Puerto Rico Power Utility Gets Debt Deadline Extension

23 Dec 2015 | Author: | No comments yet »

Inside The Billion-Dollar Battle For Puerto Rico’s Future.

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.With a potential huge default on bonds looming and a new bankruptcy law for Puerto Rico to be weighed by Congress in the new year, bondholders have agreed to keep trying to reach a deal to restructure as much as an eighth of the island’s $72 billion debt. Over weak coffee in a conference room in Midtown Manhattan last year, a half-dozen Puerto Rican officials exhaled: Their cash-starved island had persuaded some of the country’s biggest hedge funds to lend them more than $3 billion to keep the government afloat.

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. An agreement to pursue the restructuring plan was set to expire on Thursday, but the parties renewed it that evening, as they have done a number of times previously.

The agreement hasn’t been approved by the power authority’s board and would only take effect after Puerto Rico’s lawmakers reconvene and pass legislation to allow the deal. The commonwealth is seeking to strike deals with investors to restructure about $70 billion of debt, which includes Prepa debt, without the bankruptcy protections allowed U.S. municipal entities.

Puerto Rico’s cash has dwindled, debate has flared in Washington over whether and how to help the island, and the governor of Puerto Rico, Alejandro García Padilla, warned that the island was likely to default, either in January or May. In addition, the United States Supreme Court unexpectedly said it would consider Puerto Rico’s case for enacting its own restructuring law, because it is ineligible for Chapter 9 bankruptcy, which cities like Detroit and Stockton, Calif., have used recently to shed debt. Persuading the Supreme Court to reconsider has been widely seen as a surprise victory for the struggling island, and a setback for creditors, even though any ruling is still months off.

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. The Treasury Department has been pressing Congress to give Puerto Rico access to bankruptcy reorganization, or something similar, so that it can reduce its debts in an orderly fashion. 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. Any such power “should sunset within a short period of time after the restructuring is accomplished,” Richard Ravitch, the former lieutenant governor of New York State, said in written responses to questions from Senator Orrin G.

Hatch, Republican of Utah and a member of the Judiciary Committee, which has been working on a possible restructuring framework. “This would ensure that no future government would borrow as promiscuously and then be able to take advantage of the bankruptcy laws,” said Mr. Donahue, the AlixPartners managing director who is Prepa’s chief restructuring officer, said in an interview earlier this week. “Everybody does want a deal. 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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