Puerto Rico’s junk-rated electric utility gained 15 more days to negotiate with creditors as it struggles to repair its finances.
The Electric Power Authority, called Prepa, said Wednesday that creditors agreed to extend to April 30 an accord that pushes off default. It’s the second time that creditors consented to continue the contract, which was set to expire Wednesday night.
The agreement keeps lenders from moving to collect on debt and gives the agency more time to create a plan. The utility, bondholders, insurance companies and banks first entered into agreements in August after Prepa used reserves to pay investors.
“The creditors’ agreement to our forbearance proposal demonstrates that we are making progress and there is merit to continuing conversations to find feasible solutions that will transform Prepa,” Lisa Donahue, Prepa’s chief restructuring officer, said in a statement.
Without an agreement, investors could ask a judge to appoint a receiver to run the utility if it’s been in default for more than 30 days, bond documents show. Holders of at least 10 percent of Prepa’s $8.6 billion of debt would need to agree to the move. Because bonds from Puerto Rico are tax-exempt nationwide, they’re held by investors including mutual funds and individuals. Hedge funds have also become prominent buyers.
Donahue told a Puerto Rico Senate committee Tuesday that she plans to produce a turnaround plan this summer.
The agency needs funds to modernize plants and diversify fuel sources to stabilize energy costs.
Prepa also faces near-term obligations. The utility owes $696 million in bank loans. An additional $415.6 million of principal and interest is due July 1, according to New York-based NewOak Capital LLC. Prepa has $236.4 million in reserve, according to a filing by its bond trustee.
Once Donahue submits her plan to Prepa’s board of directors, it will need support from legislators, Donahue told the Senate committee.
“There will be some complicated and potentially unpopular recommendations that we’re going to have to get behind,” Donahue said.
Two weeks ago, bondholders presented a $2 billion offer to help strengthen the utility’s finances and convert a plant to burn natural gas, lowering Prepa’s dependency on oil. Donahue has said their proposal wouldn’t meet environmental standards and assumes full and timely repayment of bonds.
Prepa is the biggest U.S. public power agency by customers and revenue. If bondholders took a loss, it would be a record restructuring in the municipal-bond market.
Puerto Rico and its agencies have $73 billion of debt, most of which has traded at distressed levels for more than a year on concern that the commonwealth will fail to repay its obligations. The island’s economy has struggled to grow since 2006.