Puerto Rico Power Utility Plan to Reduce Debt by 40%

(Bloomberg) — Puerto Rico’s financial oversight board filed a plan to restructure about $9 billion in debt from energy companies after they failed to reach a deal with bondholders.

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The federal board oversees the island’s finances and debt proposals for the Electric Power Authority of Puerto Rico, known as Prepa, the island’s main provider of electricity. The board wants to reduce nearly 40% of Prepa’s debt — $8.5 billion in bonds and another $700 million in loans to fuel line providers — to a combined $5.4 billion in new restructured securities, according to the debt adjustment plan submitted to the board. bankruptcy court has been submitted Friday night.

Court mediation between the board, insurance companies and an ad hoc group of bondholders has so far failed to produce a consensual repayment plan. At the same time, the parties are litigating whether bondholders are entitled to Prepa’s future earnings or are limited to bills in the approximate amount of $16 million.

“Puerto Rico residents and businesses simply cannot afford what some creditors are demanding at this time,” David Skeel, the board’s chairman, said in a statement Friday. “The court has asked us to propose a plan that will allow Prepa to move forward and today we are fulfilling this obligation by proposing to reduce Prepa’s debt to a sustainable level while leaving the door open for further negotiations.”

Prepa first began negotiating with creditors to reduce its liabilities in 2014. Bankruptcy began in 2017 but was delayed by hurricanes, earthquakes and the pandemic, as the Commonwealth ended its record-breaking bankruptcy in March.

Puerto Rico needs reliable and affordable electricity to boost its economy, which has struggled to grow after years of decline. Residents and businesses are experiencing chronic blackouts and some of the highest power rates in the US.

deadlines

U.S. District Court Judge Laura Taylor Swain gave the board of trustees until Friday to file a debt restructuring plan after earlier deadlines were pushed back in hopes that further negotiations between the parties would lead to an agreement. Swain aims to hold a confirmation hearing on the restructuring plan in July.

To reduce Prepa’s debt load, the board’s plan would split the bondholders into two groups: one group that would settle disputes and agree that creditor repayments be limited to existing accounts, and another group that would continue to litigate that bondholders are entitled to Prepa’s future revenue collections.

In the oversight board’s debt proposal, bondholders who settle would get at least 50 cents on the dollar, and that amount could potentially increase if the court agrees with the board that creditors can’t claim Prepa’s revenue collections. The non-settling group may get as little as 19 cents on the dollar if the court sides with the board, or more if those bondholders win.

The board is pursuing “pointless lawsuits” that will only harm the citizens of Puerto Rico, Stephen Spencer, general manager of Houlihan Lokey, the financial advisor to the ad hoc bondholder group, said in a statement Friday.

“The FOMB’s decision to file a highly coercive plan that has no meaningful creditor support and no chance of being confirmed will only serve to extend Prepa’s nearly six-year bankruptcy, before keep the electricity supply unreliable and lead to increased costs for the people of Puerto Rico,” Spencer said.

Justin Peterson, a member of the board of trustees, disagreed with the panel’s restructuring proposal, saying it treated bondholders unfairly.

“I believe it was based on financial analysis done to resolve a desired outcome — to pay as little as possible,” Peterson said in a statement Friday.

Some Prepa bonds are trading higher than the board’s 50-cent bid. Prepa bonds with a 5.25% coupon and due 2040 traded on Thursday at an average of 74.8 cents per dollar, according to data compiled by Bloomberg.

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