SAN JUAN – Negotiations dating back more than 18 months between the heavily indebted Puerto Rico Electric Power Authority, or PREPA, and its creditors have collapsed, a situation that could lead to non-payment lawsuits filed against the utility.
The government-owned monopoly and a group of the company’s bondholders made the announcement in separate press releases early Saturday, saying the talks failed when no agreement was reached to extend a restructuring agreement before midnight Friday, the deadline for Puerto Rican lawmakers to approve the pact.
The U.S. commonwealth’s legislature has not yet approved the plan reached in September, under which a large group of creditors – traditional municipal bond investors and hedge funds – was to receive 85 percent of their existing claims in new securitization bonds that must receive an investment-grade rating.
The deal to restructure a sizable chunk of PREPA’s more than $9 billion debt load also was to have provided the utility with five years of debt-service relief.
The PREPA Bondholder Group said in its statement that it remained optimistic that Puerto Rican lawmakers would approve the restructuring deal, adding that it had offered to extend the Restructuring Support Agreement until Feb. 12.
As part of that offer, it said it would extend a bond-purchase arrangement once the energy commission approved an electricity surcharge.
The group said that arrangement would provide PREPA with an additional $115 million in financing, but the utility rejected the condition placed on the continuation of the bond purchases and thus refused to extend the RSA.
PREPA must pay around $400 million in principle and interest payments on July 1 and also owes $700 million to its fuel-line lenders.
The electric utility accounts for a sizable chunk of Puerto Rico’s $72 billion in public debt.
The government of Puerto Rico said in June that the U.S. commonwealth’s debt was unpayable under the current terms.
U.S. Treasury Secretary Jack Lew said during a visit Wednesday to Puerto Rico, which has been in a recession for nearly a decade and experienced a large increase in migration to the mainland United States in recent years, that Congress must act without delay to resolve the island’s escalating economic and fiscal crisis.
In a proposal unveiled in October, the Obama administration urged Congress to “move swiftly to pass pending legislation that provides Chapter 9 protection to Puerto Rican municipalities,” as well as authorize a broader framework that would allow for a “comprehensive restructuring of Puerto Rico’s debts.”