Puerto Rico Electric Power Authority, PREPA, Wednesday made a $415 million payment to its creditors (mostly hedge fund investors), avoiding a default and giving the troubled government-owned utility more time to work out a deal to restructure its $9 billion debt.
Had the utility defaulted, according to financial experts, it could have triggered the default of the entire $72 billion debt of the U.S. territory, leading to lengthy litigation and an accelerated population exodus from the island Commonwealth to the U.S., already a problem for the staggering Puerto Rico economy.
According to the Wall Street Journal, Puerto Rico is funding the payment with $153 million from its general fund and the remainder from a debt-service reserve. PREPA also agreed with its creditors to extend talks on a debt workout by September. A spokesman for the group of bondholders negotiating with PREPA said that talks on negotiating a deal could fail, leading to “appropriate legal action taken if there are unforeseen deteriorations with PREPA or a broader decision made by Puerto Rico as a whole to treat bondholders unnecessarily unfairly during this process.”
Due to its status as a U.S. territory, Puerto Rico cannot take advantage of U.S. bankruptcy law, where Chapter 9 allows government entities (such as the city of Detroit) to get protection and an orderly restructuring of debt. On Tuesday, Democratic Sens. Chuck Schumer of New York and Richard Blumenthal of Connecticut sponsored legislation that would allow Puerto Rico to file for protection under Chapter 9.
—Kennedy Maize is a long-time energy journalist and frequent contributor to POWER