the project. 

City-owned SAWS could then take over construction of the $884 million pipeline.

Puente says what is more likely is that SAWS would rebid the project and hope the remaining Vista Ridge partners would agree to go forward under the current contract terms.

“We would want the same entities to submit their proposals- Garney, Blue Water, which are the current ones.  The key to this is if we do that it gets rid of a $120 million loan that is burdening this project.  So that is the key if we do that,” Puente said.

All of this worries Amy Hardberger, an assistant professor of water law at St. Mary’s University.  She questions whether Garney has the experience to manage such a large project.  She says SAWS taking over the project would put taxpayers at risk, which is why private companies were contracted to build and operate the project in the first place.

“I am very concerned about the thought of SAWS ratepayers taking over this project now or immediately post construction because it completely changes that risk analysis.  We’d be completely stuck paying for it even if the water didn’t actually physically appear for any reason,” said Hardberger.

Puente says the next step could come this week when bankers either agree to new loan terms or SAWS considers “pulling the plug” on the current Vista Ridge contract.