Puerto Rico Power Authority, Bank Lenders Agree to Postpone Loan Payments to Aug. 14--Update
By Aaron Kuriloff
The Puerto Rico Electric Power Authority reached agreements Thursday with banks to defer payments on lines of credit to Aug. 14, according to a statement from the authority.
The extension is the second this month for the authority, giving it two more weeks of breathing room to forestall a possible restructuring of about $9 billion in total debt. Earlier this month it reached deals with Citigroup Inc. unit Citibank and a syndicate led by Bank of Nova Scotia'sScotiabank de Puerto Rico to delay some payments on $671 million it owed the banks between July and mid-August.
Citibank and Scotiabank representatives didn't immediately respond to requests for comment.
The utility, known as Prepa, is at the forefront of Puerto Rico's long-running financial difficulties. Prepa is scrambling to find cash to fund operations and make payments to lenders, even as the commonwealth broadly struggles with steep unemployment and a weak economy.
"It just delays the decision but it's good to hear they're working together enough to get a delay," said Daniel Solender, director of municipal-bond management at Lord Abbett & Co., which oversees about $15.5 billion in municipal- related holdings, including some from Puerto Rico.
Standard & Poor's Ratings Services also weighed in on Prepa's debt Thursday, dropping its already-junk rating on $ 8.3 billion of power revenue bonds to triple-C and warning of future downgrades. The rating firm says "the authority's debt is vulnerable to nonpayment." S&P also affirmed its double-B rating on Puerto Rico's general-obligation debt.
Some power authority bonds were trading at around 48 cents on the dollar Thursday afternoon, unchanged from yesterday.
The authority said it is having "productive discussions" with creditors with the goal of reaching an agreement to improve short-term liquidity. Payments to employees and suppliers will continue.
"This latest show of support from our bondholders, bond insurers and lenders provides us with additional time to evaluate all available options to ensure we are reaching the best possible outcome for our employees, customers, creditors and suppliers," Juan F. Alicea Flores, Prepa's executive director, said in the statement.
Puerto Rico has about $73 billion in total obligations and its debt is widely held by municipal mutual funds and individuals, leading some analysts to worry that the power authority's troubles could escalate into losses for investors nationwide.
Puerto Rico lawmakers in June approved legislation allowing some public agencies, including the island's power, water and transportation authorities, to overhaul almost $20 billion in debt. The law doesn't apply to Puerto Rico's general-obligation or sales-tax debt.
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