Municipal bond buyers thought Puerto Rico was on the cusp of restructuring its troubled power monopoly on their preferred terms. Now they aren’t so sure, as government leaders harden their stance against hiking electricity rates to pay off billions of dollars in debt, the Wall Street Journal reported. Some of the municipal bond market’s largest investors, including BlackRock Inc. and MacKay Shields LLC, have accumulated hundreds of millions of dollars in claims against the Puerto Rico Electric Power Authority, the public electric monopoly known as PREPA, people familiar with the matter said. They largely have replaced hedge-fund managers that wound down trades on PREPA after several years navigating its bankruptcy. Market-leading bond managers have been wary of Puerto Rico for several years while its finances deteriorated and it entered a court-supervised bankruptcy proceeding in 2017. Much of the U.S. territory’s debt has been held in hedge funds that bought bonds at discounts in the hopes of producing double-digit returns. But PREPA became more attractive to municipal investors last year when it won broad creditor support to repay $8.3 billion in power revenue bonds at no less than 67.5 cents on the dollar, while raising electricity rates to cover settlement payouts. The restructuring proposal required court approval and the cooperation of Puerto Rico’s elected leaders to take effect.
