S&P Global Ratings said it has lowered its ratings on the Puerto Rico Electric Power Authority's (PREPA) approximately $8.3 billion to D from CC.
On June 30, PREPA made its regularly scheduled $417.5 million principal and interest payment due July 1, 2016, from available funds, the agency said.
However, certain of PREPA's forbearing creditors and monoline insurers loaned PREPA approximately $263.8 million at 8.46% interest, with repayment due in three tranches at an average maturity of 3.5 years, it said.
Were it not for the loan, S&P said, PREPA would not have made the payment, and that the creditor loans were a necessary condition for PREPA to make the debt service payment. Furthermore, this "payment/re-lending" constitutes a distressed exchange restructuring, tantamount to default under S&P's criteria, whereby creditors are receiving less value than originally promised--full and timely payment of principal and interest when due--and that creditors are accepting less than originally promised due to the risk that PREPA wouldn't fulfill its obligations.
