The Puerto Rico Electric Power Authority, the island’s main provider of electricity, has negotiated with creditors to push off repayment of bank loans until July 31, according to the utility.
The agency, called Prepa, has until month-end to repay some bank lines of credit that it uses to buy fuel. It was scheduled to pay some funds starting July 3. The authority, which has $8.6 billion of debt, will evaluate over the next few weeks ways to improve its finances, Juan Alicea Flores, its executive director, said in an e-mailed statement.
“While Prepa faces certain financial challenges today, we are working hard to improve operations, strengthen service and modernize our infrastructure, so we can deliver cleaner and more reliable energy to our customers,” Alicea Flores said.
The new deadline gives the utility breathing room after it paid $418 million to bondholders July 1. Prepa, which raided its capital budget in May to purchase fuel, is the commonwealth’s primary candidate to negotiate with investors to reduce its debt load under a new law allowing some public corporations to restructure securities.
Fitch Ratings June 26 cut Prepa to CC, its third-lowest speculative grade, citing a probable debt restructuring or default. Standard & Poor’s and Moody’s Investors Service also give the utility a junk rating.
Uninsured Prepa bonds maturing in July 2040 traded today at an average price of 38.2 cents on the dollar, a record low and down from 51.9 cents on June 25, the day Governor Alejandro Garcia Padilla filed the restructuring bill.
Prepa has $617 million of bank lines of credit due by mid-August for which it doesn’t have sufficient funds to repay, Judith Waite, an S&P analyst, wrote in a June 27 report.
Of that amount, the authority owes $146 million to Citibank that it was to begin repaying July 3 with a $10 million payment, according to S&P. An additional $525 million is due Aug. 14 to Scotiabank de Puerto Rico.
Scott Helfman, a spokesman for New York-based Citigroup Inc., declined to comment. Sheena Findlay, a spokeswoman for Scotiabank, whose parent is based in Toronto, didn’t immediately return an e-mail or phone call.
Prepa uses oil to produce about 60 percent of its electricity, according to S&P. The utility wants to reduce that to 2 percent in 2017 by switching to natural gas, Alicea Flores said in May at a conference in San Juan. Puerto Rico’s electricity costs are double that on the U.S. mainland.
The struggling commonwealth and its agencies owe $73 billion of bonds. Lawmakers last month approved the debt-restructuring measure as the island’s economy has shrunk about 11 percent since 2006, according to Puerto Rico’s Planning Board.
Moody’s cut the commonwealth’s general obligations to B2 last week, five steps below investment grade. Puerto Rico debt lost 6.4 percent last week, the steepest decline since at least 1999, according to S&P Dow Jones Indices.
To contact the editors responsible for this story: Stephen Merelman at email@example.com Mark Tannenbaum, Mark Schoifet