(Adds details on credit line, dates, background)
Aug 14 Puerto Rico's electric power authority PREPA on Thursday struck a deal with bondholders to develop a restructuring plan to revive the debt-stricken utility, as it got an extension of vital lines of credit that it uses to buy oil.
PREPA, with around $9 billion of debt, is widely viewed to be in the weakest condition of Puerto Rico's highway, water and electricity agencies. A restructuring of its debt, moving to cheaper fuel and cutting jobs are seen as imperative to its longer-term health.
Under the terms of Thursday's deal, bondholders and insurers holding more than 60 percent of its bonds gave PREPA the go-ahead to develop a restructuring plan by March 2 2015. It pledged to appoint a chief restructuring officer by September 8.
The deal includes bondholders suing Puerto Rico over a newly passed law which provides a legal framework for some public corporations to enter a bankruptcy-type process, PREPA said. Oppenheimer Funds, Franklin Templeton Investments and hedge fund Blue Mountain have sued to annul the act.
PREPA was on the hook for $146 million from Citigroup Inc and $525 million from a consortium led by Scotiabank . PREPA had already gained a two-week extension to the credit lines that expired on Thursday.
Its bank credit lines are now extended to March 31, during which the banks will receive interest payments, it said.
The power authority said it would focus on improving the generation, transmission and distribution of the island's power supply and the overall quality of data collection and reporting.
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 and electricity prices on the island are double those in the mainland United States.
The agreement also gives PREPA the ability to use $280 million of a construction fund to pay expenses and capital improvements, as of later this month.
(Reporting by Ed Krudy, Luciana Lopez and Megan Davies, editing by G Crosse and Richard Chang)