March 28, 2017 / 9:40 PM / 3 years ago

Exclusive: Puerto Rico utility PREPA and creditors working on new debt deal

NEW YORK (Reuters) - Creditors of Puerto Rico’s struggling power authority, PREPA, have presented the island’s government with a counter-offer to restructure the utility’s $8.9 billion of debt, several people familiar with discussions said on Wednesday.

Officials from the U.S. territory’s fiscal agent, known by its Spanish acronym AAFAF, received the offer during meetings with creditors this week, said the sources, who requested anonymity because the talks are private.

While terms of the offer remain confidential, it is premised on delaying principal payments for several years to free up cash in the short-term so PREPA can ease electricity rates for consumers, one of the sources said.

The offer likely means a short extension of a Friday deadline to approve a debt restructuring at PREPA, two of the people said, with one saying the extension would last until next Wednesday.

AAFAF officials were planning to brief Governor Ricardo Rossello on the offer in the coming days, one of the sources said. Minimizing rate increases has been a key talking point for Rossello as he angled for new terms.

The fact that the parties are working on a deal at all is significant, given recent caustic rhetoric from creditors frustrated with Rossello’s demands for added concessions.

A spokeswoman for Rossello had no immediate comment on Wednesday.

A pending debt restructuring at PREPA has been in place since December 2015. Under that plan, creditors would accept 15 percent reductions in repayment in exchange for higher-rated bonds backed by a charge on customer bills.

When Rossello took office in January, many expected him to rubber-stamp the deal as-is. He campaigned last year on compromising with creditors and trying to minimize cuts to repayment.

Instead, he called for reopening talks to obtain more concessions and limit the burden on consumers. He unveiled a proposal this month, to a chilly reception from creditors, that would have altered the agreement, including by removing the requirement for the new bonds to earn investment-grade ratings.

His wrangling has concerned investors who view PREPA as a bellwether for his approach to restructuring $70 billion in public debt that is pushing Puerto Rico’s economy toward collapse.

“If the governor truly wants to spur the economy of the island, the most important thing he can do is get deals done,” one creditor source told Reuters this week.

Rossello has said Puerto Rico’s fiscal situation has changed since the initial deal was reached and that he was not looking “to destroy a deal, I’m here to get a better one.”

Expiration of the pending deal, without a new one in place, could open PREPA to lawsuits from creditors and cast doubt on its ability to afford supply contracts and a $455 million debt payment due on July 1.

The federally appointed board that manages Puerto Rico’s finances has said it supports tweaking the PREPA deal, which was reached before last year’s passage of the federal Puerto Rico rescue law known as PROMESA.

That law gives the island more negotiating leverage in talks with creditors by allowing it to push struggling agencies like PREPA into bankruptcy if consensual deals cannot be reached.

Reporting by Nick Brown; Editing by Leslie Adler and Richard Chang

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