A new restructuring agreement has been reached between the Power Utility Company of Puerto Rico, referred to locally as PREPA, and its creditors on how to restructure $8.9 billion in Puerto Rico debt.The deal, which must still be approved by the federally appointed oversight board, comes before the May 1 deadline that the US territory must meet to arrive at such settlements with creditors. After May 1, members of the US-government appointed federal oversight board would have the authority to effect a quasi-bankruptcy process and make creditors agree to deals that likely would not favor creditors.
Of the about $70 billion of municipal debt that Puerto Rico owes, roughly $9 billion involves PREPA. Puerto Rico Governor Ricardo Rossello issued a statement noting that if approved, the agreement between PREPA and bondholders could save $2.2 billion in debt servicing expenses for five years while lowering customer electric bills by $90/year during the same period.
Under the original agreement, PREPA bondholders were to trade their bonds for new securities while receiving a 15% discount. With this new agreement, creditors would take the same reduction but maturities would be extended to 2047. Additionally, under the new deals, the requirement of an investment grade rating to close the deal would be eliminated. Insurers, such as Assured Guaranty and MBIA Inc., also consented to another $300 million in deferral of principal during the first six years.
In the meantime, the island is scheduled to start mediation with creditors who continue to hold billions of dollars of other Puerto Rico bonds and it will attempt to reach as many agreements as possible before the May 1 deadline.
In other Puerto Rico debt news, Moody’s Investor Service reduced the ratings on $13 Billion of Puerto Rico bonds. The bonds that were downgraded came from six local issuers.
Among the bonds that were downgraded from a Ca to a C were:
· Senior notes from the Government Development Bank
· Bonds that are backed by rum tax transfer payments and were issued by the Puerto Rico Infrastructure Financing Authority
· Hotel occupancy tax-backed bonds
· Bonds issued by the island’s convention center authority
· government pension contribution-backed bonds issued by the Employees Retirement System
· 1998 resolution bonds by the Puerto Rico Highway & Transportation Authority
Moody’s downgraded certain Puerto Rico Industrial Development Company-issued bonds from Caa3 to Ca.
The credit rating agency cited “ongoing economic pressures” that could impact the Commonwealth’s ability to fulfill its funding duties as a reason for the credit rating downgrades. However, Moody’s did affirm the ratings on certain securities.
Puerto Rico Bond Fraud
At Shepherd Smith Edwards and Katas, LLP, our Puerto Rico bond fraud and bond fund lawyers have been working with investors to recoup their losses from investing in the island’s debt. We represent retail investors and high net worth individual investors, as well as institutional clients.
Over the last few years, thousands of investors have come forward accusing certain broker-dealers, including UBS Puerto Rico (UBS-PR), Banco Popular, Banco, Santander Securities, and others of recommending Puerto Rico bonds and closed-end bond funds even if they were not suitable for investors. A number of financial representatives purposely did not disclose the risks to them.
Some investors lost everything when the island’s securities began to fail. Our securities fraud law firm has a legal presence on the island and we work with clients in the US and in Puerto Rico.
If you invested in Puerto Rico bonds or bond funds and lost money, please reach out to us for a free, no obligation consultation where we can help you evaluate your situation and options.
Puerto Rico reaches power utility debt deal, MarketWatch, April 6, 2017
Moody’s downgrades $13 bln in Puerto Rico debt; affirms GO, COFINA, Reuters, April 5, 2017