Puerto Rico electric utility said to reach tentative debt plan

23 Dec 2015 | Author: | No comments yet »

MBIA Surges Most Since 2013 as Puerto Rico Electric Reaches Pact.

The Puerto Rico Electric Power Authority reached a preliminary agreement with bond insurers to restructure the utility’s finances, a key step toward completing the first deal that would grant debt relief to the U.S. commonwealth.

Shares of the two biggest bond insurers rallied, with MBIA Inc. surging the most since May 2013, after Puerto Rico’s cash-strapped electric utility was said to have reached a tentative agreement with the companies and some bondholders to restructure its $8.2 billion of debt. MBIA, which earlier this month closed at the lowest price since March 2010, climbed 17.7 percent on Friday in its largest single-day rally since May 6, 2013. Insurers agreed to bolster the security of the new bonds, which would make it more likely that the bonds would be rated investment grade, according to a person familiar with the situation. Stocks of bond insurers Assured Guaranty (AGO) and MBIA (MBI) as well as uninsured bonds were trading higher as the deal was seen as favorable for bondholders. Spokespeople for Prepa and bond insurers MBIA Inc. unit National Public Finance Guarantee, Assured Guaranty Ltd. and Syncora Guarantee Inc. declined to comment on the status of the talks.

To sweeten the deal for securitized bondholders, the insurers have agreed to provide a $450 million first-loss equity buffer in case revenues fall short, in order to redeem principal and pay interest. Under the pact, the insurers will provide about $450 million in the event of a default, according to two people with knowledge of the discussions, who asked for anonymity because the negotiations are private. The tentative agreement sets into motion what would be the largest-ever restructuring in the $3.7 trillion municipal market and potentially avert a default on $196 million of interest due Jan. 1.

A measure allowing the commonwealth to restructure debt didn’t make the $1.15 trillion spending bill passed Friday. “By not acting now, Congress has opted for the U.S. commonwealth to default on its obligations and unfold into chaos,” the governor said in a statement. While some investors oppose such a move and have said the Prepa negotiations show there is no need for it, Congress this week gave the clearest sign that lawmakers will eventually take up legislation addressing the island’s crisis. House Minority Leader Nancy Pelosi introduced a bill on Friday that would stay legal actions against the commonwealth while Congress considers restructuring legislation. Supreme Court has also agreed to consider whether Puerto Rico should be allowed to write laws permitting public agencies such as Prepa to restructure debts.

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