PREPA Downgraded to CC by S&P

Standard & Poor's Ratings Services said it has lowered its long-term and underlying ratings on Puerto Rico Electric Power Authority's (PREPA) electric revenue bonds to CC from CCC-minus.

The rating remains on CreditWatch with negative implications.

PREPA has announced that it has made a $415 million payment to bondholders, due July 1, 2015. While we believe that this full and timely payment has enabled PREPA to forestall an imminent default, we note that the authority also announced that it had reached agreement with creditors to execute a "Restructuring Support Agreement (RSA)" by Sept. 1, 2015.

Per its criteria, S&P assigns a CC rating if "an entity that has announced its intention to undertake an exchange offer or similar restructuring that we classify as distressed, but has not yet completed the transaction."

PREPA was able to make its $415 million payment by utilizing $153 million of cash in its general funds which supplemented remaining debt service reserve monies that are on deposit with its trustee, U.S. National Bank, N.A.

Further, as part of the agreement, insurers of some of PREPA's outstanding debt have agreed to purchase $128 million of new short-term bridge loan bonds, with repayment due Dec. 15, 2015.

PREPA will use the proceeds of the loan to provide working capital. PREPA also announced that its creditors had agreed to extend the forbearance agreements that have been in place since 2014, through Sept. 15, 2015.

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