Bondholders seek receiver for Puerto Rico utility PREPA

NEW YORK (Reuters) - After three years of futile efforts to restructure some $9 billion of debt at Puerto Rico’s PREPA, creditors of the now-bankrupt power utility are asking a U.S. federal judge to appoint a receiver to manage PREPA’s assets.

A man walks past the headquarters of Puerto Rican power utility PREPA (also known as AEE) in San Juan, Puerto Rico, June 30, 2015. REUTERS/Alvin Baez-Hernandez

In papers filed on Tuesday in U.S. bankruptcy court in San Juan, PREPA creditors said a receiver was needed to ensure the utility sets electricity rates high enough to service debt. Political appointees of Puerto Rico’s Governor Ricardo Rossello, they argued, cannot be trusted to do so.

“PREPA’s interests cannot be adequately served or protected if they are subjected to the whims of the governor’s agenda,” said the creditors, which include bondholders such as Oppenheimer Funds and insurers like Assured Guaranty.

A spokeswoman for Rossello had no immediate comment.

The request is the latest chapter in the long saga of PREPA, the quasi-public power company.

Hamstrung by outdated plants, PREPA has not raised rates in decades. Its plight is seen as a microcosm of broader trouble in Puerto Rico, the cash-strapped U.S. territory laden with $72 billion in debt and a 45 percent poverty rate, which earlier this year filed the largest bankruptcy in U.S. municipal history.

PREPA and its bondholders began restructuring talks in 2014, reaching two deals that both fell apart. The first was rejected by Rossello, the second by Puerto Rico’s federally-appointed financial oversight board, which expressed concern that rate hikes could hurt consumers and exacerbate Puerto Rico’s woes.

Puerto Rico residents already pay rates around twice the U.S. average, according to federal government data.

Bondholders would have accepted 15 percent cuts to repayments in exchange for higher-rated bonds secured by a dedicated charge on customer bills.

Unable to close the deal, Puerto Rico’s government and oversight board pushed PREPA into bankruptcy earlier this month.

The creditors argue that, under the 1941 law creating PREPA, the court is required to appoint a receiver if requested by at least a quarter of stakeholders, a threshold these creditors easily meet.

Standing in the creditors’ way, however, is the so-called automatic stay that bars creditors of PREPA from enforcing certain rights while the utility is in bankruptcy.

The creditors argue in the court papers the stay should be lifted to avoid “irreparable harm.”

“PREPA’s bondholders face a profound threat to the value of their collateral” absent the lifting of the stay, they argue.

Reporting by Nick Brown; editing by Diane Craft