Puerto Rico utility reaches deal with creditors as island struggles to service debt

Dive Brief:

As Puerto Rico struggles with $73 billion in debt, the island territory's electric utility has struck a short-term deal that will allow it to keep operating while it addresses its own financial obligations.
Puerto Rico Electric Power Authority (PREPA) announced yesterday it would fund a $415 million payment with approximately $153 million of cash and the remainder from its debt service reserve accounts.
The utility's creditors agreed to purchase more than $125 million in new short-term bridge bonds, on the condition they be paid in full by the middle of December.

Dive Insight:

Puerto Rico's debt crisis has been all over the news these last few days – its government is petitioning the United States to allow changes to bankruptcy rules, necessary to deal with $73 billion in debt it cannot pay. But the island's utility got a bit of good news yesterday when it reached a deal with creditors.

As the Washington Post notes, the utility deal has no impact on the island's larger financial crisis.

“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,” Lisa Donahue, PREPA's chief restructuring officer, said in a statement. “As a result of these agreements, we have preserved our cash position as we continue PREPA’s transformation.”

In addition to making the principal and interest payment, the utility and creditors also reached an extension on its debt, giving it until September to reach a longer term deal.

Last month preliminary reports surfaced of a possible deal to inject capital and allow the utility to modernize its generation fleet as well as upgrade transmission infrastructure. ITC Holdings and NRG Energy were reportedly working on a deal that called for up to 1,500 MW of combined-cycle gas capacity and another 400 MW of utility-scale solar.

Puerto Rico could save billions by moving away from its aging oil fleet, which uses expensive imports to generate much of its power.

“PREPA will continue to implement its operational changes which have already realized $350 million in value,” said Harry Rodríguez, president of PREPA’s governing board. “Management and employees will remain focused on the financial restructuring along with the CRO team, which will ultimately provide the people of Puerto Rico with a self-sustaining utility that provides clean, safe electricity to its customers.”