Puerto Rico power company forced to sell bonds amid crisis
SAN JUAN, Puerto Rico (AP) — Puerto Rico's troubled power company has been forced to sell bonds once again to obtain capital and avoid defaulting on a $415 million debt payment due Wednesday with a worsening economic crisis in the U.S. territory.
The Electric Power Authority said in a statement that it paid $153 million in cash and the remainder from its debt service reserve accounts. In turn, creditors agreed to buy $128 million worth of new bonds to provide liquidity, and those bonds have to be paid in full by December.
"We are pleased we were able to reach an agreement that allowed us to make the payment to our bondholders today and avoid a default," said Lisa Donahue, the company's chief restructuring officer.
A bondholders' group said it agreed to extend a debt payment deadline to Sept. 15. But it warned that the agreement will automatically end if a deal to restructure the heavily indebted power company is not reached by Sept. 1.
The group said it would take legal action if bondholders are treated unfairly or if negotiations derail with the power company, known as PREPA.
"We ... are hopeful that we have established a foundation for reaching an equitable deal for all PREPA stakeholders, which will help the island in its revitalization," said Stephen Spencer, a managing director with Los Angeles-based investment bank Houlihan Lokey, an adviser to bondholders.
Puerto Rico's power company has some $9 billion in debt and has obtained several extensions this year to avoid default and make payments.
The new deal comes just days after Gov. Alejandro Garcia Padilla said the island's $72 billion public debt is unpayable and that he would seek to postpone payment of it.
Puerto Rico-based economist Vicente Feliciano, president of Advantage Business Consulting, said in a phone interview that the deal shows the critical situation the power company faces with its liquidity.
"To be able to pay its creditors, it required a loan from those same creditors," he said. "Negotiations have become quite tense."
Puerto Rico's Government Development Bank also had a $600 million payment due Wednesday. The bank, which oversees the island's debt transactions, has been losing liquidity, though it was widely believed it would meet the payment.
Garcia's administration has been pushing for Congress to let the island's government and public agencies seek bankruptcy protection. The White House has said no one is contemplating a federal bailout of Puerto Rico.
The governor already approved measures including creating a 4 percent tax on professional services and increasing the sales tax to 11.5 percent, higher than any U.S. state. The increase went into effect Wednesday, sparking long lines and traffic jams the day before as people rushed to stores for last-minute shopping. The new services tax goes into effect Oct. 1, to be followed by a transition to a value-added tax by April 1.
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