Puerto Rico electric utility reaches debt restructuring deal with creditors

Dive Brief:

The Puerto Rico Electric Power Authority (PREPA) reached a deal last week with insurance companies MBIA Inc. and Assured Guaranty Ltd. and bondholders to restructure $8.2 billion in debt, Bloomberg reports.
The deal, finalized Dec. 24, would cut the public utility's obligations by more than $600 million. The group of investors, which hold about 70% of the utility's debt, would take losses of about 15% by exchanging bonds for new securities.
The pact, which aims to free up cash for PREPA to modernize plants, still requires approval from Puerto Rico lawmakers by Jan. 22. The Legislative Assembly — the territory's lawmaking body — reconvenes on Jan. 11.

Dive Insight:

Christmas came early for Puerto Rico's public utility as it finalized a deal with insurers and bondholders to restructure its $8.2 billion in debt.

After announcing a tentative deal earlier in the week, PREPA said it reached a final agreement with a group of creditors on Dec. 24 to cut its obligations by more than $600 million and free up funds to invest in modernizing its aging generation fleet.

The agreement would be the largest ever restructuring scheme in the $3.7 trillion municipal bond market, Bloomberg reports, and means that PREPA can avoid an expected default on about $200 million in interest payments that were set to come due Jan. 1.

"[The deal] gives us cash to invest in infrastructure and to provide, ultimately, sustainable clean power for Puerto Rico," Lisa Donahue, PREPA's chief restructuring officer, told the news outlet.

Reaching a deal with insurers, who rejected an earlier deal with bondholders, is the final piece to ease PREPA's debt payments so it can reinvest in its generation and grid infrastructure.

Reliance on fuel oil for generation and aging grid infrastructure mean PREPA's 3.5 million customers pay higher electricity rates than any U.S. state except Hawaii — between $0.26 and $0.28/kWh. More than 70% of Puerto Rico's electricity comes from burning petroleum, 18% from natural gas, and 8% from coal.

The agreement, reached after more than a year of negotiations, to keep the nation's largest public power provider afloat could now serve as a guide for other troubled Puerto Rico government agencies as the territory weighs strategies to dig out of $70 billion in debt.

Correction: An earlier version of this post stated that the finalized deal would cut PREPA's debt obligations by $600. That should have read $600 million.