NEW YORK (Reuters) - Puerto Rican power utility PREPA and its creditors have reached a new deal to restructure $8.9 billion in debt through new bonds with longer maturities, the U.S. territory’s government announced on Thursday.
The agreement, which must be approved by Puerto Rico’s federally appointed oversight board, could save $2.2 billion in debt servicing costs over five years, Governor Ricardo Rossello’s administration said in a statement. That is $1.5 billion more than a prior pending deal between the parties would have saved, the government said.
The sides agreed to extend until April 13 the deadline to implement the deal.
PREPA is seen as a bellwether for Rossello’s approach to restructuring Puerto Rico’s $70 billion in total debt and leading the island out of a crisis marked by a 45 percent poverty rate and rampant emigration.
Investors were worried earlier this year when the governor said he would reopen negotiations of a previous PREPA deal, pending since before he took office, under which bondholders would take 15 percent repayment cuts in exchange for new, higher-rated bonds, maturing in 2043 and backed by a charge on customers’ bills.
The new deal maintains the 15 percent haircut but extends maturities to 2047, and removes the investment grade rating as a condition of closing the deal. The insurers agreed to $300 million in additional deferral of principal in the first six years.
The new deal could reduce customers’ electric bills by about $90 annually over the next five years, the government said in its statement.
Trading in Puerto Rico's benchmark 2035 general obligation debt on Thursday fell from its highs on the day to 64.26 cents on the dollar. 74514LE86=MSRB.
Stock prices for PREPA’s bond insurers gained ground on news of a new deal, with MBIA rising 5.3488 percent to $9.06, but off the day’s high of $9.45 per share. Assured Guaranty climbed 3.3125 percent to $38.05.
Rossello, who took office in January, had criticized the pending restructuring at PREPA, saying he wanted to get more concessions from creditors and lower electricity rates. Stakeholders fretted that he was putting politics ahead of compromise.
At a news conference in San Juan on Thursday, Rossello touted his administration’s ability to reach a quick deal.
“We have reached a deal in less than 100 days, compared to the (previously pending) deal ... that cost tens of millions of dollars and led nowhere,” Rossello told reporters.
A group of PREPA bondholders said in a statement on Thursday that the new deal could help PREPA regain access to capital markets.
“We are hopeful that once completed the PREPA deal will help the commonwealth in its recovery,” the bondholder group said.
Reporting by Nick Brown; Additional reporting by a contributor in San Juan; Editing by Alden Bentley and Leslie Adler
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