Puerto Rico’s electric utility reached an agreement with insurance companies and bondholders to restructure its debt and provide it with an infusion of cash to help modernize its facilities.
The deal would give the Puerto Rico Electric Power Authority, saddled with $8.2 billion in obligations, more than $700 million of interest-rate relief over five years.
The agreement was struck with insurers MBIA Inc. and Assured Guaranty Ltd. as well as bondholders that hold 70% of its debt.
Debt principal would be reduced by $600 million
Under the agreement, Prepa’s outstanding debt principal will be cut by $600 million. The bond insurers agreed to purchase $50 million of new revenue bonds, while a committee of creditors will invest another $65 million in the bonds, giving the utility $115 million in new cash.
Lisa Donahue, Prepa’s chief restructuring officer, said the agreement is an important first step for the utility, which is plagued by antiquated, unreliable facilities.
Its plants run on oil, instead of natural gas, while its rates are more than twice the national average. Power outages are common.
“It gives us liquidity, it gives us breathing room,” Donahue said, according to Bloomberg. “It gives us cash to invest in infrastructure and to provide, ultimately, sustainable clean power for Puerto Rico.”
Under the deal, Puerto Rico’s lawmakers must ratify the agreement by Jan. 22.
Debt exchange
The $600 million cut in obligations would be accomplished through a debt exchange in which holders of Prepa’s junk-rated bonds would receive new investment-grade bonds backed by a financial guaranty posted by the two insurers.
As a result of the agreement, Prepa will be able to make an interest payment of almost $200 million due Jan. 1.
Puerto Rico and its agencies face a total of about $73 billion in obligations, which the territory’s governor has said isn’t payable. Efforts to persuade Congress to allow the commonwealth’s agencies to file bankruptcy protection have so far been unsuccessful.
Last week, U.S. House Speaker Paul Ryan asked House committee members to come up with a comprehensive plan to address Puerto Rico’s other fiscal woes by the end of March.
The Prepa pact is seen by analysts as a possible template for agreements on Puerto Rico’s other debt.