PREPA reaches deal with creditors; S&P cuts rating
PREPA will make its July 1 payment after reaching a deal with creditors. (Credit: © Mauricio Pascual)
The Puerto Rico Electric Power Authority announced Thursday its intention to pay all principal and interest due on July 1, 2016 under its power revenue bonds in accordance with the terms of an agreement with creditors holding approximately 70 percent of the utility’s outstanding debt, company officials said.
PREPA intends to fund the $415 million payment from its operational funds and the sale of relending bonds.
Under the agreements, certain PREPA creditors will purchase approximately $264 million of power revenue bonds to provide liquidity for capital improvements and other purposes. The relending bonds have a blended interest rate of 8.46 percent, with maturities ranging from four to six years.
No changes will need to be made to the prior filings with the Puerto Rico Energy Commission because the economic terms of the relending bonds were already included in those filings, Lisa Donahue, PREPA’s chief restructuring officer, said.
“We’re pleased to have reached an agreement allowing us to make the payment to bondholders and avoid a default. Today’s outcome is another step towards PREPA’s transformation,” said Donahue.
“As a result of these agreements, we have preserved our cash position as we continue to implement an operational and financial restructuring,” she said.
PREPA also announced an extension of the Restructuring Support Agreement to Dec, 15, 2016. As part of the extension, PREPA reached an agreement with Syncora Guarantee Inc., which insures a portion of PREPA’s bonds, with respect to PREPA’s recovery plan.
As part of the deal, Assured Guaranty, one of the bond insurers participating in the restructuring, will purchase a total of $25.8 million of PREPA bonds, with a 7.5 percent coupon, maturing on Jan. 1 and July 1, 2020.
Upon finalization of the PREPA restructuring transaction, securitization bonds contemplated by the RSA will support these bonds. In aggregate, the parties to the bond purchase agreement will purchase a total of $263.8 million of new bonds.
Bondholders insured by Assured Guaranty will receive their full July 1, 2016 debt service payments of $41.4 million.
“This interim solution facilitates the payment by PREPA of the principal and interest payments due July 1, allowing the parties time to continue down the path of the permanent, consensual restructuring envisioned in the Restructuring Support Agreement,” said Dominic Frederico, Assured Guaranty president.
“Regardless of future developments, debt service payments to holders of Assured Guaranty-insured PREPA bonds remain protected by our guaranty and substantial claims-paying resources,” he said.
S&P downgrades PREPA further into junk
Following the announcement of the deal, S&P Global Ratings announced it has lowered on PREPA $8.3 billion debt to ‘D’ from ‘CC’.
“We understand that on June 30, 2016, PREPA made its regularly scheduled $417.5 million principal and interest payment due July 1, 2016 from available funds. However, we further understand that on June 30, 2016, certain of PREPA’s forbearing creditors and monoline insurers loaned PREPA approximately $263.8 million at 8.46 percent interest, with repayment due in three tranches at an average maturity of 3.5 years,” the ratings agency said.
S&P said were it not for the loan, PREPA would not have made the payment, and that the creditor loans were a necessary condition for PREPA to make the debt service payment.
“Furthermore, we believe that this this ‘payment/re-lending’ constitutes a distressed exchange restructuring, tantamount to default under our criteria, whereby creditors are receiving less value than originally promised–full and timely payment of principal and interest when due–and that creditors are accepting less than originally promised due to the risk that PREPA wouldn’t fulfill its obligations,” S&P concluded.
