| July 7
July 7 A pair of big bond insurers with more
than $10 billion of exposure to Puerto Rican debt have hired
restructuring advisers as the commonwealth continues on a path
toward a reckoning with creditors.
MBIA Inc. is working with financial advisers from
The Blackstone Group, according to two sources with knowledge of
the matter. Assured Guaranty Ltd. has hired
professionals from investment bank Houlihan Lokey, Assured's
spokeswoman, Ashweeta Durani, confirmed.
The hirings are the latest sign that Puerto Rico's debt
crisis appears to be moving toward a restructuring, even as some
bondholders have challenged the constitutionality of a law that
would allow certain of the commonwealth's public agencies to
refinance their debt.
Puerto Rico is being advised by well-known New York-based
restructuring lawyers, who helped write the law, and distressed
debt investors have begun snapping up the commonwealth's
The move by MBIA and Assured to hire advisers comes as
concerns grow about the exposure the bond insurers have to
long-struggling Puerto Rico and its public corporations, the
island's electric authority in particular.
A spokesperson for MBIA did not immediately return a call.
Earlier on Monday, the Puerto Rico Electric Power Authority,
or PREPA, struck a deal with bank lenders providing it revolving
lines to allow it to delay until July 31 certain payments that
are currently due.
In addition to at least $671 million in bank loans, PREPA
has some $8.8 billion of bonds oustanding. In all, Puerto Rico
and its agencies are around $73 billion in debt.
The catalyst for the latest worry among Puerto Rico
creditors was enactment of a law last month setting up a path
for PREPA and its sister agencies - the water and sewer and
highway transportation authorities - to restructure their debts.
The law "raises questions about Puerto Rico's credit
conditions and willingness to pay its debt," Moody's Investors
Service analyst Stanislas Rouyer wrote in a note.
Given the sizeable exposure MBIA, Assured Guaranty and a
third insurer, Radian Group Inc., have to the U.S.
territory and its agencies, the new law is a "credit negative,"
MBIA's National Public Finance Guarantee unit has $4.8
billion of total net exposure to Puerto Rico debt, according to
Moody's. That is 145 percent of NPFG's statutory capital of $3.3
billion. Exposure to PREPA alone, at $1.5 billion, is equal to
46 percent of statutory capital.
Assured Guaranty insures $5.4 billion of Puerto Rico bonds
through three different operating units. Comparable to MBIA's
NPFG, Assured's reinsurance unit has exposure that exceeds its
Radian's exposure is smallest, at $452 million, equal to 31
percent of its statutory capital, and it has just $22 million of
insurance written on PREPA bonds.
Shares of all three insurers ended Monday lower on Wall
Street. Radian fell 2.86 percent to $14.25; MBIA fell 2.81
percent to $10; and Assured fell 0.5 percent to $23.09.
(Reporting by Nick Brown; Editing by Dan Burns and Andrew Hay)