Puerto Rico Electric Power Authority’s creditors are offering to lend the bankrupt utility $1 billion to help it after Hurricane Maria damaged the utility system so severely that the entire island was left without power.
The potential financial lifeline from investors holding $3 billion of the utility’s debt comes as Puerto Rico and U.S. Department of Energy officials are racing to restore electricity while hospitals and nursing homes struggle to find fuel for generators. It may cost billions of dollars to repair Prepa, as the utility’s known, and some parts of the island may be without power for as long as six months, according to Governor Ricardo Rossello.
The money could help Prepa meet local matching requirements to receive Federal Emergency Management Agency funds, according to the bondholder group. FEMA may allocate as much as $9 billion to Prepa, depending on the federal agency’s matching thresholds. Prepa needed $4 billion of repairs to upgrade its system even before Maria struck the island last week.
“Our thoughts are with the people of Puerto Rico and its residents during this difficult time and we hope that this capital commitment will provide bridge financing and matching funds as required by FEMA legislation while supporting the commonwealth’s recovery,” Stephen Spencer, managing director at Houlihan Lokey, which is advising the group of bondholders, said in a statement.
The proposal also involves bondholders accepting 85 cents on the dollar for some of their securities by exchanging $1 billion of existing bonds for $850 million of new debt through a debtor-in-possession financing. Those DIP notes -- and also the $1 billion loan to help match FEMA funds -- would receive priority repayment before all other Prepa bonds.
The 85-cent offer is higher than where the bonds are trading now. Debt maturing in 2032 changed hands Tuesday at an average 43.2 cents on the dollar, down from nearly 56 cents at the start of the month, data compiled by Bloomberg show.
The 15-cent haircut is also the same concession that bondholders agreed to in a prior $9 billion Prepa debt restructuring plan. A federal oversight board that manages Puerto Rico’s finances rejected that creditor deal in July, saying it put residents at risk of higher electricity costs. The board then filed for bankruptcy protection for Prepa.
The entire $1.85 billion DIP offer is subject to federal board and Prepa approval.
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