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Puerto Rico utility bondholders reach agreement to restructure debt

The Ad Hoc Group of Puerto Rico Electric Power Authority Bondholders reached a debt restructuring agreement with Puerto Rico's oversight board, government and the utility, the group announced late Monday.

Bondholders signing the agreement include Marathon Asset Management, Franklin Advisers, Blue Mountain Capital Management, Knighthead Capital Management, Silverpoint, Oppenheimer and Angelo Gordon.

The group issued a statement calling the first restructuring agreement of its kind "a significant positive achievement for all parties involved."

"By addressing PREPA's legacy debt, a pathway can be cleared to accelerate the transformation and long-term viability of the utility. Under the terms of the agreement, our recoveries are now tied to PREPA's sustainable success, and we are pleased to take part in a transaction which we are confident will ultimately further the economic revival of not just the utility, but the commonwealth and its people," the statement said.

The public power authority has an estimated $9 billion in debt, including $3 billion to the bondholders group. The agreement calls for bondholders to exchange their outstanding PREPA bond debt for two classes of new securitization bonds. Tranche A bonds will be exchanged at 67.5 cents on the dollar and are expected to mature in 40 years, while the Tranche B "growth" bonds, exchanged at 10 cents on the dollar, will be tied to the economic recovery of Puerto Rico and will mature in 45 years. The agreement requires court approval.

Jose Carrion, chairman of the oversight board, called the preliminary agreement "a big step forward toward PREPA's debt restructuring process." Unlike previous proposals with PREPA creditors, it requires bondholders to discount "significantly" their current bonds and align future debt payments with the reality of the economic recovery of Puerto Rico, while minimizing the long-term financial risk to PREPA ratepayers, Mr. Carrion said.