By Aaron Kuriloff
The Puerto Rico Electric Power Authority reached agreements
Thursday with banks to defer payments on lines of credit to Aug.
14, according to a statement from the authority.
The extension is the second this month for the authority, giving
it two more weeks of breathing room to forestall a possible
restructuring of about $9 billion in total debt. Earlier this month
it reached deals with Citigroup Inc. unit Citibank and a syndicate
led by Bank of Nova Scotia's Scotiabank de Puerto Rico to delay
some payments on $671 million it owed the banks between July and
mid-August.
Citibank and Scotiabank representatives didn't immediately
respond to requests for comment.
The utility, known as Prepa, is at the forefront of Puerto
Rico's long-running financial difficulties. Prepa is scrambling to
find cash to fund operations and make payments to lenders, even as
the commonwealth broadly struggles with steep unemployment and a
weak economy.
"It just delays the decision but it's good to hear they're
working together enough to get a delay," said Daniel Solender,
director of municipal-bond management at Lord Abbett & Co.,
which oversees about $15.5 billion in municipal-related holdings,
including some from Puerto Rico.
Standard & Poor's Ratings Services also weighed in on
Prepa's debt Thursday, dropping its already-junk rating on $8.3
billion of power revenue bonds to triple-C and warning of future
downgrades. The rating firm says "the authority's debt is
vulnerable to nonpayment." S&P also affirmed its double-B
rating on Puerto Rico's general-obligation debt.
Some power authority bonds were trading at around 48 cents on
the dollar Thursday afternoon, unchanged from yesterday.
The authority said it is having "productive discussions" with
creditors with the goal of reaching an agreement to improve
short-term liquidity. Payments to employees and suppliers will
continue.
"This latest show of support from our bondholders, bond insurers
and lenders provides us with additional time to evaluate all
available options to ensure we are reaching the best possible
outcome for our employees, customers, creditors and suppliers,"
Juan F. Alicea Flores, Prepa's executive director, said in the
statement.
Puerto Rico has about $73 billion in total obligations and its
debt is widely held by municipal mutual funds and individuals,
leading some analysts to worry that the power authority's troubles
could escalate into losses for investors nationwide.
Puerto Rico lawmakers in June approved legislation allowing some
public agencies, including the island's power, water and
transportation authorities, to overhaul almost $20 billion in debt.
The law doesn't apply to Puerto Rico's general-obligation or
sales-tax debt.
Write to Aaron Kuriloff at aaron.kuriloff@wsj.com
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