Puerto Rico's main power utility has reached a tentative agreement with bondholders to restructure the agency's almost $9 billion debt burden, according to two people with direct knowledge of the talks.
Under the agreement, holders of Puerto Rico's Electric Power Authority debt would exchange existing bonds for new securities at a loss and agree to defer payments on the maturities, said the people, who asked for anonymity because the debt-restructuring plan isn't final. Rate payers would be assessed a surcharge that would be dedicated to paying off the bonds, one of them said.
A restructuring of the utility known as Prepa would be the largest-ever in the $3.6 trillion municipal-bond market. Puerto Rico and its agencies owe $72 billion after years of borrowing to delay debt payments and fill budget deficits. The tentative Prepa agreement, reached just before a midnight Tuesday deadline, comes days after Governor Alejandro Garcia Padilla gave advisers more time to work on what the administration calls an economic recovery and debt adjustment plan that is expected to seek a reduction in the commonwealth's payments.
Prepa bondholders agreed to extend a forbearance agreement, which keeps negotiations out of court, for a number of days, said one person. Assured Guaranty also agreed to extend the pact, another person with direct knowledge said. MBIA Inc. decided not to renew the deal with Prepa, one of the people said.
Jose Echevarria, a spokesman for Prepa in San Juan, and Yohari Molina, a spokeswoman for the utility in San Juan, didn't immediately return e-mails. Greg Diamond, a spokesman for MBIA, and Ashweeta Durani, a spokeswoman for Assured Guaranty, didn't immediately respond to emails.
The agreement between Prepa and bond holders calls for a five-year delay in principal payments and a reduction of $400 million in the debt owed, newspaper El Nuevo Dia reported, citing two sources it didn't identify. The accord was signed Tuesday evening, it said.
Prepa and its creditors originally signed the forbearance agreement in August 2014 to work out how to restructure the utility's debt load and modernize its plants, which rely on oil to produce electricity. The parties have exchanged dueling debt proposals since then. The forbearance agreement had been extended six times.
The utility's bonds maturing July 2042 traded Monday at an average price of about 56 cents on the dollar, up from 50.4 cents at the start of the year, according to data compiled by Bloomberg. The average yield was 9.6 percent.
