NEW YORK, Aug 19 (Reuters) - The new role of chief restructuring officer at Puerto Rico’s electric power authority PREPA will include both financial and operational restructuring, according to a document posted on the website of Puerto Rico’s Government Development Bank on Tuesday.
“The CRO shall work alongside PREPA’s chief executive officer (Executive Director) to develop, organize and manage a financial and operational restructuring of PREPA on terms to be approved by the board,” the document said.
PREPA must agree on a restructuring officer with bondholders by Sept. 8, according to the forbearance agreement it signed with creditors on Thursday. The agreement allowed PREPA to extend $671 million in outstanding credit lines that it uses to make crucial oil purchases.
The explicit inclusion of financial restructuring in the remit is seen as the clearest indication yet from local officials that the troubled utility may eventually default on part of its $8.3 billion in outstanding bonds.
PREPA had said in a separate statement on Monday that it will have final say on who it appoints to the CRO role.
Puerto Rico officials have generally steered clear of openly talking about restructuring PREPA’s debt and the forbearance agreement did not explicitly refer to a financial restructuring.
The agreement stated that FTI Consulting would produce a report looking at operation matters such as electricity rates, money owed to PREPA, and certain payments PREPA makes to municipalities. Those operational issues were cited in a amended lawsuit fund managers Oppenheimer and Franklin Templeton brought against Puerto Rico in June.
Other duties of the CRO include providing expert testimony if PREPA files for protection under a new and contested law, known as the Recovery Act, that allows PREPA and some other public corporations to enter a process similar to bankruptcy.
For now, PREPA and bondholders seem ready to try to work out PREPA’s difficulties outside court. But the reference to the Recovery Act among the CRO duties indicates that is a path Puerto Rico will take if negotiations collapse. (Reporting by Edward Krudy; editing by Chizu Nomiyama, G Crosse)