On Wednesday, Puerto Rico’s Electric Power Authority (PREPA) announced that it has reached a deal with some hedge funds and bondholders to restructure its massive $8.3 billion debt. What this means is that investors will be taking a 15 percent loss in the debt exchange.
According to PREPA, the deal with owners of roughly one-third of the outstanding bonds will help decrease the utility’s debt by nearly $700 million and save an additional $700 million in principal and interest over the next five years. This deal, which involves investors Goldman Sachs, OppenheimerFunds and Franklin Advisors, has been ongoing for about a year.
It should be noted that this deal is separate from the negotiations approved by Governor Alejandro Garcia Padilla and his plan to restructure the island’s enormous $72 billion debt.
On this news, PREPA bonds maturing July 2026 traded at an average price of 67.2 cents, up from 54.5 cents earlier in the weak. The average yield was just under 10 percent. Some bondholders may receive bonds paying interest of between four and 4.75 percent, or be given convertible capital appreciation bonds accumulated interest at 4.5 and 5.5 percent in the first five years and pay the current interest in cash afterwards.
“We are pleased that the ad hoc group realized the benefit of our shared burden solution,” Lisa Donahue, PREPA’s chief restructuring officer, said in a statement. “We will continue to focus on finalizing consensual agreements with the other creditors so that we can continue to implement Prepa’s transformation.”
For a part of 2014 and all of 2015, the Puerto Rican utility has failed to cover expenses to produce electricity for most of the island’s population.
This utility restructuring would the biggest in the history of the $3.6 trillion municipal bond market.
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