Puerto Rico power company's finances spark concern
Jul. 17, 2014
SAN JUAN, Puerto Rico (AP) — U.S. investors on Thursday pressed Puerto Rico government officials about the financial health of the island's power company amid fears it might soon seek to restructure millions of dollars in debt.
The questions came after a nearly two-hour webcast in which officials sought to reassure investors and update them on steps being taken to stabilize the U.S. territory's economy and generate additional revenue for its government.
It was the first webcast held since Gov. Alejandro Garcia Padilla signed a law that allows some public corporations to restructure their debt if needed. The law was approved as the U.S. territory enters its eighth year in recession and grapples with some $73 billion in public debt, with public corporations holding nearly 40 percent of the debt.
Puerto Rico has seen a flurry of credit rating downgrades since the announcement of the law, which does not apply to the island's general obligation bonds.
David Chafey, chairman of the Government Development Bank, which oversees the island's debt transactions, stressed that the priority for cash-strapped agencies is to reach consensual and negotiated solutions with creditors.
"We will only use the Recovery Act if such solutions are not available," he said.
Investors asked if the state-owned Electric Power Authority had enough money to pay for fuel and whether it was nearing a default.
Natalia Guzman, the bank's senior vice president, said the company has enough liquidity to pay suppliers and said media reports saying it had used loan proceeds for fuel purchases were erroneous. She also noted that the government owed the power company $240 million as of May 31 and that some $110 million was past due.
The power company has more than $9 billion in debt outstanding and has about $398 million in cash in its general fund, officials said. The company recently reached an agreement to delay payment on lines of credit totaling about $800 million with Citibank and Scotiabank.
Garcia said his administration will soon unveil a plan for comprehensive tax reform during the first half of the 2015 fiscal year. He noted the government approved a balanced budget a year ahead of schedule.
"Our resolve to do what is right and necessary to save our credit and grow the island's economy is now stronger than ever," he said.
Also on Thursday, four U.S.-based asset managers announced creation of a group to support the actions that Puerto Rico's government has taken and possibly offer future financial assistance if needed. The group includes New York-based Brigade Capital Management, Fir Tree Partners, Monarch Alternative Capital LP and Perry Capital LLC. Together, they have $60 billion worth of capital under management and hold more than $3 billion in Puerto Rico bonds.