Puerto Rico Said to Seek Deeper Concessions in Utility Deal

Updated on
  • Agreement struck in December 2015 called for 15% losses
  • Focus may be on monoline insurers to take deeper cuts

Puerto Rico Governor Ricardo Rossello’s administration has indicated that it wants to renegotiate a deal struck more than a year ago to restructure about $9 billion of electric utility debt, an effort that could result in a showdown with insurers that guaranteed some of the bonds against default, people familiar with the matter said.

Rothschild & Co., which Rossello hired to oversee negotiations after he took office last month, has explored the possibility of persuading MBIA Inc., Assured Guaranty Ltd. and Syncora Guarantee Inc. to contribute more to the restructuring, according to people who spoke on the condition that they not be identified because the negotiations are ongoing.

Unlike bondholders, under the agreement reached in December 2015 with the Puerto Rico Electric Power Authority, known as Prepa, the companies didn’t take losses on the approximately $2.2 billion they insure.

The deal was seen as a template for other restructurings. Rossello’s interest in renegotiating it may signal he wants to take a tougher stance with creditors after a series of record-setting defaults on Puerto Rico’s $70 billion of debt. Since the initial agreement, the federal government has given the island legal ability to cut its debts in court, strengthening Rossello’s bargaining power.

It’s still not clear how big a concession his administration wants from the bond insurers, nor whether it will ask bondholders to accept deeper losses. No formal request to renegotiate has yet been made and no new terms have been offered to creditors, the people familiar with the matter said.

Elias Sanchez, the governor’s representative to the U.S. oversight board that was installed to help oversee any debt restructuring, said the administration is reviewing the agreement’s terms, though no decisions regarding potential changes have been made.

It’s also unclear how much leverage Rossello has with the insurance companies. Under the December 2015 pact, they agreed to provide a surety bond that would underpin the sale of new debt by Prepa. In a showdown with Rossello, they could withdraw the surety bond, jeopardizing the restructuring and pushing the island closer to ceding control to the federal oversight board.

The current deal, which has been extended multiple times, is set to expire on March 31. Prepa’s next bond payment is due July 1. The restructuring deal in question -- the only one Puerto Rico’s government has reached with creditors so far -- calls for bondholders to accept losses of about 15 percent.

Deadlines have been pushed back several times, including last month, when creditors consented to give Puerto Rico more time to validate the agreement. Lisa Donahue of AlixPartners International Inc., who negotiated the original deal as Prepa’s chief restructuring officer, has since resigned and her firm’s contract will expire on Feb. 15. Rothschild banker Todd Snyder will oversee the negotiations.

Assured Guaranty spokesperson Ashweeta Durani and MBIA spokesperson Greg Diamond both declined to comment. Spokespeople for Rothschild, AlixPartners, and a group representing the utility’s bondholders also declined to comment. Prepa spokesperson Brunilda Torres declined to comment. An e-mail seeking comment from a Syncora spokesperson wasn’t returned.

(Adds amount of insured debt in third paragraph.)
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