Puerto Rico's financial oversight board filed a plan to restructure about $9 billion of power utility debt after failing to reach a deal with bondholders.
The debt proposals for Puerto Rico's Electric Power Authority, known as Prepa, are being watched by the federal board. According to the debt adjustment plan submitted to the bankruptcy court Friday night, the board wants to cut nearly 40% of Prepa's debt, from $8.5 billion in bonds and $700 million in loans to fuel-line lenders.
The court-ordered mediation between the board, insurance companies and an ad hoc group of bondholders has failed to produce a repayment plan. The parties are trying to figure out if bondholders are entitled to future revenue or limited accounts.
David Skeel, the board's chairman, said in a statement Friday that Puerto Rico residents and businesses can't pay what some creditor want. The court has asked us to propose a plan that would allow Prepa to move on, and we are fulfilling this obligation by proposing to cut Prepa's debt to sustainable levels while leaving the door open for further negotiations.
In order to reduce its obligations, Prepa began negotiations with its creditor's. The commonwealth's record bankruptcy ended in March after being delayed by hurricanes, earthquakes and the swine flu.
Puerto Rico's economy has struggled to grow after years of decline and it needs reliable and affordable electricity to do so. Power rates in the US are some of the highest in the world.
US District Court Judge Laura Taylor Swain gave the oversight board until Friday to file a debt restructuring plan after postponing earlier deadlines in order to continue negotiations. A confirmation hearing is planned for July.
To cut Prepa's debt load, the board's plan would split bondholders into two groups: one that would settle litigation and agree that creditor repayment is limited to existing accounts, and the other group that would continue litigating.
If the court agrees with the board that bondholders don't have a claim to Prepa's revenue collections, bondholders will get at least 50 cents on the dollar. If the court sides with the board, the non-settling group could get 19 cents on the dollar.
The ad hoc bondholder group's financial advisor, Stephen Spencer, said in a statement that the board is pursuing pointless litigation that will hurt Puerto Rico's residents.
The FOMB's decision to file a highly coercive plan that lacks meaningful creditor support and has no chance of being confirmed will only serve to extend Prepa's nearly six year long bankruptcy, ensure that electricity service remains unreliable and lead to higher costs for the people of Puerto Rico.
The restructuring proposal was opposed by a member of the oversight board.
It was predicated on financial analysis to solve for a desired outcome and to pay as little as possible.
The oversight board offered 50 cents for Prepa bonds. The bonds traded at an average of 74.8 cents on the dollar.
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