Puerto Rico's PREPA extends creditor agreement, negotiates with insurers

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

NEW YORK (Reuters) - Puerto Rico’s electric power authority, PREPA, has extended by two weeks an agreement with its bondholders and lenders that was to expire at the close of Thursday, while it is continuing to try to negotiate a deal with its bond insurers, the utility said on Thursday.

Reducing PREPA’s $9 billion in debt has been seen as a critical test for the U.S. territory as it tries to forge a broader restructuring of $72 billion in total debt.

PREPA in September agreed to deals with the bondholder group and its lenders for those creditors to take a 15 percent reduction on their principal. Credit rating agency Standard & Poor’s said at the time that they would class the bondholder deal as another default from the indebted island.

Puerto Rico has not yet reached a deal with the insurers of those bonds and those insurers also refused to sign a forbearance agreement - which bars creditors from calling defaults and filing lawsuits. Those bond insurers included National Public Finance Guarantee Corporation (NPFG), a unit of MBIA, and Assured Guaranty.

PREPA did, however, agree the extension of the forbearance agreement with the bondholders and lenders to Oct. 1. That deadline was on Thursday extended again to Oct. 15.

“We continue to work with the monolines (insurers) in an effort to reach a consensual agreement on terms that would be beneficial to all parties involved,” said Lisa Donahue, PREPA’s Chief Restructuring Officer, in a statement.

In an escalation of tension in the talks, NPFG in September petitioned the Puerto Rico Energy Commission to impose a temporary rate hike, citing “PREPA’s breach of its legal and contractual obligations to raise rates” to pay debt and its failure to reach a deal with all its creditors.

That commission on Wednesday announced it denied the petition as NPFG’s request was mostly focused on PREPA’s obligations to bondholders and creditors “which does not represent PREPA’s entire financial condition.”

“In rejecting the petition, the Energy Commission has opened the door further to legal challenges in the event of PREPA non-payment,” said Height Securities analyst Daniel Hanson in a research note earlier on Thursday.

Reporting by Megan Davies; Editing by Bernard Orr