Puerto Rico’s Power Utility Cut by S&P to B- as Bank Loans Loom

The Puerto Rico Electric Power Authority, which supplies most of the island’s electricity, had its ratings cut deeper into speculative grade by Standard & Poor’s.

S&P downgraded the utility, called Prepa, four steps to B-, its sixth-highest junk rating, the company said in a report released today. The authority, with $8.6 billion of debt, is a candidate to reduce its obligations through a restructuring law that lawmakers approved last month for some public corporations.

“The downgrade reflects our view of Prepa’s inability to successfully negotiate renewal of a liquidity facility it used to purchase oil,” analyst Judith Waite wrote in the report.

The agency 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. It will evaluate over the next few weeks ways to improve its finances, Juan Alicea Flores, its executive director, said July 7 in an e-mailed statement.

Prepa has $671 million of bank lines of credit due by mid-August for which it doesn’t have sufficient funds to repay, Waite wrote in the 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 a syndicate of banks led by Scotiabank de Puerto Rico, which is serving as administrative agent.

Because Prepa doesn’t have surplus funds to repay the loans, it might consider using the new law to adjust or restructure debt, according to the report.

Fitch Ratings on June 26 dropped Prepa to CC, its third-lowest speculative grade. Moody’s Investors Service also gives the utility a junk rating.

Prepa bonds maturing in July 2042 traded today at an average of 40.88 cents on the dollar after falling to a record 38.49 cents July 2, data compiled by Bloomberg show.

To contact the reporter on this story: Michelle Kaske in New York at mkaske@bloomberg.net

To contact the editors responsible for this story: Stephen Merelman at smerelman@bloomberg.net Mark Tannenbaum, Mark Schoifet

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