Puerto Rico’s junk-rated power authority is closing in on an agreement with creditors that would give it more time to sort out its finances, according to two people with knowledge of the negotiations.
A fresh accord would allow the Puerto Rico Electric Power Authority, known as Prepa, to negotiate with bondholders, banks and debt insurers outside of court on ways to revamp its operations and finances. Talks have been going on since August.
It would be the fourth time for creditors to consent to prolong the accord, which is set to expire Thursday night. The extension may be agreed to on Friday and would last two weeks, according to the people, who requested anonymity because the talks are private.
Without a forbearance agreement, the creditors could sue Prepa, which has $9 billion of obligations and has breached bond contracts by using reserves for debt payments.
Jose Echevarria, a spokesman for Prepa in San Juan, declined to comment.
Some bond insurers earlier this week weighed blocking an extension on the view that the restructuring talks were taking too long, according to three people with knowledge of the discussions who requested anonymity because the talks are private.
Units of Assured Guaranty Ltd., MBIA Inc. and Syncora Guarantee Inc. insure about $2.6 billion of Prepa’s debt, according to their websites.
Prepa owes investors $416 million of principal and interest July 1. Most of the bonds maturing that day carry bond insurance, data compiled by Bloomberg show.
“No decision has been made about the July 1 payment,” Lisa Donahue, Prepa’s chief restructuring officer, said in an e-mail Wednesday. “There can be no assurance that the payment will be made.”
A restructuring of Prepa, the main electricity supplier on the island of 3.5 million, would be the largest ever in the municipal-bond market. The utility’s securities and other debt from the commonwealth have traded at distressed levels for almost two years.
Prepa bonds maturing July 2040 traded Thursday at an average price of 52.2 cents on the dollar, for a tax-exempt yield of 10.8 percent, according to data compiled by Bloomberg. The bonds changed hands for as low as about 38 cents in July 2014.
Reuters earlier Thursday cited an unidentified source as saying they were optimistic an extension deal could be reached.