Second Puerto Rico debt restructuring struck with PREPA bondholders

Puerto Rico's Financial Oversight and Management Board last week reached a restructuring agreement with holders of bonds issued by the Puerto Rico Electric Power Authority and bond insurer Assured Guaranty Corp.

The May 3 restructuring agreement with the ad hoc group of Puerto Rico Electric Power Authority bondholders, PREPA and the Puerto Rico Fiscal Agency and Financial Advisory Authority and other PREPA bondholders calls for exchanging the bonds at 67.5 cents on the dollar for new Tranche A bonds and 10 cents on the dollar for new Tranche B bonds. Tranche B bonds would not receive debt service until Tranche A bonds are paid in full, and may not be paid if future electricity demand over the next 47 years is lower than projected.

The bondholders group called the deal fair and viable. "This collaborative agreement represents a tremendous accomplishment while creating a clear road map to allow for PREPA's ongoing transformation and provide the people of Puerto Rico with fair and consistent electricity rates. Under the agreement, bondholder recoveries are tied to PREPA's long-term success, solidifying our role as partners in PREPA's future," The ad hoc group of PRPEA bondholders said in a statement.

The agreement, which allows PREPA to reduce some of its debt by as much as 32.5%, must be approved by the federal judge overseeing Puerto Rico's bankruptcy, U.S. District Judge Laura Taylor Swain.

Once confirmed, payments on the new bonds will be funded through a fixed transition charge to consumers that will gradually increase over the first 23 years. Bondholders will also receive settlement payments funded through a 1 cent per kilowatt hour charge until the fixed charge is fully implemented.

Oversight board chairman Jose B. Carrion said in a statement that the agreement will give PREPA greater certainty as it privatizes its power grid. He called it "a watershed moment in PREPA's transformation from a bankrupt entity to an efficient, modern power provider and in the overall restructuring of Puerto Rico."

The oversight board's first restructuring agreement, for bondholders of debt issued by Puerto Rico's Sales Tax Financing Corp. known as COFINA, was approved Feb. 5 by Ms. Swain. That agreement, supported by bondholders, bond insurance companies and the oversight board, reduces COFINA debt overall by 32% and gives senior bondholders 93% of the value of the original bonds and junior bondholders 55%. It also saves Puerto Rico about $17.5 billion in debt service, according to oversight board officials.