Puerto Rico Electric Creditors Say Moratorium Jeopardizes Dealby
Debt moratorium may violate creditor pact, adviser says
Prepa wants to reduce $9 billion of debt and upgrade system
A debt restructuring agreement between Puerto Rico’s main electricity provider and its creditors is at risk of falling apart after the island’s legislature passed a measure to stop all bond payments, including those of the power utility.
The Puerto Rico Electric Power Authority reached an accord in December with hedge funds, mutual-fund providers and bond-insurance companies to reduce the utility’s $9 billion of debt. The deal involves bondholders taking a 15 percent loss on their securities through a debt exchange. The commonwealth’s House approved the debt moratorium bill early Wednesday that allows Governor Alejandro Garcia Padilla to halt payments on all of the island’s debt.
“Lawmakers have acted precipitously by allowing the governor to unilaterally impose debt payment moratoriums, a step that could have unintended consequences and could ultimately prove harmful to the commonwealth’s citizens as well as bondholders,” Stephen Spencer, managing director at Houlihan Lokey, adviser to a group of Prepa bondholders, said in a statement Wednesday. “Additionally, imposing a moratorium on payments would likely close the door to anyone extending new credit to Puerto Rico, seriously impeding its ability meet citizens’ needs.”
Jose Echevarria, a Prepa spokesman in San Juan, didn’t immediately respond to an e-mail and phone message.
A debt moratorium “may lead to violations of the terms of the agreement reached between Prepa its creditors,” Spencer said. “This agreement has set a precedent for negotiated settlements to Puerto Rico’s debt burden, and it should be explicitly preserved, rather than being cast into a state of uncertainty.”
The governor is expected to sign the bill Wednesday, according to Ileana Baez Bravo, a spokeswoman for Garcia Padilla. The Prepa agreement is set to expire April 7, unless the utility submits a new rate charge to the island’s Energy Commission. It faces a $1.13 billion payment to investors and lenders on July 1 that it won’t be able to pay without the creditor agreement.
If the Prepa debt-restructuring deal falls apart, it would upend 19 months of negotiations between the parties to craft a plan to ease the agency’s obligations and modernize a system that relies on oil to produce electricity. Prepa and its creditors entered into a forbearance agreement, which keeps talks out of court, in August 2014 after the utility raided reserve funds to buy fuel.