The Puerto Rico Electric Power Authority made the full $415 million bond payment due Wednesday and promised to reach a comprehensive restructuring plan with its creditors by Sept. 1.
Its bond insurers have promised to replenish its liquidity by lending it money and the authority extended its forbearance agreement with creditors to Sept. 15, PREPA said in a press release.
PREPA's payment was among more than $1 billion in transfers made by Puerto Rico public entities Wednesday, as money came due at the start of the new fiscal year. The payments came with Puerto Rico in the brink of default after the governor said last week its $72 billion of debt outstanding is not payable.
PREPA, with $8.3 billion of bond debt, said it got the money for the debt service payment by drawing $153 million out of its General Fund and the remainder from its debt service reserve accounts. In addition its insurers, Assured Guaranty, Syncora Guarantee, and National Public Finance Guarantee, purchased $128 million of new short-term bridge bonds. These are due Dec. 15, according to PREPA, and Jan. 1, 2016, according to Assured Guaranty.
"We are pleased we were able to reach an agreement that allowed us to make the payment to our bondholders today and avoid a default. Today's outcome would not have been possible without the support of the insurers and other creditors," said Lisa Donahue, chief restructuring officer for PREPA. "As a result of these agreements, we have preserved our cash position as we continue PREPA's transformation.
"Today's actions show the forward momentum of the negotiations and the willingness of all parties to work together to provide the time necessary to continue discussions and come to a consensual agreement," Donahue said.
The loan is to be used for general liquidity and will replace most of the money drawn from the General Fund. "The bridge loan is not earmarked for anything specific, but PREPA was not willing to deplete its operating funds during hurricane season. They wanted to ensure they had ample liquidity in their General Fund," a person connected to PREPA said.
PREPA said it planned for both the creditors and the authority to agree to a restructuring plan, known as the Restructuring Support Agreement, by Sept. 1. If this is not agreed to by that date, the forbearance will terminate, according to a firm representing the forbearing bondholders.
"We remain focused on working with PREPA and its professionals to refine a long-term plan that is in the best interest of all stakeholders," said Stephen Spencer of Houlihan Lokey, the PREPA Bondholder Group's financial advisor. "Over the past several months of direct negotiations with PREPA and the Government Development Bank for Puerto Rico, we have made progress towards a workable solution for PREPA, and are hopeful that we have established a foundation for reaching an equitable deal for all PREPA stakeholders, which will help the island in its revitalization."
Spencer continued, "While we believe there is the opportunity to reach an agreement by Sept. 1, it is essential that both sides be willing to compromise, treat each other fairly and negotiate in good faith. As a result, the agreement may be discontinued and appropriate legal action taken if there are unforeseen deteriorations in either the negotiations with PREPA or a broader decision made by Puerto Rico as a whole to treat bondholders unnecessarily unfairly during this process."
According to Assured Guaranty, the bond insurers' shares of this planned bond mirror their relative shares of PREPA par value insured. Assured Guaranty will buy $73 million, NPFG will buy $48 million, and Syncora Guarantee will buy about $7 million.
Assured Guaranty said that the par amount of its insured PREPA debt that was paid Wednesday was $113 million. For both the maturing debt and the new bond, Assured reinsured 35% of par value.
AllianceBernstein director of municipal credit research Joseph Rosenblum said that PREPA's restructuring seems to be advancing smoothly and this restructuring will be important for the future of Puerto Rico's electricity rates and economy.
Chief among the payments by Puerto Rico entities was a commonwealth general obligation bond payment, according to CNN. There were also payments by PREPA, the University of Puerto Rico, the Puerto Rico Industrial Development Company, and the Puerto Rico Highways and Transportation Authority, and others, according to NPFG. Puerto Rico had also had money due to banks, which was paid on time, CNN said.
