Puerto Rico seeks bankruptcy for govt electric firm

Bloomberg

Puerto Rico’s federal oversight board voted unanimously to allow for the government’s electric utility to file for bankruptcy after rejecting a longstanding debt-restructuring agreement with creditors, threatening to impose steep losses on bondholders and insurance companies.
The decision promises to upend years of negotiations by the Puerto Rico Electric Power Authority, known as Prepa, with hedge funds, mutual funds and bond-insurance companies to find an out-of-court solution
to reduce the utility’s obligations and modernize
its system.
Governor Ricardo Rossello said he asked the US territory’s financial oversight board to allow it to push the talks into court. The announcement follows the decision by the board to reject a pact that the power company first struck with creditors in late 2015, saying it failed to protect residents from the risk of burdensome electricity bills that could delay the island’s economic turnaround. No bankruptcy filing has yet been made and officials said they want to continue negotiations.
“Notwithstanding the authorization of this filing, the board will continue to work towards a prompt, negotiated settlement with PREPA’s creditors — an
approach that we believe
is in the best interest of all of PREPA’s stakeholders,” Jose Carrion, the chairman of the US board, said in
a statement. “To this end, our dialogue with creditors is ongoing.”
The board’s move casts doubt on whether Prepa will pay investors $423 million of principal and interest due July 3. Gerardo Portela, executive director of Puerto Rico’s Fiscal Agency and Financial Advisory Authority, told reporters after the board meeting that he didn’t know if Prepa would make the payment. It would be the first payment default for the agency because bondholders and insurance companies had been extending short-term loans to avoid such a lapse.
A Prepa spokesman referred questions about the July payment to Puerto Rico’s fiscal agency. MBIA Inc.’s National Public Finance Guarantee Corp. and Assured Guaranty Ltd., which insure Prepa bonds, sued the oversight board this week in an effort to salvage the agreement, saying it would save the utility from lengthy bankruptcy proceedings.
Ashweeta Durani, a spokeswoman for Assured Guaranty, declined to comment beyond the company’s statement criticizing the board for rejecting
the deal. In a statement,
Bill Fallon, the chief executive officer of MBIA’s National, said the board’s decision was “ill-advised, improper, and could well have dire consequences for Puerto Rico.”
An group of bondholders said it is open to continuing talks to help restructure the utility. “We remain committed to continue negotiations and find a solution to move forward together to revitalize Prepa,” the group said in a statement.
The power company’s bonds tumbled over the past two months on speculation that the deal would unravel and leave investors recovering less than the 85 cents on the dollar they agreed to accept. The key terms were agreed to before US emergency rescue legislation was enacted that extended the territory power to file for a tailor-made type of bankruptcy, known as Title III, giving it far greater leverage with creditors.
Prepa bonds maturing July 1, 2017 traded Friday at an average 60 cents
on the dollar, down from 77.8 cents the day bef-
ore, data compiled by Bloomberg show.