Puerto Rico board seeks hearing to revise utility’s debt plan

Bonds

Puerto Rico’s financial oversight board is seeking to reopen a confirmation hearing on a debt-restructuring plan for the island’s power utility after an appeals court last week ruled that bondholders have a claim to the agency’s future net revenue.

The oversight board, which manages the bankruptcy of Puerto Rico’s Electric Power Authority, called PREPA, wants the parties to discuss before U.S. District Court Judge Laura Taylor Swain how to value the non-settling bondholders’ portion of net revenue and to show how that obligation will be paid, according to a motion the board filed to the court on Monday.

Puerto Rico Electric Power Authority workers repair electrical infrastructure in Canvanas, Puerto Rico.

Bloomberg News

The U.S. Court of Appeals for the First Circuit last Wednesday decided PREPA bondholders have a lien not just on reserve accounts but on the utility’s future net revenue as well, reversing Swain’s decision that their lien was limited to those accounts. The First Circuit also ruled that investors’ allowed claim is the face value of PREPA’s bonds plus matured interest, about $8.5 billion, which is more than the $2.4 billion cap that Swain put on bondholders’ unsecured lien on net revenue.

The board is seeking to revise PREPA’s debt-cutting plan — rather than starting again from scratch — to incorporate the First Circuit’s rulings. PREPA has been in bankruptcy for seven years. Resolving its finances and updating its aging infrastructure would help boost the island’s economy and reduce frequent outages.

“We continue to believe the PREPA plan of adjustment, as adjusted to reflect the appellate ruling, can be confirmed after a hearing limited to the collateral value and its payment,” David Skeel, the board’s chairman, said in a statement Monday.

The utility’s debt-restructuring proposal sought to cut PREPA’s $10 billion of combined claims down to $2.5 billion of new bonds. It gave investors who signed onto the agreement 12.5 cents on the dollar on what they were owed when PREPA entered bankruptcy in July 2017 and 3.5 cents for investors who rejected the restructuring deal.

PREPA debt jumped in pricing following the First Circuit’s ruling. A PREPA bond maturing in 2037 with a 5% coupon traded Monday at an average price of 50.3 cents on the dollar, up from an average price of 27.2 cents for the year, data compiled by Bloomberg show.

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