Puerto Rico Electric Power gets a breather on debt payment

Puerto Rico's electric utility Puerto Rico Electric Power Authority (Prepa) has received more time for debt payment. With this, the electric utility in the crisis-hit economy can work on restructuring debt and interest payment. This is the fourth extension for the electric utility.

Investors, who hold 35 percent bonds in Puerto Rico Electric Power Authority, and fuel-line lenders have agreed on an extension of the deadline which was scheduled to expire on Thursday. This is fourth time extension for the utility on payment of debt and interest.  Any final deal on repayment of debt requires Legislative approval. 

According to a report by Bloomberg, with the latest respite, the electric utility has extra time to negotiate with insurance companies on how to restructuring $8.2 billion debt and $196 million interest payment due on 1 January. Prepa is in the process of making an agreement with insurance companies to guarantee the repayment of $2.5 billion debt. 

The Prepa's 18 months of negotiations with creditors indicate why Congress should grant the US Territory's public agencies access to Chapter 9 federal bankruptcy reorganization.  The Governor has announced that the government is poised for default before next June. 

Chapter 9 allows public entities to undergo a bankruptcy court-supervised restructuring process. Puerto Rico has $72 billion debt and is finding it difficult to repayment.

Yahoo News reports that Prepa said the deadline of Friday for final deal until Tuesday. The proposed restructuring of the debt deal is expected to ease payment terms for the utility. 

Puerto Rico came out with its own quasi-bankruptcy law in 2014. Creditors argue that this law is unconstitutional. According to a report by The New York Times, Prepa is one among 13 government entities that need a restructuring of debts and will have to pay on 1 January 2016.

However, a Federal district court and the US Court of Appeals for the First Circuit agreed. Persuading the Supreme Court of Appeals has been a surprise victory of the Puerto Rico economy and a setback for creditors.

 The government is diverting revenue to back certain agency debt instead of crediting into commonwealth's coffers.

Despite lapsing previous tentative agreement between Prepa and insurers failed in November, bondholders responded positively in giving extra time for the utility.

Prepa on 1 January 2016 must repay the combined $128 million to Assured Guaranty Ltd and MBIA Inc's National Public Finance Guarantee Corp. Another interest payment of $196 million is also yet to be paid to bond holders on the same date. 

Moody's Investors Services in its report on 11 December 2015 said that the utility has enough cash on hand sufficient to honor the interest payment. Puerto Rico's Governor Alejandro Garcia Padilla has made an announcement that the government will default in January or May. The Governor cited the reason for default is lack of funds.