Puerto Rico's main electricity provider and its bondholders amended a plan to restructure almost $9 billion of debt, reinstating a tentative agreement that expired last week and threatened to worsen the commonwealth's financial crisis.
The Puerto Rico Electric Power Authority, investors, bond- insurance companies and fuel-line lenders agreed to extend the contract to Feb. 16, giving island lawmakers more time to pass legislation to enable Prepa, as it's known, to cut its debt and create a new customer surcharge, Lisa Donahue, the utility's chief restructuring officer, said in a statement late Wednesday. The restructuring support agreement terminated Friday after the legislature failed to pass the measure.
The restructuring pact involves investors and bond-insurance companies lending Prepa about $111 million through a bond sale, according to Stephen Spencer, managing director at Houlihan Lokey, adviser to Prepa bondholders. In return for the new Feb. 16 legislative deadline, investors and insurers agreed to purchase half of the bonds when lawmakers pass the legislation and buy the remaining debt when a petition to implement the new customer surcharge is filed to the island's energy commission, according to Donahue's statement.
"The agreements reflect the mutual understanding among Prepa and its key creditors about the importance of Prepa's financial restructuring and comprehensive transformation," Donahue said in the statement. "We have a long way to go, and there remain many uncertainties, but if implemented Prepa's transformation will have a positive, lasting impact on its finances, operations and culture."
Without a plan, Prepa is at risk of being sued by its creditors and possibly defaulting on payments to investors due July 1. Friday's termination was a step back for Puerto Rico. The island is seeking to reduce $70 billion of debt. Governor Alejandro Garcia Padilla Saturday warned lawmakers that the island may face blackouts if Prepa is unable to purchase enough fuel.
Legislative leaders have made recent public statements, "which have made it unequivocally clear that they want to get this deal done and that the additional 25 days we are extending beyond the original deadline is sufficient for the legislation to be passed," Spencer said in a statement late Wednesday.
Without the restructuring, Prepa is unable to pay creditor bills due in about five months, Donahue told a House Natural Resources Committee this month. Prepa faces $428 million in principal and interest to investors on July 1 and another $700 million to its fuel-line lenders, Donahue said.
