Bond Insurers Sue Puerto Rico Board to Enforce $9 Billion Utility Deal -- Update
28 June 2017 - 5:37AM
Dow Jones News
By Andrew Scurria
Bond insurers are suing Puerto Rico's financial oversight board
over a $9 billion utility debt restructuring agreement, accusing
the U.S. territory's financial supervisors of improperly
withholding approval of the controversial deal.
Assured Guaranty Ltd. and MBIA Inc.'s National Public Finance
Guarantee Corp. on Monday asked for a court order requiring the
federal board overseeing Puerto Rico's finances to accept a
financial settlement covering its cash-strapped power monopoly.
The lawsuit represents a last-ditch attempt to keep the public
power monopoly known as Prepa out of bankruptcy. But the odds of
salvaging the existing restructuring deal are thin given that Prepa
owes a $453 million debt payment on July 1 to creditors who have
grown increasingly mistrustful of the oversight board.
The debt agreement, three years in the making, has failed so far
to gain sufficient support among the oversight board's seven voting
members, leaving the agreement wobbling on the brink of collapse,
The Wall Street Journal reported this month.
Members of Congress who wrote Puerto Rico's federal rescue
package and control its relationship with the U.S. are divided on
the merits of the deal. Republican Rep. Rob Bishop (Utah) said this
month the board was powerless to disapprove the settlement, while
Democrats Nydia Velazquez (N.Y.) and Raul Grijalva (Ariz.) said no
creditor deal should be off-limits to board review.
The territorial government itself has already entered a
court-supervised restructuring proceeding in San Juan, where
creditors are battling to increase their share of government
revenues.
Prepa is a political flashpoint in the territory's financial
rehabilitation due to unreliable energy service that drags down
economic growth and costs consumers more than in every U.S. state
but Hawaii. The oversight board has been searching for ways to
bring down power rates that fluctuate based largely on commodity
prices.
Together, National and Assured guarantee some $2.2 billion in
Prepa bonds. Their lawsuit said that Puerto Rico "cannot afford to
endure a Prepa bankruptcy that could turn the lights off."
The potential collapse of the utility deal comes at an
inopportune moment for National, which was downgraded by S&P
Global Ratings on Monday. Shares in parent MBIA rallied from $8.48
a share to $9 early Tuesday morning on speculation the ratings cut
would cause it to seek a buyer for National.
Bonds issued by the Puerto Rico Electric Power Authority have
lost value since April, when creditors revised their restructuring
terms at the request of Puerto Rico Gov. Ricardo Rossello, who
sought additional concessions to mitigate politically unpopular
rate increases on consumers. Puerto Rico's rescue law empowered the
oversight board to write down Puerto Rico bonds either consensually
through negotiated settlements or nonconsensually with the help of
the courts.
Bondholders under the deal would accept a 15% reduction on their
claims in exchange for new debt paid from a special customer
surcharge. Critics including local manufacturers say the deal would
impose new costs on utility ratepayers that risk stifling economic
growth and crowding out private generation projects. Meanwhile,
creditors argue that reworking Prepa's debt will lower costs and
bolster its creditworthiness, enticing investment capital to
upgrade its outdated generation assets.
The oversight board unveiled a counteroffer this week that would
further revise the proposed terms, according to a person familiar
with the matter. There is no forbearance agreement to prevent an
outright default if Prepa doesn't pay its creditors on July 1, this
person said. The oversight board is scheduled to meet publicly in
San Juan on Friday.
Write to Andrew Scurria at Andrew.Scurria@wsj.com
(END) Dow Jones Newswires
June 27, 2017 15:22 ET (19:22 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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