• Prepa, creditors had set Sept. 1 deadline for debt agreement
  • Unclear whether forbearance agreement will be extended again

Puerto Rico’s main electricity provider and its creditors will continue discussions on how to restructure the utility’s $9 billion debt burden beyond the deadline for when an agreement was supposed to reached, according to three people with direct knowledge of the talks.

The Electric Power Authority and bondholders, insurance companies and banks had set a Sept. 1 target. A forbearance agreement that keeps the discussions out of court also expires Tuesday unless a plan is drafted. It wasn’t clear whether the agreement, which has been extended six times since the parties first signed the accord in August 2014, was renewed.

Prepa, as the utility is known, is keeping negotiations going in order to work out a plan, said the three people, who asked for anonymity because the debt-restructuring plan isn’t final. The groups have exchanged various plans in the past year on how to modernize a system that relies on oil to produce most of its electricity and overhaul its finances.

“Either they come up with an answer or they go to court,” said Daniel Solender, who helps manage $17 billion, including Puerto Rico debt, as head of municipals at Lord Abbett & Co. in Jersey City, New Jersey.

A Prepa restructuring would be the largest-ever in the $3.6 trillion municipal-bond market. Puerto Rico and its agencies, including Prepa, owe $72 billion after years of borrowing to delay debt payments and fill budget deficits. The power provider isn’t the only commonwealth entity that may ask investors to take a loss. Island officials are set to give Governor Alejandro Garcia Padilla what’s being called an economic recovery and debt adjustment plan by Sept. 8. The governor extended the deadline from Aug. 30 because the administration was dealing with tropical storm Erika, which hit the island last week.

Prepa bonds maturing July 2042 traded Monday at an average price of about 56 cents on the dollar, up from 50.4 cents at the start of the year, according to data compiled by Bloomberg. The average yield was 9.6 percent.

The utility’s bondholders presented a plan in July that would have exchanged $8.1 billion of the electricity provider’s debt, delayed payments for several years and gave the utility $2.5 billion to upgrade its power systems. Prepa said that proposal was unworkable because it imposed disproportionate risks on ratepayers and other creditors.

“Prepa negotiations with creditors are ongoing and will continue towards a consensual agreement for the benefit of the people of Puerto Rico,” Lisa Donahue, the utility’s chief restructuring officer, said in a statement Monday. Jose Echevarria, a Prepa spokesman in San Juan, declined to comment Tuesday about the negotiations.

Puerto Rico’s economy has struggled to grow since 2006 and is expected to declined by 1.2 percent in the fiscal year that ends June 30, 2016. Electricity costs are double those on the U.S. mainland. The administration is seeking to lower those fees to help spark economic development on the island.

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