- Bondholders grant another week in restructuring negotiations
- Insurers remain main holdout from consensual agreement
Puerto Rico’s main electric utility won another week from bondholders to get insurance companies to sign onto an agreement to restructure the agency’s $8.2 billion of debt and for commonwealth lawmakers to approval the proposal.
The agreement extends termination dates on an earlier accord between Puerto Rico Electric Power Authority and investors owning about 35 percent of the agency’s bonds to Dec. 17, the utility said in a statement. The pact, which was set to expire Thursday, was extended for a third time since being signed last month. Island officials have yet to call for an extraordinary session of the legislature needed to consider a bill authorizing a restructuring of the utility know as Prepa.
A Prepa restructuring would be the largest ever in the $3.7 trillion municipal-bond market. The U.S. Supreme Court Friday said it would hear an appeal by the commonwealth to reinstate a local debt-restructuring law that would allow some island agencies, including Prepa, to ask bondholders to take losses. Prepa, hedge funds, mutual funds, and monolines have been in talks since August 2014 on how to lower the utility’s obligations and modernize its plants.
Prepa owes $196 million of interest to investors on Jan 1. U.S. Bank, the bond trustee, has approximately $24 million in a reserve account, according to a Dec. 7 event filing on the Municipal Securities Rulemaking Board’s website, called EMMA. Prepa had, as of Sept. 30., $252 million in deposits at the Government Development Bank for its reserve account, construction fund and operating account, according to a Nov. 6 financial filing.
Prepa’s restructuring support agreement with bondholders “contemplates that some or all of the January 1, 2016 interest payments would be paid with funding provided to the authority, but it remains premature to predict whether and to what extent that will occur,” according to the EMMA filing. “The trustee is currently not holding other funds in the sinking fund that will be available to pay interest on the bonds due on January 1, 2016.”
Under the restructuring support agreement, investors would take losses of about 15 percent in a debt exchange. Bond insurance companies that guarantee repayment on $2.5 billion of Prepa’s bonds haven’t agreed to the plan.