- A 3.10-cent per kilowatt hour fee will back new bonds
- Power utility is seeking to restructure $9 billion of debt
Puerto Rico’s government-owned electricity provider won approval to impose a new surcharge on customers to repay bonds, a key step in the utility’s plan to restructure its $9 billion of debt.
The island’s energy commission Tuesday signed off on a 3.10-cent per kilowatt hour charge by the Puerto Rico Electric Power Authority, known as Prepa, according to a statement from the commission. The step is a crucial part of an agreement the utility reached in December, when investors agreed to take a 15 percent loss and suspend principal payments for five years by exchanging their bonds for new securities backed by the charge.
“The transition charge provides a secure repayment mechanism which reduces uncertainty and increases market confidence in Prepa’s financial condition,” the commission said in a statement.
Prepa faces other hurdles before it can execute the restructuring deal. The utility is negotiating with bond insurers and investors holding about 35 percent of Prepa’s securities to avoid defaulting on a $420 million principal and interest payment due July 1. Under the pact, the bonds must also carry an investment grade from one of the three major credit-rating companies.
The restructuring plan would reduce Prepa’s debt by $600 million and cut its debt payments by more than $700 million over five years, which would free up cash to modernize the utility.
“As a result of the securitization exchange, Prepa will reduce its debt burden and have access to liquidity to meet its obligations, invest in and modernize its infrastructure, improve customer service, comply with environmental regulations and ensure a safe working environment for our employees,” Javier Quintana, Prepa’s executive director, said in a statement.
Prepa bonds were little changed Wednesday. Securities with a 5.25 percent coupon and maturing July 2040, the most actively-traded bond in the past three months for the utility, sold for an average 60.5 cents on the dollar to yield 9.4 percent, according to data compiled by Bloomberg.
Prepa will review the new transition charge quarterly to make any adjustments to ensure the bonds are receiving sufficient revenue or to safeguard against overcharging customers, according to the restructuring order the energy commission approved.