The termination of a Puerto Rico Electric Power Authority restructuring agreement Friday night raised the risk of creditor lawsuits and blackouts, participants said.
The utility, its bond holders, line of credit holders and two of its three bond insurers had agreed in December to a deadline of Jan. 22 for Puerto Rico's government to adopt energy legislation to enable its business restructuring plans to proceed. Jan. 22 was also the deadline to reach an agreement with Syncora Guarantee, the third bond insurer.
PREPA has been negotiating with creditors for new terms of its $9.4 billion debt since at least September of 2014 and had reached a tentative restructuring agreement in September 2015 with forbearing bondholders.
On Friday night the restructuring agreement terminated with no legislation passed. Bondholders and PREPA each said they had offered a deal to keep the forbearance process rolling, only to be rejected by the other side. Among the issues was the timing of $115 million of additional financing to service interest, according to a statement from the forbearing bondholders.
A forbearing bondholder source said that the sides were talking in "a totally evolving situation" and that both sides hope that the agreement can get back on track.
Gov. Alejandro García Padilla urged a quick resolution to the impasse, warning dire consequences could loom for the Puerto Rican people.
"It is time for all those involved in the delay to realize that our reality today is critical and requires decisive and immediate action," the governor said in a written statement Saturday. "If legislation is not approved soon and with the proper legislation, it will put much at risk and even increase the risk of blackouts because we would not have the cash to purchase fuel to continue normal operations."
"In addition to unnecessarily delaying the transformation of [PREPA, the breakdown in consensual restructuring] could jeopardize hundreds of jobs for lack of funds and could lead to an increase in the cost of electricity," García Padilla said.
On Sunday PREPA announced an agreement had been reached with Puerto Rico's line of credit lenders extending their forbearance through Feb. 12. PREPA still lacks restructuring support agreements with the bondholders or bond insurers.
Puerto Rico Senate President Eduardo Bhatia Gautier urged patience. The September restructuring agreement called for legislation to allow the securitization of Prepa's bonds through an alternate financing authority and for greater political independence for PREPA.
"The Puerto Rico Senate and the House of Representatives have been working continuously and in good faith to complete the new legal framework that will provide a fair, responsible, and clear legal arrangement," he said Monday. "But let me be very clear: the Senate will not give up its responsibility with the people of Puerto Rico to satisfy artificial time frames nor will it fall prey to pointless pressures. I call upon the teams of the Ad Hoc bond group and PREPA to resolve any differences that emerged last Friday night and avoid extraneous maneuverings at this stage."
Members of the House and Senate committees and representatives of PREPA and the governor are meeting to write the legislation now, multiple sources say. On Monday Puerto Rico House Speaker Jaime Perell- Borrás said that legislators were working on a final draft of the bill. The bill must not only benefit creditors, but also PREPA and the Puerto Rican people, he said according to one of his spokespersons.
PREPA has been in an open financial crisis for about 18 months. Since at least September 2014 it has been negotiating with its creditors for new terms on its debt. As of June PREPA had a total of $9.4 billion in debt, of which $8.4 billion was outstanding bonds.
If PREPA were to default on payment or engage in a distressed debt exchange, at least one of which appears inevitable now, it would be the largest bond default in United States municipal history.
In terms of gross primary insurance, Syncora insures $197.4 million in principal of authority bonds, compared to $831 million for Assured and $1.33 billion for National Public Finance Guarantee.
A source at PREPA declined to comment about the status of Syncora negotiations, and the insurer didn't release information on the situation.
