Puerto Rico fiscal officials delayed acceptance of measures in the island electric authority's $9 billion debt deal, spurring speculation that the agreement with creditors may be in jeopardy.

Puerto Rico’s Fiscal Agency and Financial Advisory Authority announced Monday that the June 14 milestones in the Restructuring Support Agreement governing the deal had been extended to June 28. It also retroactively extended the June 9 milestones to Friday, June 16.

PREPA bondholder advisor Stephen Spencer said if the PREPA deal failed, it would a condemnation of the Oversight Board.
Stephen Spencer

On April 6 the Puerto Rico Electric Power Authority and its creditors reached a revision to a comprehensive deal nearly three years after restructuring talks started. Since then the authority has been seeking to have the Puerto Rico Oversight Board approve the deal under Title VI of the Puerto Rico Oversight, Management and Economic Stability Act. Title VI oversees the approval of debt restructuring agreements reached with creditors.

On April 5 FAFAA proposed that creditors should be willing to participate in a process that would include some Title III (court-supervised bankruptcy) elements for “operational issues.” In this case creditors would have a “termination right” if they believed the Title III would adversely affect their interest.

Yet FAFAA also expected that the Oversight Board would use Title VI to certify the deal “by a certain date.”

On April 28 the board approved a fiscal plan for PREPA. It said the recently approved RSA “is intended to accommodate a potential restructuring under Title III of PROMESA for the non-financial obligations.” The plan went on to say that RSA revisions were being “negotiated with the goal of being in a position to complete solicitation of Title VI process by July 1, 2017.”

On June 7 at a Puerto Rico debt restructuring conference, the chief advisor to PREPA’s forbearing bondholders, Stephen Spencer, said that if the deal didn’t get carried through, “it would be the single biggest condemnation of the Oversight Board.”

Spencer, who was speaking at the Debtwire Puerto Rico Restructuring Forum, also said, “It’s a mystery to me why [the PREPA deal] hasn’t been picked up and accepted.”

Fitch Ratings managing director and PREPA analyst Dennis Pidherny said Tuesday that he has heard the board wants a new deal and the authority’s bond insurers are balking at giving it to them.

PREPA has a substantial bond payment due on July 1 that it was probably expecting the insurers to loan the money for it, Pidherny said. It is important that the board approves the deal by then.

If it is not, the insurers may feel they are not going to get a consensual deal and they may choose to not loan the authority the money it needs to make the July 1 payment. This would mean the authority would have a monetary default on that date, Pidherny said.

Compared to the adopted Restructuring Support Agreement, the April 28 fiscal plan made much more pessimistic assumptions about the economy and electric use in the next few years. The plan said this put PREPA “on a precarious path.” However, it said that the debt structure would be “sustainable,” assuming the the RSA was approved.

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