Puerto Rico power company forced to sell bonds amid crisis
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."
Danica Coto on Twitter: www.twitter.com/danicacoto