Puerto Rico's cash-strapped electric power authority faces a key deadline today to extend lines of credit with banks or face a possible restructuring of about $9 billion in total debt, the Wall Street Journal reported today. Extensions of the loans would help the Puerto Rico Electric Power Authority (Prepa) to overcome a short term cash crunch and avoid more uncertainty about its future, which is roiling the market for Puerto Rico bonds. The authority last month reached deals with Citigroup Inc. unit Citibank and banks led by Scotiabank de Puerto Rico, a unit of Bank of Nova Scotia, to delay some payments on $671 million it owed the banks between July and mid-August. It was the second agreement to postpone payments. The power authority said in a statement that it is prohibited by nondisclosure agreements from providing details on talks with its lenders, bondholders and bond insurers. Prepa owes $146 million to Citigroup and $525 million to the syndicate led by Scotiabank on a credit line that matures today, Standard & Poor's Ratings Services said in a report last month cutting the utility's bonds further into junk territory. The agency has already dipped into rainy-day cash to cover its debts, tapping a reserve fund for $41.6 million to make a July payment to bondholders. (Subscription required.) http://online.wsj.com/articles/puerto-rico-power-authority-faces-thursd… In related news, the judge asked to consider the constitutionality of a new Puerto Rico law that allows government-owned entities to restructure debt outside of federal bankruptcy court wants each side to make its case by October, Bloomberg News reported today. Saying that the new law depressed the value of $1.6 billion in power utility debt they hold, bond funds affiliated with Franklin Resources Inc. and Oppenheimer Rochester Funds sued Puerto Rico in June, contending the Public Corporation Debt Enforcement and Recovery Act violates the U.S. Constitution. The law would let a commonwealth court restructure debt in a process akin to chapter 11 of the U.S. Bankruptcy Code. Puerto Rico has asked U.S. District Judge Francisco A. Besosa in San Juan Besosa to dismiss the suit and declare the law constitutional. The bond funds filed a summary judgment motion this week, taking the position that undisputed facts require Besosa to declare the law void, regardless of the specific circumstances under which it’s applied. The judge told Puerto Rico to file papers by Sept. 12 supporting its claim that the law is constitutional. The bond funds are to file opposing papers by Oct. 6. http://www.bloomberg.com/news/print/2014-08-14/puerto-rico-debt-law-bri… The situation surrounding Prepa’s debt and the introduction of H.R. 5305, the "Puerto Rico Chapter 9 Uniformity Act of 2014," will be discussed on the latest ABI podcast. A link to the new podcast will be included in today’s Bankruptcy Brief newsletter.
