February 26, 2015 / 10:01 PM / 4 years ago

Puerto Rico's Prepa likely to miss debt restructuring deadline

Feb 26 (Reuters) - Puerto Rico’s debt-laden power authority, Prepa, is not expected to present a restructuring plan to creditors by next week’s deadline as sides continue negotiations to address the authority’s debt problems.

With $9 billion in debt, Prepa faces a Monday deadline to present the framework of a restructuring under a forbearance agreement with lenders and bondholders. But people close to the matter said the deadline is likely to pass with no formal proposal as negotiators weigh dropping energy prices and legislative uncertainty on the island.

Still, creditors do not plan to call a default in the absence of a proposal, and extension talks are expected to continue, three people close to the matter said.

That echoed comments a week ago by Prepa board member Juan Rosario, who said Prepa had asked for more time, and doubted that its chief restructuring officer, Lisa Donahue, would deliver a plan on time.

Rosario said he believed Prepa would ultimately get an extension because it does not owe another bond payment until the summer.

Parties to discussions have long expected the agreement to be extended, but Prepa’s financial picture has recently changed. Declines in oil prices, which have steadied Prepa’s financial footing, have emboldened some creditors to resist cuts to their debt and demand a more comprehensive financial fix.

Meanwhile, a court ruling this month invalidating a Puerto Rican law allowing Prepa to cut its debt through bankruptcy has also given creditors leverage.

“Prepa is actively seeking to negotiate extensions of” its forbearance agreements, “but those efforts may have been hampered by the district court’s decision invalidating the act,” Puerto Rico Solicitor General Margarita Mercado-Echegaray said in court papers seeking a speedy appeal of the court’s ruling.

On Thursday, island officials testified in a House Judiciary subcommittee in support of a separate bill to allow Puerto Rico’s municipal bodies to file for U.S. bankruptcy under Chapter 9.

Prepa officials did not immediately respond to requests for comment.

The missed deadline could empower bondholders to call a default and appoint a receiver to oversee Prepa’s finances. People involved in the case say such a move is viewed as increasingly attractive by a minority of creditors, but that most are willing to be patient, at least for now, as extension talks move forward. (Reporting by Nick Brown in New York and a contributor in San Juan, Puerto Rico; Editing by Megan Davies and Lisa Shumaker)

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