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In Largest Ever Muni Restructuring, Puerto Rico Power Authority Strikes Deal With Creditors, Insurers

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When last we checked in on Puerto Rico’s seemingly intractable debt debacle, Governor Alejandro Garcia Padilla was pandering to Congress in an ill-fated attempt to secure some manner of federal intervention that would help to alleviate the strain on the island’s finances. 

Meanwhile, the commonwealth avoided a messy default on $273 million in GO debt by using an absurd revenue clawback end-around to make a $354 million payment on December 1. 

On Friday, we get the latest out of Puerto Rico and the news is ... well, good we suppose. PREPA - Puerto Rico’s power authority - has reached a restructuring agreement with bondholders and insurers to refinance some $8.2 billion in debt via securitization. 

As Bloomberg reports, “ad hoc creditors will take 15c haircut on bonds and bond insurers will put up $450m surety bond.”

As WSJ noted last week, “bondholders and lenders agreed three months ago to accept losses of 15% as part of an agreement to swap old Puerto Rico Electric Power Authority debt for new bonds with more protections [but] MBIA Inc. and Assured Guaranty [were] worried about the implications for other Puerto Rico debt and haven’t signed on.”

In short, “bond insurers can’t sell their risk and don’t want to set a precedent in which a utility, which could raise rates to pay debt, restructures instead.”

As part of today's deal, "the monolines will provide an equity component that will offer about $450 million in the event of a default," Bloomberg writes adding that "the tentative agreement sets into motion what would be the largest-ever restructuring in the $3.7 trillion municipal-bond market and potentially avert a default on $196 million of interest due Jan. 1."

Friday’s deal appears to have come as a relief to investors as both insurers are rallying hard.

The deal purportedly will knock $700 million off the utility's debt service burden as well as reduce PREPA's principal owed by $600 million. 

This comes just two days after Padilla warned the commonwealth would likely default next month (or at the latest in May) as Puerto Rico faces the unpleasant prospect of sacrificing the provision of public services at the altar of the island's creditors. 

Although this does, in Bloomberg's words, mark "the first step in Puerto Rico’s goal to reduce its $70 billion debt burden and may provide a framework for agreements with other creditors," the island isn't out of the woods yet by any stretch of the imagination as the following table and list of debts make abundantly clear.

From Bloomberg

  • Puerto Rico Sales Tax Financing Corp.: $15.2 billion. The bonds, known by the Spanish acronym Cofinas, are repaid from dedicated sales-tax revenue. A $6.2 billion portion of the debt, called senior-lien, is repaid first. The remaining $9 billion, called subordinate-lien, get second dibs. $1.2 million of interest is due in February and again in May. Senior Cofinas maturing in 2040 last traded for an average yield of 9.5 percent, while subordinate ones yielded 18 percent.
  • General-obligations: $12.6 billion. The debt backed by the commonwealth’s full faith and credit. The island’s constitution says general obligations must be repaid before other expenses. Puerto Rico owes $357 million of interest in January and an additional $805 million of principal and interest is due July 1. Securities due in 2035 last traded for an average yield of 11.5 percent.
  • Puerto Rico Electric Power Authority: $8.2 billion. Prepa, as it’s called, is the island’s main supplier of electricity and repays the debt from what it charges customers. The utility owes $196 million of interest in January and $420 million of principal and interest July 1. Prepa is negotiating with bond-insurance companies after reaching an agreement with some of its bondholders, who agreed to take a 15 percent loss. Bonds maturing in 2040 last traded at an average yield of 9.2 percent.
  • Puerto Rico Government Development Bank: $5.1 billion. The GDB lends to the commonwealth and its localities. When those loans are repaid, the bank can pay off its debt. The bank owes $354 million in December and $422 million in May. Federally taxable bonds maturing in 2019 last traded for an average yield of 57 percent.
  • Puerto Rico Highways & Transportation Authority: $4.6 billion. The highway agency repays its debt with gas-tax revenue. It owes $106 million of interest in January and $220.7 million of principal and interest in July. The commonwealth has the ability to divert revenue that cover some highway bonds to pay its general-obligation securities, if there are no other available resources, according to the island’s most recent financial disclosure. Bonds maturing July 2028 last traded for an average yield of 32 percent.
  • Puerto Rico Public Buildings Authority: $4.1 billion. The PBA bonds are repaid with lease revenue that public agencies pay for their office buildings. The agency owes $102.4 million of interest in January and $208 million of principal and interest in July. Bonds maturing 2042 last traded for an average yield of 10.4 percent.
  • Puerto Rico Aqueduct & Sewer Authority: $4.1 billion. The utility, called Prasa, supplies most of the island’s water. The debt is repaid from water rates charged to customers. The water agency owes $86.5 million of interest in January and $135.1 million of principal and interest in July. Bonds maturing in 2042 last traded at an average yield of 8.7 percent.
  • Puerto Rico Pension-Obligation Bonds: $2.9 billion. The taxable debt was sold to bolster the island’s nearly depleted pension fund. The bonds are repaid from contributions that the commonwealth and municipalities make to the retirement system. The system pays $13.9 million of interest every month in this budget year. Securities maturing in 2038 last traded for an average yield of 22 percent.
  • Puerto Rico Infrastructure Financing Authority: $1.9 billion. Called Prifa, the agency has sold the island’s rum-tax bonds. These are securities repaid from federal excise taxes on rum made in Puerto Rico. Prifa owes $37.2 million of interest in January and $77.8 million of principal and interest in July. Bonds maturing in 2046 last traded for an average yield of 28 percent.
  • Puerto Rico Public Finance Corp.: $1.09 billion. The bonds are repaid with money appropriated by the legislature. The agency has defaulted every month since August on its debt-service payments because lawmakers failed to allocate the funds. It owes interest every month, the largest being a $24 million payment in February. Bond maturing in 2031 last traded for 7 cents on the dollar, according to trade reports. The yield wasn’t disclosed.

Stay tuned.

 

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Fri, 12/18/2015 - 11:37 | 6939189 ParkAveFlasher
ParkAveFlasher's picture

Those girls smell like maduros and cheap perfume!

Fri, 12/18/2015 - 11:50 | 6939256 BullyBearish
BullyBearish's picture

To understand EXACTLY what this means...read "THE CREATURE FROM JEKYLL ISLAND"...the bankers benefit again at the expense of the taxpayers...

Fri, 12/18/2015 - 13:32 | 6939742 Stroke
Stroke's picture

How come they're all wearing glasses ? ....something in the rum ?

Fri, 12/18/2015 - 11:41 | 6939204 Dr. Engali
Dr. Engali's picture

My eyes! The burn......, it hurts! Go back to the Brazilian women.

Fri, 12/18/2015 - 12:23 | 6939419 samjam7
samjam7's picture

Why? They were just fed good processed US industry food. Doesn't surprise me one bit!

Fri, 12/18/2015 - 13:27 | 6939708 kralizec
kralizec's picture

Puerto Rico is just Haiti without the earthquakes.

It doesn't even have no where near as much charm as an overrated Jamaica.

Fri, 12/18/2015 - 14:40 | 6940020 goldsaver
goldsaver's picture

Really Tylers? You had to find the ugliest looking Newyoricans? There are as many ugly Brazilian women as there are Puerto Rican women. How about some of the beautiful ones? Or at least pleasant looking?

Fri, 12/18/2015 - 11:42 | 6939209 adr
adr's picture

So kick the can and change the meaning of the words. Use some sort of fantasy accounting tactic to make it look like payments were made and GOLDEN!!!!!!!!!!

Puerto Rico is worthless and the people are garbage, fat welfare trash. The ghetto pigs of Latin America. The ones that come to the US sell drugs and send money back home so Grandma can eat.

Fri, 12/18/2015 - 12:04 | 6939335 KnuckleDragger-X
KnuckleDragger-X's picture

It's like a cliffhanger TV episode, but the spoiler is the rope breaks and they plummet to their death......

Fri, 12/18/2015 - 11:43 | 6939216 Agent P
Agent P's picture

That click bait needs a restructuring.

Fri, 12/18/2015 - 11:47 | 6939239 Billy Shears
Billy Shears's picture

Haven't read the "book" but saw the movie.

Fri, 12/18/2015 - 11:48 | 6939241 Bill of Rights
Bill of Rights's picture

I just threw up all over my keyboard...Tyler your on notice :)

Fri, 12/18/2015 - 11:48 | 6939242 Kaiser Sousa
Kaiser Sousa's picture

ponzi onward.......

Fri, 12/18/2015 - 11:49 | 6939250 Vylahkinnen
Vylahkinnen's picture

Yo - Tyler Dude - The Polish Police just stormed a NATO building in Poland. You might wanna take a look at that. Poland is another country that wants to pick a bone with Russia. At least they constantly cry for our help against Russia - but these fuckers don't lift a finger when we need them. It's high time we lift those stupid sanctions against Russia. Let's cool down for a while. I don't need a second Cold war. You can have the Polish on a plate.

Fri, 12/18/2015 - 13:34 | 6939754 Stroke
Stroke's picture

"The Donald" will lift the sanctions.

Fri, 12/18/2015 - 14:19 | 6939929 Moe Howard
Moe Howard's picture

Link???

Fri, 12/18/2015 - 11:49 | 6939251 MFL8240
MFL8240's picture

More debt that cannot be repaid.

Fri, 12/18/2015 - 11:56 | 6939285 Uncle Sugar
Uncle Sugar's picture

Eventually, all the bad debt will be pawned off to the pension plans.  The money managers buying the debt will collect their fees/bonuses and be long gone when Joe Sixpack gets stuck with the bill.

Fri, 12/18/2015 - 11:57 | 6939292 youngman
youngman's picture

They were very creative in their bond names....and how to sell them....do they have any income or do they just sell bonds to idiots..

Fri, 12/18/2015 - 13:42 | 6939782 kralizec
kralizec's picture

Yes

Fri, 12/18/2015 - 12:01 | 6939319 commishbob
commishbob's picture

Brazil, Sweden and Norway only, pleae. 

Fri, 12/18/2015 - 12:18 | 6939399 rycK
rycK's picture

Following the hapless Greeks in their bawling sessions and threats to cut, deeply, the hair of those who were foolish enought to buy their phony paper, we see no outcome for this. Their bond sales will only continue to be serviced by morons or related government entities as PR is busted and joining the SIC PIGS [Slovenia, Italy, Cyprus, Portugal, Ireland, Greece and Spain].

 

Note that the quest for monies is on and we can expect bank buy-ins, capital controls, higher taxes, more regulations and more as governments attempt to create welfare states in the West. 

 

Another 2008-style depression is in order.

Fri, 12/18/2015 - 12:27 | 6939439 TalkToLind
TalkToLind's picture

Nothing from nothing leaves nothing.

Fri, 12/18/2015 - 12:30 | 6939456 Fiscal Reality
Fiscal Reality's picture

In short, “bond insurers can’t sell their risk and don’t want to set a precedent in which a utility, which could raise rates to pay debt, restructures instead.”  Since when are PR bonds supposed to be "risk free"?

Having managed properties in Puerto Rico, the KWH rate is VERY high. PREPA can't raise rates, and even if they did PR's won't pay the bill. Even the GOVERNMENT owes PREPA millions. PR is insolvent and the bondholders should rejoice at a 15% haircut. The only thing left to do is to screw the mainland and foist the payment obligation onto our backs. Pelosi, Reid, McConnell,  Ryan and Obama will see to it that the boys on Wall Street and the bond holders get paid.

http://www.npr.org/2015/05/07/403291009/power-problems-puerto-ricos-elec...

Fri, 12/18/2015 - 12:32 | 6939475 Dragon HAwk
Dragon HAwk's picture

Shame that island is so high above sea level, global warming, sea rise and all that.. Just Saying

Fri, 12/18/2015 - 12:32 | 6939477 Slowdrip
Slowdrip's picture

Man o man, those 'women' look stanky. What a DNA shithole...

Fri, 12/18/2015 - 13:13 | 6939651 JamaicaJim
JamaicaJim's picture

That is one gaggle of ugly "women" - wow.

Fri, 12/18/2015 - 13:32 | 6939748 Handful of Dust
Handful of Dust's picture

PR used to be a great place to vacation -- safe, inexpensive, excellent food, friendly people and incredible beaches.

 

Now debt, drugs, crime---forget it!

Fri, 12/18/2015 - 13:51 | 6939821 surf@jm
surf@jm's picture

LOL!.....international association of can kickers.......Or, if your prefer......moochers are us......

Fri, 12/18/2015 - 16:43 | 6940611 bamboojay
bamboojay's picture

That photo sums up most of the places I have worked in Florida.

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