Puerto Rico Utility's Debt Restructuring Agreement Expires

A plan to restructure nearly $9 billion of Puerto Rico Electric Power Authority debt has expired after the utility and bondholders were unable to reach agreement to extend the pact, a step back in the island’s attempt to reduce its $70 billion debt burden.
The contract stipulated that Puerto Rico lawmakers must approve by Friday legislation that would enable Prepa, as the utility’s known, to restructure its debt. Bondholders and Prepa were willing to push that deadline to Feb. 12, according to a statement sent from the investor group after the pact expired. In return for giving lawmakers an additional three weeks, bondholders asked for a change to a bond purchase agreement that’s included in the restructuring plan. Bondholders sought to delay buying those bonds until the island’s energy commission approves a new customer surcharge, according to the bondholder statement. Prepa refused to wait.
“Unfortunately, Prepa is choosing not to extend the restructuring support agreement,” the bondholder group said in a statement after the contract expired. “Over the approximately 18 months that we have been negotiating this plan it has consistently been our desire to reach a fair, collaborative agreement that would benefit all stakeholders, including the people of Puerto Rico, and that has been described as fair to all parties and beneficial to Puerto Rico.”
The bondholder request imposed changes to the restructuring plan that Prepa had previously rejected in December, according to a Prepa statement.
“We are disappointed that the Ad Hoc Group did not grant our requested extension,” Lisa Donahue, Prepa’s chief restructuring officer said in a statement Saturday. “Prepa remains willing to continue discussions with the Ad Hoc Group and other stakeholders.”
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.
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.
Michelle Kaske

Puerto Rico Utility's Debt Restructuring Agreement Expires

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