Puerto Rico’s bankrupt power utility has reached a deal with BlackRock Financial Management and Nuveen Asset Management to slash its debt load by about 75%, even as other creditors have said they oppose the accord.
The island’s federally-appointed financial oversight board, which is managing Puerto Rico Electric Power Authority’s bankruptcy, struck the agreement with a new group of investors holding $2.4 billion of utility debt including BlackRock, Nuveen, Franklin Advisers, Taconic Capital Advisors and Whitebox Advisors. The deal aims to reduce combined claims of $10 billion down to about $2.5 billion of new bonds.
Other creditors including GoldenTree Asset Management, Syncora Guarantee and Assured Guaranty have said they may fight the accord in court. The parties may hash out some of their disagreements before US District Court Judge Laura Taylor Swain, who’s set to hold a hearing on Wednesday.
After Puerto Rico reduced tens of billions of general obligation debt and sales-tax bonds through consensual restructuring agreements, the bankruptcy of Prepa, as the utility is called, is proving to be much more contentious. The deal would give bondholders who sign the agreement 12.5 cents on the dollar on what they were owed when Prepa entered bankruptcy in July 2017, and 3.5 cents for investors who decline to join the restructuring plan.
“We understand that the terms of the plan — which reflect the current realities — may be difficult to accept for some, but we still hope we can get more bondholders to join the agreement and that this will end Prepa’s bankruptcy once and for all,” David Skeel, chair of the oversight board, told reporters Friday.
A Prepa bond with a 5% coupon and maturing in 2032 last traded on Aug. 17 at an average price of 37.4 cents on the dollar, down from around 65 cents at the start of the year, according to data compiled by Bloomberg.
While the deal helps to push forward a six-year bankruptcy that’s been delayed by Puerto Rico’s own debt restructuring, hurricanes and the pandemic, potential appeals from creditors and bond insurers could prolong the workout. Prepa needs to modernize its old and neglected power grid to stabilize electricity rates and end chronic blackouts.
“Prepa will remain a sustainable utility, continue critical investments and complete the transformation of Puerto Rico’s energy system to provide more reliable energy and support Puerto Rico’s economic growth and fiscal stability,” Robert Mujica, the board’s executive director, told reporters on Friday.
The deal is part of a debt-cutting proposal the oversight board filed to the court on Friday and is the last major piece of Puerto Rico debt that needs to be restructured. It includes a new monthly charge of $8.71, on average, for some residents to repay the new bonds. Many Puerto Ricans object to any kind of additional electricity fee as they already pay some of the highest rates in the US. The island’s Energy Bureau, an independent energy regulator, would need to approve any new fee.
Skeel and Mujica are hoping the court will hold a confirmation hearing on the plan sometime in January. They anticipate it will need to go through another solicitation process where all bondholders, including individual investors, vote on the plan.
Creditors Split
Judge Swain in March dealt a blow to bondholders when she ruled that they only had a secured claim to about $16 million that Prepa had already deposited into reserve accounts. In June she capped their right to the utility’s net revenue at $2.38 billion, a small portion of the nearly $9 billion of bonds and loans Prepa had outstanding when it entered bankruptcy.
Those rulings split the original ad hoc bondholder group represented by Kramer Levin Naftalis & Frankel, and which has now disbanded.
BlackRock in May hired Paul, Weiss, Rifkind, Wharton & Garrison to help restructure certain bonds, according to court documents. Nuveen and the other firms joined with BlackRock earlier this month.
GoldenTree Asset Management, which held $835 million of Prepa debt, as of Aug. 14, claims it was excluded from the bondholder negotiations and has said it would seek an appeal of the board’s current proposal.
Invesco Advisers, which held $604 million of Prepa debt as of Aug. 14, and was a former member of the Kramer Levin group, has declined to join the BlackRock pool or GoldenTree’s attempt to lift a stay on putting in a receiver, according to court documents.
Dominic Federico, Assured Guaranty’s chief executive officer, described the board’s current offer in an Aug. 9 earnings call as “insulting” and said the insurer would seek litigation. The company guaranteed $446 million of Prepa’s net par debt, as of March 31.
