Puerto Rico Agency Says Creditor Plan Adds $3.1 Billion Cost

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Puerto Rico’s power utility disagrees with a proposal from bondholders to modernize the agency and fix its finances as a contract between the parties is set to expire at month-end.

The bondholder plan to upgrade the utility’s infrastructure to lower fuel expenses would raise costs by about $3.1 billion over nine years, the agency said in an executive summary dated Thursday.

Lisa Donahue, chief restructuring officer for the power provider, called Prepa, has said the investors’ plan may be premature in assuming full repayment of the agency’s $8.6 billion of municipal bonds and fails to meet environmental standards.

“A successful restructuring of Prepa must be based on an executable plan that rightly balances the contribution of Prepa’s” creditors, customers and bond insurers, according to the executive summary.

Prepa will release a restructuring plan this summer, Donahue told a commonwealth Senate committee last week. The utility, the island’s main provider of electricity, signed an August agreement with bondholders, banks and insurance companies that puts off default. The accord is set to expire April 30. The group has extended the contract twice for additional 15-day periods.

Prepa tax-exempt bonds maturing in July 2022 traded Friday at an average price of 59.3 cents on the dollar, for a 14.2 percent yield, according to data compiled by Bloomberg. The yield is about 12.5 percentage points above benchmark debt.

‘Consensual Plan’

Prepa is working with investors “to create a consensual plan that provides the best outcome,” Donahue said in a statement Thursday.

The bondholder group looks forward to working with Prepa on a plan, yet stands behind its proposal to modernize the system and stabilize power rates, Stephen Spencer, a managing director at Los Angeles-based Houlihan Lokey, an adviser to the investors, said Friday in a statement.

“We believe that a number of the criticisms are based on fundamentally flawed analysis or a misunderstanding of our proposal,” Spencer said.

Standard & Poor’s on Friday lowered Prepa’s rating one step to CCC-, its fourth-lowest junk grade. The company cited the utility’s April 1 move to withdraw $8.8 million from debt-service reserves to help make a bond payment. Prepa is scheduled to make a principal and interest payment of more than $400 million on July 1.

“We believe a default, distressed exchange, or redemption appears to be inevitable within six months, absent unexpected significantly favorable changes in the authority’s circumstances,” S&P said in a report.

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