Puerto Rico Lawyer Warns of Power Shutdown If Loan Denied

Updated on
  • Prepa set to run out of cash within three weeks: Rossello
  • Island wants to extend Prepa loan to free up federal funds

A Tale of Two Puerto Ricos

Puerto Rico’s power company will begin shutting down as soon as Friday if it doesn’t receive a $1 billion loan from the territory’s central government, threatening to cause widespread electricity outages across the hurricane-devastated island, a lawyer for Puerto Rico told a U.S. judge.

The injection of cash from the bankrupt government will allow the Puerto Rico Electric Power Authority, called Prepa, to keep running while it waits for President Donald Trump’s administration to release disaster-recovery loans approved by Congress. Without it, the company may be forced to begin rolling outages within weeks, said Joseph Davis, an attorney for Puerto Rico.

"Prepa will cease operations, six thousand people will be out of work and the island will be plunged into darkness," Davis told U.S. Bankruptcy Judge Laura Taylor Swain. "What nature brought in the storms in September, human shortsightedness will bring back. The moment for an infusion of liquidity is now."

Damage from Hurricane Maria in September decimated the power grid, leaving some residents without power for months after the storm. The damage has also intensified the financial squeeze on the government-run utility, whose revenue was decreased as customers went without electricity.

Governor Ricardo Rossello said in an interview Thursday that Prepa is set to run out of cash within three weeks. The loan would prevent a humanitarian crisis, he said, and possibly allow the commonwealth to access the federal loans that have been held up since Trump’s administration said Puerto Rico’s government may have too much cash on hand to warrant the assistance yet.

By extending money to Prepa, the commonwealth’s cash balances may fall low enough to trigger the federal loans, he said. In negotiations with the U.S. Treasury, he said his administration has proposed that the loans be released once its cash balance drops to a threshold of $800 million to $1.2 billion. Puerto Rico’s cash position was $1.63 billion as of Feb. 2.

“This is why what’s happening today is so important in court because it is the only viable mechanism that we have right now for Prepa to get some liquidity,” Rossello said after speaking at a conference in Manhattan.

Bondholders have objected to the loan, saying they should be allowed to lend to the utility instead. The creditors will have a chance to make their case to Judge Swain at Thursday’s hearing in New York.

Prepa bonds have risen along with other Puerto Rico securities this week after Rossello’s administration released a revised fiscal recovery plan forecasting that the island will have a surplus during the next six years because of an influx of federal funds, a shift from previous forecasts that were more dire. Prepa bonds maturing in 2042 changed hands Thursday in light trading at 36.6 cents on the dollar, up from an average of 33.3 cents the day before and the highest since Nov. 3, according to data compiled by Bloomberg.

(Updates with Governor’s comment in the seventh paragraph.)
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