Puerto Rico Power Authority in Restructuring Deal With Creditors

Deal cuts utility’s debt payments, reduces total burden

The Wall Street Journal  By .AARON KURILOFF

Puerto Rico Gov. Alejandro García Padilla PHOTO: SAIT SERKAN GURBUZ/ASSOCIATED PRESS

Puerto Rico Gov. Alejandro García Padilla PHOTO: SAIT SERKAN GURBUZ/ASSOCIATED PRESS

The Puerto Rico Electric Power Authority has completed an agreement with a group of creditors to restructure the utility’s finances, a major step toward a deal granting some debt relief to the financially troubled U.S. commonwealth.

The agreement between about 70% of creditors and the authority, known as Prepa, would cut debt payments by almost half annually over the next five years, saving a total of more than $700 million, according to a news release from Prepa.

Bondholders, including mutual funds and hedge funds, agreed to accept losses of 15% in exchange for safer debt, while bond insurers agreed to help facilitate the swap by providing up to about $460 million as a reserve to bolster investor protections in the new securities.

That could help the new bonds get investment-grade ratings, one condition of the agreement. The deal also requires new legislation from Puerto Rico lawmakers.

Once implemented, the plan will reduce Prepa’s debt, allow for new investment in the authority’s infrastructure and help stabilize power rates on the island, said Lisa Donahue, Prepa’s chief restructuring officer.

“We still have to get through the legislation and we still have to get through the execution, but this is an important first step,” she said.

Puerto Rico owes investors about $70 billion and has struggled with a decadelong recession and declining population, leading Gov. Alejandro García Padilla to call its debts unpayable. The commonwealth defaulted on bond payments in August and is in restructuring talks with creditors ahead of Jan. 1 bond payments totaling about $1 billion.

Prepa, which owes about $9 billion, has payments of about $200 million due that day, and creditors agreed to refund $115 million if and when Puerto Rico lawmakers pass legislation enabling the deal.

Both the governor and the U.S. Treasury Department have asked the U.S. Congress to create a formal debt-restructuring process for the island, and Mr. Padilla said that such a framework is critical to avoiding a legal quagmire that would hurt both island residents and investors alike.

Some investors oppose that move and have pointed to the Prepa negotiations as evidence they aren’t needed. House Speaker Paul Ryan (R., Wis.) said last week he had instructed the relevant committees to to find a “responsible solution” by the end of March.

Ms. Donahue said that while significant challenges to finalizing the deal remain, and Puerto Rico’s other financial woes are likely more difficult to untangle, the agreement “sends a good signal to investors that there’s a path forward.”

Write to Aaron Kuriloff at aaron.kuriloff@wsj.com

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