Puerto Rico Utility, Bondholders Reach Restructuring Agreement
(Bloomberg) -- Puerto Rico’s federal oversight board and the Puerto Rico Electric Power Authority have reached a restructuring agreement with an ad hoc group of bondholders and bond insurer Assured Guaranty Corp.
Settling bondholders would exchange their bonds at 67.5 cents on the dollar for new Tranche A bonds and 10 cents on the dollar for new Tranche B bonds, the board announced in a statement Friday. Tranche B bonds will not receive debt service unless the Trance A bonds are paid in full, and may go unpaid if electricity demand over the next 47 years is lower than projected. The U.S. District Court for the District of Puerto Rico must still approve the deal.
The agreement will give Prepa, as the utility is known, greater certainty in proceeding with the privatization of its power grid, according to the statement. The utility was battered by Hurricane Maria, leaving heavy damage to the power grid and other infrastructure that was already badly in need of maintenance work.
“The agreement is a watershed moment in Prepa’s transformation from a bankrupt entity to an efficient, modern power provider and in the overall restructuring of Puerto Rico,” José B. Carrion, chairman of the oversight board, said in a statement. “We are moving forward with the negotiations for a plan of adjustment that would be the foundation for a new Prepa, as a privately operated, financially healthy electricity company able to attract investors.”
Payments on the new bonds will be funded by a fixed transaction charge on customers bills. The charge will be set at 2.7 cents per kilowatt hour and rise gradually to 4.5 cents over the first 23 years, where it will remain for the duration of the bond’s term, according to the release.
The restructuring is expected to save Prepa and Puerto Rico residents about $3 billion in debt service payments over the next 10 years compared to a prior preliminary restructuring support agreement, and reduce certain Prepa debt by up to 32.5 percent.
The case is In re Puerto Rico Electric Power Authority, 17-4780, U.S. District Court, District of Puerto Rico (San Juan).
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