Puerto Rico power company forced to sell bonds amid crisis

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Puerto Rico power company forced to sell bonds amid crisis
A man plays an electronic slot machine at a virtual casino in the Rio Piedras neighborhood of San Juan, Puerto Rico, Wednesday, July 1, 2015, the day a 11.5% sales tax goes into effect, the highest of any U.S. state. The island's administration has been pushing for Congress to let the government and public agencies seek bankruptcy protection, while the White House has said no one is contemplating a federal bailout of Puerto Rico. (AP Photo/Ricardo Arduengo)
A street performer in a Mickey Mouse costume rests on a bench in Old San Juan, Puerto Rico, Wednesday, July 1, 2015, the day a 11.5% sales tax went into effect, the highest of any U.S. state. The island's administration has been pushing for Congress to let the government and public agencies seek bankruptcy protection, while the White House has said no one is contemplating a federal bailout of Puerto Rico. (AP Photo/Ricardo Arduengo)
SAN JUAN, PUERTO RICO - JULY 01: Tito Puente stands in the nearly empty apartment of his daughter, Yessenia Puente, as she packs up for a move to Orlando, Florida this weekend on July 1, 2015 in San Juan, Puerto Rico. Puente joins a mass exodus of people fleeing the island due to increasing economic hardships and a financial crisis that has resulted in an estimated $72 billion public debt for the Puerto Rican government, which the governor has said is unpayable. The workers for the moving company, La Rosa del Monte, said that she is number 1465 that the company has packed for Orlando since the beginning of the year. (Photo by Joe Raedle/Getty Images)
People walk through a shopping area in Rio Piedras where many businesses have closed in San Juan, Puerto Rico, Wednesday, July 1, 2015, the day a 11.5% sales tax went into effect, the highest of any U.S. state. The island's administration has been pushing for Congress to let the government and public agencies seek bankruptcy protection, while the White House has said no one is contemplating a federal bailout of Puerto Rico. (AP Photo/Ricardo Arduengo)
A man in a local bar watches Puerto Rico’s governor Alejandro Garcia Padilla on television delivering an address on the state of the island's finances, in San Juan, Puerto Rico, Monday, June 29, 2015. The governor said that he will form a financial team to negotiate with bondholders on delaying debt payments and then restructuring $72 billion in public debt that he says the island can't repay. (AP Photo/Ricardo Arduengo)
A man drinks a beer in a local bar as he watches Puerto Rico’s governor Alejandro Garcia Padilla on television delivering an address on the state of the island's finances, in San Juan, Puerto Rico, Monday, June 29, 2015. The governor said that he will form a financial team to negotiate with bondholders on delaying debt payments and then restructuring $72 billion in public debt that he says the island can't repay. (AP Photo/Ricardo Arduengo)
People walk near the 16th century Spanish fort El Morro in Old San Juan, Puerto Rico, Wednesday, July 1, 2015, the day a 11.5% sales tax goes into effect, the highest of any U.S. state. The island's administration has been pushing for Congress to let the government and public agencies seek bankruptcy protection, while the White House has said no one is contemplating a federal bailout of Puerto Rico. (AP Photo/Ricardo Arduengo)
A man stands in front of a jewelry store in the neighborhood of Rio Piedras in San Juan, Puerto Rico, Monday, June 29, 2015. The jewelry itself is surrounded by closed down businesses. International economists released a critical report on Puerto Rico's economy Monday on the heels of the governor's warning that the island can't pay its $72 billion public debt. (AP Photo/Ricardo Arduengo)
SAN JUAN, PUERTO RICO - JULY 01: A customer prepares to pay for items in a grocery store on July 1, 2015 in San Juan, Puerto Rico. The island's residents are dealing with increasing economic hardships and a financial crisis that has resulted in the government's $72 billion debt. Governor Alejandro Garcia Padilla said in a speech recently that the people will have to sacrifice and share in the responsibilities for pulling the island out of debt. Consumer tax on certain items has risen to 11.5 percent. (Photo by Joe Raedle/Getty Images)
SAN JUAN, PUERTO RICO - JULY 01: A customer prepares to pay for items in a grocery store on July 1, 2015 in San Juan, Puerto Rico. The island's residents are dealing with increasing economic hardships and a financial crisis that has resulted in the government's $72 billion debt. Governor Alejandro Garcia Padilla said in a speech recently that the people will have to sacrifice and share in the responsibilities for pulling the island out of debt. Consumer tax on certain items has risen to 11.5 percent. (Photo by Joe Raedle/Getty Images)
SAN JUAN, PUERTO RICO - JULY 01: Luis Davila with La Rosa del Monte movers pack up Yessenia Puente's apartment as she prepares to move to Orlando, Florida this weekend on July 1, 2015 in San Juan, Puerto Rico. Puente joins a mass exodus of people fleeing the island due to increasing economic hardships and a financial crisis that has resulted in an estimated $72 billion public debt for the Puerto Rican government, which the governor has said is unpayable. The workers for the moving company, La Rosa del Monte, said that she is number 1465 that the company has packed for Orlando since the beginning of the year. (Photo by Joe Raedle/Getty Images)
SAN JUAN, PUERTO RICO - JULY 01: A woman walks on the beach on July 1, 2015 in San Juan, Puerto Rico. The island's residents are dealing with increasing economic hardships and a financial crisis that has resulted in the government's $72 billion debt. Governor Alejandro Garcia Padilla said in a speech recently that the people will have to sacrifice and share in the responsibilities for pulling the island out of debt. Consumer tax on certain items has risen to 11.5 percent. (Photo by Joe Raedle/Getty Images)
SAN JUAN, PUERTO RICO - JULY 01: Luis Davila, from La Rosa del Monte movers, packs up Yessenia Puente's apartment as she prepares to move to Orlando, Florida this weekend on July 1, 2015 in San Juan, Puerto Rico. Puente joins a mass exodus of people fleeing the island due to increasing economic hardships and a financial crisis that has resulted in an estimated $72 billion public debt for the Puerto Rican government, which the governor has said is unpayable. The workers for the moving company, La Rosa del Monte, said that she is number 1465 that the company has packed for Orlando since the beginning of the year. (Photo by Joe Raedle/Getty Images)
SAN JUAN, PUERTO RICO - JULY 01: A man sleeps on the sidewalk with a dog on July 1, 2015 in San Juan, Puerto Rico. The island's residents are dealing with increasing economic hardships and a financial crisis that has resulted in the government's $72 billion debt. Governor Alejandro Garcia Padilla said in a speech recently that the people will have to sacrifice and share in the responsibilities for pulling the island out of debt. (Photo by Joe Raedle/Getty Images)
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SAN JUAN, Puerto Rico (AP) -- Puerto Rico's troubled power company has been forced to sell bonds again to obtain capital and avoid defaulting on a $415 million debt payment due Wednesday amid a worsening economic crisis in the U.S. territory.

The Electric Power Authority said it paid $153 million in cash and the remainder from its debt service reserve accounts. In turn, creditors agreed to buy $128 million worth of new bonds to provide liquidity, and those bonds have to be paid in full by December.

"We are pleased we were able to reach an agreement that allowed us to make the payment to our bondholders today and avoid a default," Lisa Donahue, the company's chief restructuring officer, said in a statement.

A bondholders group said it agreed to extend a debt payment deadline to Sept. 15. But it warned that the agreement will automatically end if a deal to restructure the heavily indebted power company is not reached by Sept. 1.

The group said it would take legal action if bondholders are treated unfairly or if negotiations derail with the power company, known as PREPA.

Members of the group "are hopeful that we have established a foundation for reaching an equitable deal for all PREPA stakeholders, which will help the island in its revitalization," said Stephen Spencer, a managing director with Los Angeles-based investment bank Houlihan Lokey, an adviser to bondholders.

Puerto Rico's power company owes about $9 billion and has obtained several extensions this year to avoid default and make payments.

The new deal comes just days after Gov. Alejandro Garcia Padilla said that the island's $72 billion public debt is unpayable and that he will seek to postpone payments on it.

Puerto Rico-based economist Vicente Feliciano, president of Advantage Business Consulting, said in a phone interview that the power company's deal shows the critical situation it faces with liquidity.

"To be able to pay its creditors, it required a loan from those same creditors," he said. "Negotiations have become quite tense."

Puerto Rico's Government Development Bank also had a $600 million payment due Wednesday. The bank, which oversees the island's debt transactions, has been losing liquidity, though it was widely believed it would meet the payment.

In addition, the bank still has additional payments totaling at least $475 million due through December. The bank saw $275 million of its money set aside in a special account that requires legislative approval for access when the governor signed a $9.8 billion budget late Wednesday.

The bank also said in a quarterly report supplement that the government's deficit is in the $700 million range, nearly $200 million bigger than expected in part because of lower than anticipated revenues.

Garcia's administration has been pushing for Congress to let the island's government and public agencies seek bankruptcy protection. The White House has said no one is contemplating a federal bailout of Puerto Rico.

The governor already approved measures to boost government revenues, including creating a 4 percent tax on professional services and increasing the sales tax to 11.5 percent, higher than any U.S. state.

With the sale tax increase taking effect Wednesday, the island saw long lines and traffic jams Tuesday as people rushed to stores for last-minute purchases. The new services tax goes into effect Oct. 1.

Some economists have cautioned about imposing too many taxes, saying that while the government needs to increase revenues, more taxes could also hurt an economy that has been in recession for nearly nine years.

"We have to fix the fiscal situation in order to grow the economy, but we need to grow the economy in order to fix the fiscal situation," said Sergio Marxuach, policy director at the Center for the New Economy, a Puerto Rico-based think tank. "Doing both at the same time is not impossible, but it's very hard."

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Danica Coto on Twitter: www.twitter.com/danicacoto

Puerto Rico Power Company Forced to Sell Bonds to Obtain Capital Amid Financial Crisis
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