SAN JUAN – The Puerto Rico Electric Power Authority announced that it had entered into a preliminary debt restructuring deal with its bondholders and bank lenders, although an agreement with its monoline bond insurers remains pending.
The monopoly, whose debt load amounts to nearly $9 billion, said in a statement Thursday that it had reached the agreement with the so-called Ad Hoc Group, which comprises traditional municipal bond investors and hedge funds; its fuel line lenders; and the Government Development Bank for Puerto Rico.
“The restructuring support agreement formalizes the previously announced agreements on economic terms between Prepa, the Ad Hoc Group and the fuel line lenders in September 2015,” the statement read.
“We’re making significant progress in transforming Prepa, and the formalization of our agreement solidifies the support of key creditors,” Prepa’s chief restructuring officer, Lisa Donahue, said.
She added that the utility was working to build a strong financial foundation and continuing constructive negotiations with its monoline insurers in a bid to hammer out a separate restructuring arrangement.
“We are building support for Prepa’s transformation and establishing a stronger entity,” said Harry Rodriguez, the chairman of the utility’s governing board.
The agreement is designed to provide Prepa with five-year debt service relief totaling $700 million and a permanent reduction of more than $600 million in its principal debt burden, the utility said.
Under the terms of the agreement, the creditors that make up the Ad Hoc Group will exchange all of their outstanding power revenue bonds for new “securitization” bonds with an investment grade rating, receiving 85 percent of their existing bond claims.
Bondholders may either receive securitization bonds that pay cash interest of between 4 percent and 4.75 percent or convertible capital appreciation securitization bonds that will accumulate interest at a rate of between 4.5 percent and 5.5 percent during the first five years and pay current interest in cash thereafter, the statement said.
The former bonds will only pay interest for the first five years, while the latter will accumulate interest but their holders will not receive any cash interest for the first five years.
“Prepa continues to negotiate with its monoline bond insurers with the goal of reaching an agreement on a consensual recovery plan among all of its major financial stakeholders,” the statement read, adding that the debts the utility owes to the Government Development Bank of Puerto Rico will be treated in substantially the same manner as those owed to the fuel line lenders.
The government of Puerto Rico, which has endured nearly a decade of recession, said in June that the U.S. commonwealth’s $72 billion in public debt was unpayable under the current terms.