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Hedge Funds in Puerto Rico's power authority accord include Redwood, Knighthead
August 22, 2014 / 12:45 AM / 3 years ago

Hedge Funds in Puerto Rico's power authority accord include Redwood, Knighthead

NEW YORK, Aug 21 - Hedge funds negotiating with Puerto Rico’s public power authority PREPA over a possible restructuring of more than $8 billion in bonds include two involved in Argentina’s protracted bond negotiations, Knighthead Capital Management and Redwood Capital Management, according to the full bondholder agreement published on Thursday.

Creditors entered into a forbearance agreement with PREPA on Aug. 14. The current document includes a list of all the bondholders, who represent 60 percent of PREPA’s $8.3 billion in outstanding revenue bonds. The hedge funds also include David Tepper’s Appaloosa Management.

Puerto Rico’s bonds have traditionally been held by municipal bond mutual funds. The recent appearance of hedge funds such as Redwood and Knighthead that typically invest in distressed sovereign debt give Puerto Rico’s troubles the flavor of an emerging market bond restructuring similar to Argentina‘s.

In total 15 creditors are listed. Three of those - hedge fund Blue Mountain Capital, and mutual fund managers Franklin Advisers and Oppenheimer - were already known to have been a part of the forbearance agreement. All three of them sued Puerto Rico earlier this year to annul a new law that allows public corporations such as PREPA to restructure their debt.

The agreement, which was published on the website of Puerto Rico’s Government Development Bank, did not list individual holdings, although parts of the document beneath the signatures of individual firms appeared to be redacted.

Under the agreement, PREPA received an extension until March 31 to $671 million in outstanding credit lines from Citigroup and a consortium of banks led by Scotiabank. The lines are crucial to PREPA as it uses the funds to buy oil to fire its generators.

The agreement also stipulates that PREPA needs to appoint a chief restructuring officer by Sept. 8. Interviews for the position are ongoing this week, Reuters reported on Wednesday. PREPA must also come up with a restructuring plan by March 2. (Reporting by Edward Krudy)

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