Puerto Rico advances utility restructuring

6fc24501-735e-4582-b084-6061d89e41eeEric Platt in New York – The Puerto Rico senate passed legislation late on Wednesday that will grant the island’s electric utility the ability to restructure its nearly $9bn of debt, clearing a hurdle that had briefly caused negotiations between creditors and the electric group to collapse earlier this year.

The upper chamber of the US commonwealth’s legislature approved the Prepa Revitalisation Act in a vote of 16 to 10.

The bill, which would levy a surcharge on resident accounts to service bonds issued by the Puerto Rico Electric Power Authority — known as Prepa — and improve its ability to collect on outstanding customer bills, is one component that underpins the restructuring. The deal also saw creditors including Franklin Templeton, Oppenheimer and BlueMountain Capital Management agree to a 15 per cent haircut on their debt holdings.

The Puerto Rico House of Representatives must pass similar legislation before February 16, when the restructuring agreement between creditors and Prepa expires. The deal had fallen apart in January after the island’s legislature had failed to pass the act by a previously agreed date.
Prepa is expected to use some of the savings to modernise its power generation fleet and to increase its shift to natural gas from more expensive crude oil. The utility generates more than two-thirds of its electricity production with oil.
“The passage of the bill by the senate demonstrates the continued progress we are making to transform Prepa,” said Javier Quintana Méndez, executive director of the utility. “Through this transformation, which our board initiated over a year ago, we can resolve our financial situation.”

Policymakers and advisers to the commonwealth have heralded the agreement over Prepa’s debt as a model to use when negotiating restructures of other Puerto Rican entities, including the $4bn in debt issued by the island’s water and sewer utility.

Negotiations between Puerto Rico and its creditors have intensified ahead of a July 1 payment that policymakers and investors have conceded the poverty-stricken island will be unable to make without a debt service moratorium.

Earlier on Wednesday, a group of investors holding debt issued by the Puerto Rico Sales Tax Financing Corporation, known by its Spanish acronym Cofina, presented the first counter offer since the US territory put forth a significant restructuring proposal last week.

Investors and advisers say they expect several more counter proposals from competing classes of creditors to be launched in the coming weeks.
Policymakers are also awaiting action from the US Congress, with Republican speaker of the House Paul Ryan setting a March deadline for the legislature to offer a solution to the escalating crisis.

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