Articles Tagged with Prepa

In the United States District Court in San Juan, the hedge fund Aurelius Capital has filed a lawsuit seeking to have Puerto Rico’s bankruptcy case dismissed. Aurelius Capital is the holder of more than $470 million of Puerto Rico General Obligation bonds (“GO Bonds”). All Puerto Rico GO bonds were supposed to have been guaranteed under the Commonwealth’s constitution. Now, however, GO bonds are subject to a five-year plan that could force bondholders to take substantial reductions on what they are owed upon repayment.

Puerto Rico filed for Title III bankruptcy protection in May. Although bankruptcy protection was not originally available to Puerto Rico, under the Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA), the law was changed to allow for Puerto Rico to file a bankrupt-like procedure if it could not resolve all of its debt with bondholders.

As with other bankruptcies, the island has been granted a “stay” from creditors. Now, Aurelius wants the federal court to lift the stay, which has prevented it and other creditors from suing the Puerto Rican government.

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Credit rating agency Fitch Ratings (“Fitch”) has downgraded the general obligation and related debt of Puerto Rico to “B”, rating it even further into junk territory and three notches under investment grade, because of worries about the U.S. territory’s ability to go through with planned financing. As a result of the downgrade of the general obligation debt, the Puerto Rico Aqueduct and Sewer Authority senior lien revenue bonds were also downgraded.

The ratings reduction is related to a new law in the Commonwealth. The law is supposed to help overhaul public debt by letting certain government agencies with a reported $19.4 billion in outstanding bonds restructure their debt. Fitch is worried that because of the way the restructuring is delineated in the law, this could result in debt payment suspensions while “precluding timely payments” of principal plus interest until proceedings are finalized.

Fitch also reduced the rating of Puerto Rico’s sales tax entity COFINA, pension funding bonds, and the Public Building Authority government facilities’ revenue bonds. The credit rating agency pointed to mixed economic signs, such as accelerated year-over-year declines in the labor force and yearly drops in the monthly economic activity index of the Government Development Bank, as the reason for the new downgrades. Recently, Standard & Poor’s also reduced the general obligation debt of Puerto Rico to junk bond status- a BB, which is right below investment grade.

UBS, AG (UBS) says that it intends to nominate BlueMountain Capital Management Executive Jes Staley to its board in May. Staley formerly served as a JPMorgan Chase & Co. (JPM) executive.

In a statement, UBS Chairman Axel Weber said that Staley is perfect for the role due to his professional expertise from working in global banking leadership roles for three decades. However, that may not be the only reason.

Earlier this year, BlueMountain, which is a New York-based hedge fund, joined a legal challenge against a law that would let some of the Commonwealth of Puerto Rico’s agencies restructure their massive debt. UBS Puerto Rico (UBS-PR) is one of the banks accused of inappropriately placing clients’ money into closed-end funds that had high exposure to Puerto Rico municipal bonds.

Puerto Rico’s Electrical Power Authority, also known as PREPA, is experiencing a surge in overdue accounts. According to a report from an FTI Consulting subsidiary, since 2012, the U.S. territory’s electrical authority has seen a 219% increase in the number of company and residential accounts that are at least 120 days late in making their payments. The report was generated as part of an agreement with the creditors, which retain more than $9 billion of the electrical utility company’s debt.

By September 2014, late balances owed to PREPA not just among businesses and residents, but also by government entities had hit $1.75 billion. At least $708.6 million were payments that were late by a minimum of four months.

Puerto Rico’s governmental entities owe about $758 million, with certain public corporations unable to even pay their electricity bills and refusing to agree to payment plans to get their accounts current. The FTI report recommends that Prepa put into place an amnesty period for clients that are delinquent, retain a collection agency, increase late fees and charges for reconnection, and push for timely payments.

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