Puerto Rico Electric Talks Proceed After Debt Plan Expires

  • Fuel lenders enter into forbearance agreement through Feb. 12
  • Governor warns of blackouts if utility can't purchase fuel

Puerto Rico’s main electricity provider and its bondholders are continuing negotiations to restructure almost $9 million in debt after failing to meet a deadline Friday that caused a tentative pact reached last month to be terminated.

The restructuring support agreement between the Puerto Rico Electric Power Authority and its creditors expired after lawmakers failed to pass legislation by Friday to enable Prepa, as the agency’s known, to lower its obligations and implement a new customer surcharge. In a sign of progress, banks who finance its fuel purchases and the utility entered into a forbearance agreement on Sunday that keeps their negotiations out of court through Feb. 12.

“Prepa’s expired RSA contains too many caveats to hold up over the medium term, but in the short term, it is likely to be renewed in a bid to promote compromise on more contentious issues throughout the commonwealth’s debt structure,” Daniel Hanson, an analyst at Height Securities, a Washington-based broker dealer, wrote in a report released Monday.

While the restructuring agreement has expired, talks between the parties continue, Lisa Donahue, Prepa’s chief restructuring officer, said in a statement Sunday. The termination was a step back for Puerto Rico, which is seeking to reduce $70 billion of debt. Governor Alejandro Garcia Padilla Saturday warned lawmakers that the island may face blackouts if Prepa is unable to purchase enough fuel.

“We are grateful to our fuel lenders for their support as we continue our efforts to transform Prepa,” Donahue said in a statement Sunday. “We are having ongoing discussions with the ad hoc group and other stakeholders.”

Customer Surcharge

Without the restructuring, Prepa is unable to pay creditor bills due in about five months, Donahue told a House Natural Resources Committee this month. Prepa faces $428 million in principal and interest to investors on July 1 and another $700 million to its fuel-line lenders, Donahue said.

Before Friday’s deadline, Prepa asked creditors to delay that end date to Feb. 12. Investors weren’t willing to extend unless an agreement to lend Prepa $115 million through a bond sale was contingent upon the island’s energy commission approving the new customer surcharge. Prepa rejected that proposed change.

Captive Cash

“Holding the cash captive may serve as adequate leverage to force Prepa to become more serious about deadlines and to exert some influence over other non-financial stakeholders in the process,” Hanson wrote in the report.

Puerto Rico is running out of cash and avoided defaulting on its direct debt in January by taking revenue normally used to repay other securities. Island officials have asked Congress to allow some commonwealth agencies, such as Prepa, to have access to municipal bankruptcy. U.S. Supreme Court is reviewing whether to reinstate a Puerto Rico law that would allow government-owned corporations to turn to the commonwealth’s courts to reduce their debts.

The pact brought together the largest U.S. public power utility, hedge funds, bond-insurance companies, mutual funds and fuel-line lenders. The parties negotiated for 16 months before reaching a deal in December. The final hurdle was for lawmakers to authorize legislation that would enable Prepa to lower its obligations and create a new customer surcharge.

The plan involved investors taking a 15 percent loss in a debt exchange for new securities with stronger repayment pledges. Insurance companies were to provide a surety bond that would protect against the risk of default.

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