Puerto Rico utility's new deal to relieve about $9B of debt
- Puerto Rico's bankrupt utility will get relief under an arrangement between the island's government, bondholders and an oversight board, which would move about $9 billion in debt into two new securities, at a significant reduction in value.
- One security would be exchanged at 67.5 cents on the dollar, maturing in 40 years; a second growth-oriented security would be exchanged at 10 cents on the dollar and matures in 45 years. News of a deal increased the value of PREPA's bonds by about 40% on Monday.
- Last year, the federal board overseeing operations of the Puerto Rico Electric Power Authority (PREPA) rejected a restructuring deal because it did not do enough to modernize the island's grid and reduce costs for consumers.
The announcement is a welcome bit of good news for the struggling utility. Last year, months after declaring bankruptcy, Puerto Rico's entire electric grid was destroyed by Hurricane Maria. A compete rebuilding is being considered, and the need for modernization was one reason the oversight board found the financial restructuring proposal last year to be lacking.
Debt consolidation may help clear the way for privatization of PREPA, which is one solution under consideration.
The U.S. Department of Energy has been advising the Puerto Rican government on potential privatization plans, but in a hearing last week officials said they are not considering federalizing the utility.
DOE Assistant Secretary Bruce Walker, at a House Natural Resources Committee hearing, said the federal government should take away Puerto Rico Gov. Ricardo Rosselló's authority to make appointments to PREPA's board. Earlier this month, two utility executives and a majority of its board stepped down over salary disputes, allowing Rosselló to appoint replacements.
The financial restructuring agreement announced Monday included Knighthead Capital Management, Franklin Advisers, BlueMountain Capital Management and others. A bankruptcy court will still need to approve the agreement.
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