Puerto Rico Utility Reaches Tentative Pact With Bondholders, Source Says

SAN JUAN/NEW YORK, Sept 1 Puerto Rico’s electric utility PREPA and its bondholders are working toward terms of a debt restructuring deal but talks may go past the key deadline of midnight Tuesday as long as both sides agree, two sources familiar with the matter said on Tuesday.

“Today’s announcement represents a significant positive step for all stakeholders involved – including the people of Puerto Rico – and we are pleased to have reached this agreement with PREPA”, Stephen Spencer of Houlihan Lokey, the PREPA Bondholder Group’s financial advisor, said in a release.

The troubled state-owned Puerto Rico power company announced a restructuring plan Wednesday with some of its creditors that would provide breathing room for an island staggering under the weight of its public debt.

Mark Palmer, an analyst at BTIG LLC, said in a research note Tuesday. As part of the agreement, the parties will extend their forbearance agreement until September 18, 2015, in order to reach a recovery and support agreement.

Municipal-bond insurers are paid premiums to ensure that investors will receive principal and interest payments on time and in full.

Under the terms of the agreement, the creditors that make up the Ad Hoc Group will exchange all of their outstanding power revenue bonds for new “securitization” bonds with an investment grade rating, receiving 85 percent of their existing bond claims.

Bondholders outside of that group may receive debt that pays interest at a rate of 4 percent to 4.75 percent, or convertible capital appreciation bonds with higher payouts. Assured Guaranty’s subsidiaries are on the hook for about $1.2 billion of debt-service payments related to the electric agency, according to a company presentation. MBIA has not commented on why it refused to extend the forbearance.