(Adds analyst quote, updates market activity)
NEW YORK Aug 15 Bonds of Puerto Rico's PREPA
power authority hit their highest price in nearly two months on
Friday, a day after the troubled utility reached a deal with
creditors to extend credit lines and develop a plan to
restructure its business.
Although PREPA is still losing money and is struggling with
more than $9 billion of debt, Thursday's agreement ensures the
utility cash until next March to make oil purchases. PREPA also
agreed to make its $209 million coupon payment to bondholders in
January, avoiding the prospect of an imminent default.
"Part of me says this is kicking the can down the road. Why
would the bid improve except that they're going to receive
another coupon payment?" said Robert Amodeo, a fund manager at
Western Asset. Amodeo does not hold PREPA bonds but does own
Puerto Rico general obligation and tax revenue bonds.
PREPA bonds due in 2035 with a 5.25 percent coupon
traded up 6 cents at an average price of 53
cents on the dollar and yield of 11.063 percent. The bonds
traded at their highest level since June 18.
The bonds have rallied from an average low of 34.500 cents
hit on July 7, about a week after Puerto Rico passed the
Recovery Act, which allows some public corporations to
restructure their debt. Still, the bonds remain at heavily
discounted levels, indicating the market expects a writedown at
The core of PREPA's problems is that it uses high-cost oil
to generate electricity. PREPA spends almost two-thirds of its
operating budget, or $2.6 billion, on oil. Electricity prices on
the island are double those in the mainland United States.
"This is a positive step but at the same time I don't think
this changes the underlying problem, which is the utility runs
at a loss and has to buy oil to produce energy at a loss. That
has to change," said Amodeo.
(Reporting by Edward Krudy; Editing by Dan Grebler)