Puerto Rico Electric Says Not Enough Cash for Debt Payments

  • Congress on Tuesday focused on energy, not full fiscal crisis
  • Utility has reached a restructuring pact on $8.2 billion

Puerto Rico’s main electricity provider can’t pay $1.13 billion due to creditors between now and July 1 without approval of a unprecedented debt-restructuring agreement that was reached at the end of December, Lisa Donahue, the agency’s chief restructuring officer, told a committee of U.S. lawmakers.

The obligations are more than twice the amount of cash that the Puerto Rico Electric Power Authority, known as Prepa, has on hand, she said in testimony to a panel of the House Natural Resources Committee Tuesday.

“Prepa will not be able to make up the difference with revenue from operations during this period,” said Donahue, who is a managing director with restructuring adviser AlixPartners.

The committee examined the electricity system of the U.S. territory, whose government defaulted on $37 million of bond payments this month. It didn’t delve into the broader fiscal crisis gripping the Caribbean Island that’s struggling to repay $70 billion of debt left from years of borrowing to pay bills.

The utility last month struck a deal with insurance companies and bondholders to restructure its $8.2 billion of debt. Puerto Rico lawmakers must approve it this month.

Donahue said U.S. legislation giving Puerto Rico legal ability to restructure its debts would help persuade investors with about $2.7 billion of Prepa debt to sign on to the deal cut with other creditors. Prepa needs additional investors with at least $2 billion to opt in for it to be concluded, she said.

The hearing wasn’t called to consider any specific legislation and lawmakers didn’t take any action. The committee doesn’t have authority over whether to extend municipal bankruptcy protection to the island, which is one of Puerto Rico’s top legislative priorities.

Rep. Raul Grijalva, the highest-ranking Democrat on the panel, said the island needs such legal tools to cut its debt before it can address its energy issues.

“They can’t repair their economy until they deal with the debt problem,” he said. “They can’t provide cost-effective energy until they raise billions of dollars to upgrade their old and dysfunctional power generation and distribution infrastructure.”

Bankruptcy Push

The Obama administration and Congressional Democrats have proposed legislation that would allow Prepa and other agencies to file for bankruptcy in federal court, just like U.S. cities and publicly owned corporations can. Some Republicans, who control both chambers of Congress, oppose it, saying it would be unfair to investors who bought Puerto Rico bonds with the assurance that it wasn’t an option.

House Speaker Paul Ryan urged lawmakers to find a way to help the territory by the end of the quarter.

Rep. Rob Bishop, the Republican who leads the committee, said the hearing was one step toward getting a handle on Puerto Rico’s problems so lawmakers can find a way to help.

“It would be totally irresponsible to try to go through this process without looking at the root causes,” he said.

Talking to reporters after the hearing, Bishop said he sees giving Puerto Rico access to bankruptcy as part of the solution, though his committee doesn’t have jurisdiction over the issue.

Prepa won’t get a possible loan guarantee from U.S. Energy Dept. to finance an offshore natural gas port until Prepa’s financial situation is steadied, Donahue said. Prepa faces bills of $700 million under fuel lines of credit and $428 million in principal and interest on its bonds between now and July, she said.

The restructuring pact gave Prepa temporary relief from its obligations, and without it, the agency “would already have run out of money,” Donahue said.

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