Puerto Rico Electric Deal at Risk as Lawmakers Hit Deadlineby
Prepa's restructuring support agreement expires Friday night
Power utility is seeking to restructure $9 billion of debt
Puerto Rico’s electricity deal is at risk of falling apart as lawmakers weigh legislation that would leave the door open for a future bankruptcy filing.
Commonwealth lawmakers face a deadline Friday to approve legislation that would enable the Puerto Rico Electric Power Authority, called Prepa, to restructure nearly $9 billion of debt unless creditors including hedge funds, mutual funds and bond-insurance companies agree to extend the pact. Legislative approval is the final hurdle to execute the debt-restructuring plan after the various creditors reached a deal in December after 16 months of negotiations.
The Prepa deal involves investors exchanging debt for new securities at a lower face value and sold by a new entity that wouldn’t have access to bankruptcy or any local debt-restructuring law even if commonwealth agencies were to gain that provision in the future. Lawmakers are considering changing that limitation and instead allowing the new issuer to have the ability to restructure its debt, Senator Ramon Luis Nieves, who chairs the Senate’s energy committee and is working on the bill, said Thursday in a telephone interview from San Juan.
The U.S. Supreme Court will consider reinstating a Puerto Rico law that would let some island utilities restructure their obligations. The high court will decide by June. Investors such as OppenheimerFunds Inc., Franklin Advisers Inc. and BlueMountain Capital Management LLC filed suit against the local debt-restructuring bill and have also signed on to Prepa’s debt plan. If island lawmakers approve a Prepa deal that creates an issuer prohibited from using bankruptcy, the Supreme Court may rule that Puerto Rico entities don’t need access to debt restructuring, Nieves said.
“We have to make sure that this legislation doesn’t hurt our chances with the Supreme Court,” Nieves said. “We have to make sure that this bill isn’t an obstacle to the economic recovery of Puerto Rico.”
The longer commonwealth lawmakers take to approve a Prepa bill, the more risk that creditors will walk away from the debt-restructuring deal. Prepa is in constant communication with the legislature and its different creditor groups, Javier Quintana Mendez, Prepa’s executive director, said in a statement Thursday.
Dan Zacchei, a representative in New York at Sloane & Co. for Prepa bondholders, declined to comment on whether investors would extend the Jan. 22 deadline.
A Prepa bond maturing July 2026 last traded on Jan. 13 at an average price of 63 cents on the dollar, up from an average 53 cents on Dec. 18, data compiled by Bloomberg show. The average yield was about 11 percent.
Nieves and Representative Jesus Santa, who chairs the House Special Committee for a New Energy Policy, are working on the Prepa legislation so that both chambers will be voting on the same bill. A final version of the bill may be finalized by the end of January, according to Lilliam Maldonado, spokeswoman for Santa. Nieves said he expects lawmakers to pass the Prepa bill in the next few weeks.
“The bondholders must understand that this is a complex bill,” Nieves said. “Don’t get anxious. We are still working on the bill.”