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Puerto Rico reaches deal to restructure $3B of power debt

July 31, 2018

SAN JUAN, Puerto Rico (AP) — Puerto Rico’s government reached a deal Monday night with a bondholder group to restructure more than a third of the debt owed by its troubled power company as the utility moves toward privatization.

A federal control board overseeing the U.S. territory’s finances called it an “important milestone” and promised the deal would not hit Puerto Ricans with rate increases to cover debt service if there was a drop in power usage.

Officials said bondholders that hold more than $3 billion in debt from Puerto Rico’s Electric Power Authority would exchange it for two new bonds. One would be exchanged at 67.5 cents on the dollar, while the other would be exchanged at 10 cents on the dollar and would be linked to Puerto Rico’s economic recovery.

“That is absolutely huge,” economist Vicente Feliciano told The Associated Press.

The deal marks the first time Puerto Rico will not pay a revenue bond in full, and it could have consequences beyond the U.S. territory, including higher interest rates on those types of bonds, he said.

The bondholder group whose clients include OppenheimerFunds and Knighthead Capital Management said in a statement that addressing the power company’s debt can speed up the utility’s transformation and viability.

“Our recoveries are now tied to PREPA’s sustainable success,” the group said.

Puerto Rico legislators are expected to soon approve several measures that will allow the Puerto Rico’s government to privatize the generation of power and award concessions for transmission and distribution.

Economist Gustavo Velez told AP that the debt restructuring deal will make it easier to find a buyer, in addition to possibly leading to similar agreements for those holding general obligation bonds and sales-tax bonds. Overall, Puerto Rico has more than $70 billion in public debt, and a federal judge overseeing the territory’s bankruptcy-like process has to approve all restructuring deals, which Velez said are key for the island to overcome its economic crisis.

“Puerto Rico needs to accelerate all these restructurings to return to the capital markets as quickly as possible,” he said.

The announcement comes just days after a new CEO was appointed to lead Puerto Rico’s power company, the fifth one since Hurricane Maria destroyed up to 75 percent of the island’s transmission lines. Some 200 customers remain in the dark more than 10 months after the hit as Puerto Rico struggles to emerge from an 11-year recession.

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