Puerto Rico’s troubled electric monopoly, mired in about $9 billion of debt, stands to run out of money by midsummer if its hard-won plans to restructure fall through — something that could happen this month, a top official of the utility told a congressional panel yesterday, the New York Times reported. Before all that debt can be restructured, the Puerto Rican legislature must first pass an enabling law — a law that, among other things, would lead to the island’s first increase in the base rate for electricity since 1989. The legislature has about 10 more days to do that, according to the restructuring schedule, but already some lawmakers in San Juan are saying they will oppose the bill. “I like to be an optimist, but it will be a challenge,” said Lisa J. Donahue, the AlixPartners managing director who is working as the chief restructuring officer of the Puerto Rico Electric Power Authority (PREPA) at a House Committee on Natural Resources subcommittee hearing. Asked what would happen to the deal without legislative approval, Donahue said: “It would fall apart.” The deal involves an exchange of debt, with creditors accepting new bonds with an investment-grade rating and a face value 15 percent less than the junk-rated PREPA bonds they now hold. The new bonds would also have a slower payment schedule and a lower interest rate. On its existing debt, PREPA has a little more than $1 billion in principal and interest due before June 30. Without the increase in electricity rates, and other provisions of the restructuring plan, it will not have enough cash to pay. Read more.
In related news, Puerto Rico officials are scheduling meetings with creditors as soon as today to begin talks on restructuring its $70 billion of debt, Bloomberg News reported yesterday. The U.S. territory expects to host at least two meetings in the New York offices of its law firm Cleary Gottlieb Steen & Hamilton LLP over the next two weeks to present the proposal to restructuring advisers representing its creditors. Representatives of at least five investor groups have been coordinating with Puerto Rico’s consultants to organize the meetings. Puerto Rico is under pressure to persuade lenders to agree to a restructuring accord before July 1, when it must make a $2 billion payment. A commonwealth agency failed to pay $35.9 million it owed Jan. 4 after the administration used revenues pledged to certain types of bonds to meet other obligations. That prompted bond insurers Ambac Financial Group Inc. and Assured Guaranty Ltd. to file a lawsuit seeking to prevent the island from diverting revenue in what’s known as a clawback. Read more.
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For more news and analysis of Puerto Rico's debt crisis, be sure to visit ABI's "Puerto Rico in Distress" webpage.
