Puerto Rico's PREPA reaches deal with bondholder group

[September 02, 2015]  NEW YORK (Reuters) - Puerto Rico's indebted public utility PREPA has reached a deal with a key bondholder group which would see them swap their bonds for new notes, receiving 85 percent of their existing bond claims, according to a statement from the utility.

PREPA, buckling under $9 billion in total debt, had been renegotiating its debt for a year with the so-called ad hoc group representing about 35 percent of its bondholders. The deal was reached late Tuesday night according to sources.

Widening the deal to include more creditors of PREPA, seen as a microcosm of Puerto Rico's broader fiscal troubles, could generate momentum to help the island sort out its $72 billion debt load.

Puerto Rico's Governor, Alejandro Garcia Padilla, shocked investors in June when he said the island's debt was unpayable and required restructuring.

PREPA, an electric power utility, said it will continue negotiating with its bond insurers and lenders.
 

Under the deal reached with the ad hoc group, bondholders will have the option to receive securitization bonds that will pay cash interest at a rate of 4 percent to 4.75 percent, depending on the rating obtained, or convertible capital appreciation securitization bonds that will accrete interest at a rate of 4.5 percent to 5.5 percent for the first five years.

"(The deal) provides PREPA with a fresh start and financial flexibility, with bondholders providing meaningful sacrifices to make that happen," said Stephen Spencer of Houlihan Lokey, the PREPA Bondholder Group’s financial advisor, in a statement.

The deal, assuming participation from 75 percent of uninsured bondholders outside the group, is forecast to reduce PREPA’s total debt principal by $670 million and save more than $700 million in principal and interest payments over the next five years, said PREPA's Chief Restructuring Officer Lisa Donahue in a statement.

Finding a solution for PREPA had been seen as a critical test for the U.S. territory to overcome political and other challenges in fixing other indebted entities. The U.S. territory is due to complete a fiscal reform plan by Sept. 8.

Under a forbearance agreement with creditors, PREPA was safe from lawsuits as sides negotiated. Creditors could terminate the deal if a restructuring pact was not reached by midnight on Tuesday, Sept. 1.

PREPA said on Wednesday it agreed to an extension of the forbearance agreements through Sept. 18, 2015 with all creditors except National Public Finance Guarantee Corporation, a unit of MBIA <MBI.N> Assured Guaranty <AGO.N> was also party to the forbearance deal.

(Reporting by Megan Davies Editing by W Simon)

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