The companies that insure debt of Puerto Rico’s electric utility are considering blocking an extension of a forbearance agreement with creditors that’s set to expire this week, according to two people with knowledge of the talks.
Ending the accord would allow creditors, including investors holding the junk-rated agency’s $8.6 billion of debt, banks and the insurers, to turn negotiations with the utility into a legal battle. The power provider, known as Prepa, has used reserves for debt payments, a breach of bond covenants. A judge could push the agency to replenish those funds.
Units of Assured Guaranty Ltd., MBIA Inc. and Syncora Guarantee Inc. insure a portion of Prepa’s debt, which has traded at distressed levels for almost two years.
The monolines “are going to fight it to the end,” said Sergio Marxuach, public-policy director at the Center for a New Economy, a research group in San Juan. “Insurance companies never want to pay.”
The creditor group prolonged the forbearance agreement for a third time in April, and that accord is set to expire June 4. The utility faces a $416 million payment to bondholders July 1.
On Monday, Prepa gave creditors a recovery plan that proposes at least $2.3 billion of outside investment to modernize its system. Creditors have been waiting for the report since August, when they first signed the accord to give the utility time to develop a plan to improve its finances.
Some creditors say the turnaround process is taking too long, according to the two people, who requested anonymity because the talks are private. Without the bond insurers in agreement, Prepa won’t be able to delay the contract’s expiration, they said.
Jose Echevarria, a Prepa spokesman, didn’t immediately respond to an e-mail and phone message. Ashweeta Durani at Hamilton, Bermuda-based Assured, Kevin Brown at Armonk, New York-based MBIA, and Michael Corbally at Syncora in New York declined to comment.
Dan Zacchei, a representative for Prepa bondholders, also declined to comment.