Dive Brief:
- The Puerto Rico Electric Power Authority yesterday announced it had reached agreement with a group of bondholders on the economic terms to restructure power revenue bonds.
- The agreement, covering up to $5.7 billion in bonds, allows the utility to avoid default even as the island's broader economy struggles with a massive debt crisis.
- Under the agreement, PREPA said an ad hoc group will exchange their outstanding power revenue bonds for new securitization notes and receive 85% of their existing bond claims in new securitization bonds, which must receive an investment grade rating.
Dive Insight:
Puerto Rico's utility has struck a deal with a group of ad hoc creditors, allowing it to restructure debt and avoid default. The Puerto Rico Electric Power Authority (PREPA) issued a statement saying it had reached a deal with the bondholders, which are traditional municipal bond investors and hedge funds and hold approximately 35% of PREPA’s outstanding bonds.
Lisa Donahue, chief restructuring officer, called the deal "the result of hard work and compromise from all parties."
Once implemented, with participation from 75% of uninsured bondholders outside the ad hoc group, the deal will reduce PREPA’s total debt principal by approximately $670 million, save more than $700 million in principal and interest payments over the next five years and substantially reduce PREPA’s interest rate expense on the exchanged bond debt, Donahue said.
"We are pleased that the Ad Hoc Group realized the benefit of our shared burden solution," she said. "We will continue to focus on finalizing consensual agreements with the other creditors so that we can continue to implement PREPA’s transformation."
The New York Times spoke with investment bank Houlihan Lokey's Stephen Spencer, who said the deal was inended to give the utility "a fresh start and financial flexibility, with bondholders providing meaningful sacrifices to make that happen."
