Puerto Rico Electric Power Authority's prospects of a consensual outcome in its debt talks were thrown into doubt after bond insurers quit the forbearing bondholder group, analysts and participants said.
The decision by National Public Finance Guarantee late last week to seek a solution outside the consensual framework with PREPA won't in itself terminate all other negotiations and agreements, said Dennis Pidherny, Fitch Ratings' analyst for PREPA. However, further actions by NPFG or other insurers could make things quite messy, he said.
PREPA's creditors have diverged in their handling of negotiations with PREPA, the outcome of which will affect the authority's roughly $9.4 billion in debt.
On Sept. 2 the Ad Hoc Group of Forbearing Bondholders reached an agreement on most of the terms of a debt restructuring for the bondholders, including a 15% reduction in principal and delays in payments. They have now agreed to a forbearance lasting to Oct. 1. Ultimately, their preliminary agreement with PREPA has to be completed and formalized into a recovery and support agreement.
The holders of lines of credit reached an agreement in principal with PREPA Tuesday. Their forbearance ends Oct. 1.
PREPA owes money to the Government Development Bank for Puerto Rico, which has been largely silent about its interests.
By contrast, the bond insurers have been increasingly aggressive in defending their interests. On Sept. 2 PREPA announced that National Public Finance Guarantee had decided to end its forbearance. On Sept. 18 Assured Guaranty and Syncora Guarantee joined NPFG in exiting the forbearance.
On Sept. 17 NPFG filed a petition with the Puerto Rico Energy Commission, which regulates the island's electrical rates, for a rate increase. It called for the commission to approve a minimum temporary 4.2 cents per kilowatt hour increase, to require PREPA to respond to the petition within 14 days, to consolidate the rate review proceeding with an existing rate case, and require that the rate review process be completed within four months.
NPFG's petition to the commission won't necessarily end or undermine the agreement between PREPA and the forbearing bondholders, Pidherny said. Only if a creditor used a PREPA technical default to exercise the right of acceleration of the debt would the current standstill likely fall apart. This would force PREPA into a monetary default. "That would create the proverbial food fight among creditors," he said.
At that point, creditors could seek the appointment of a receiver to take over PREPA. But seeking the appointment of a receiver would lead to a "great deal of confusion and uncertainty," Pidherny said. "If it were that easy, it would have been done a long time ago."
Chapman Strategic Advisors managing director Jim Spiotto said that if the bond insurers sought a receiver, it would be time consuming and wouldn't necessarily lead to their getting everything they wanted in PREPA.
On Monday Assured Guaranty released a statement: "While a consensual resolution that benefits PREPA and all of its stakeholders is our preferred path, we declined extension of the forbearance agreement to underscore the urgency of the negotiations and to reserve all available options to protect our contractual rights."
Syncora declined to comment for this story.
On Tuesday Puerto Rico House of Representatives Minority Leader Jenniffer González Col-n told The Bond Buyer, "MBIA/National, one of the insurance companies, has asked the Puerto Rico Energy Commission to raise the rates consumers pay in Puerto Rico for their electricity in order for PREPA to make its debt payments. This is something that I strongly oppose and will fight against. While I believe that PREPA's debt obligations need to be honored, I do not support that it be done on the backs of our consumers and businesses. This would hurt our economic growth as well."
González Col-n is a leader of the New Progressive Party in Puerto Rico, the principal opposition party to Gov. Alejandro García Padilla and his Popular Democratic Party.
