Puerto Rico's fiscal agent, in recent weeks, hired restructuring
advisers at FTI Consulting Inc. to work on the operations of Puerto
Rico's utilities and highway units, people familiar with the matter
said.
Puerto Rico's Government Development Bank enlisted FTI
turnaround experts, who have been flying regularly to Puerto Rico
in recent weeks, focusing on the Puerto Rico Electric Power
Authority, which oversees the island's utilities, and the Puerto
Rico Highways and Transportation Authority, the island's public
transportation unit, these people said.
The people declined to comment on contract specifics, such as
length of work or particular goals.
The Puerto Rico Electric Power Authority is a public corporation
that supplies virtually all of the electric power consumed in the
commonwealth, and has about 1.5 million customers, according to
bond documents and the authority's website. In January, Standard
& Poor's placed the authority's triple-B rating on negative
outlook, citing high rates due to a reliance on oil and the large
future investments needed to convert plants to natural gas.
Although the power system likely has enough revenue to pay its
roughly $8.6 billion in bonds, Standard & Poor's said it would
be difficult for the system to set aside reserves to pay for the
needed improvements. Some bonds from the power authority have
fallen in price over the past few weeks, as concerns among
investors mount that the island could eventually move to
restructure the power authority's debt, which could lead to losses
for current bondholders.
The highways authority saw S&P cut its rating to
double-B-plus in February, with the rating agency citing the
potential that certain revenue could be diverted to help the
commonwealth pay other debts. The authority is responsible for the
construction of roads, highways and related transportation
facilities, bond documents say, and has about $5.6 billion in debt,
according to a person familiar with the matter.
Puerto Rico finance officials have said they intend to honor
their obligations and are working to eliminate the island's budget
deficit for the coming fiscal year.
Many investors remain concerned about the outlook for the
commonwealth, which has roughly $70 billion in debt. In mid-March,
Puerto Rico completed a $3.5 billion bond sale, the proceeds of
which will help pay down existing debt, giving officials more time
to jump-start the economy and deal with persistent budget
deficits.
The three main ratings firms this year cut Puerto Rico's bonds
to junk status. Prices on its bonds tumbled last year but have
risen this year amid a broad debt-market rally.
The GDB has hired various restructuring professionals in the
past month or so to tackle Puerto Rico's large debt load, but has
kept engagements limited for now as it tries to sort out its
options before facing more immediate restructuring concerns, some
of these people said.
In a statement, a spokesperson for the GDB said that, in keeping
with its commitment to the people of Puerto Rico and all of its
stakeholders, the GDB frequently engages leading advisers to
support its due diligence and decision making processes. To that
end, the GDB has engaged FTI Consulting to advise on its ongoing
and previously disclosed efforts to ensure that the Island's public
corporations improve their operational and financial performance,
the spokesperson said.
Restructuring lawyers at Cleary Gottlieb Steen & Hamilton
LLP, who were hired a few weeks ago, are tasked with finding
restructuring solutions for different parts of Puerto Rico's debt,
though the areas of interest and time frame are unclear, some of
these people said.
The GDB announced, in early March, it is working with a unit of
restructuring adviser Millstein & Co. to analyze its liquidity,
debt load and cash flows as it tries to boost its finances.
Puerto Rico has perplexed many in the market because it isn't
obvious how to restructure its mountainous debt, if it comes to
that. The island isn't eligible for Chapter 9 municipal bankruptcy
protection because of its classification as an unincorporated
territory. Any path toward a restructuring could be similar to
Native American-owned casinos in the U.S. that fall into a gray
area of the law, bankruptcy experts have said.
Some experts said it might be possible to at least try
restructuring some of Puerto Rico's debt in Chapter 9 or Chapter
11, the part of bankruptcy companies use to reorganize. For
example, some bond issuers in Puerto Rico are classified as
"semiautonomous authorities," possibly giving them a loophole to
seek protection from certain obligations, lawyers have said.
Write to Emily Glazer at emily.glazer@wsj.com and Mike Cherney
at mike.cherney@wsj.com
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