Puerto Rico Electric bondholders agree to exchange outstanding debt

By Caroline Salls

Pittsburgh, Sept. 2 – The Puerto Rico Electric Power Authority reached an agreement with a bondholder group to form the basis of a recovery plan for the authority, according to a bondholder group news release.

The term sheet contemplates an exchange of outstanding authority bond debt. As part of the agreement, the parties will extend their forbearance agreement until Sept. 18 in order to reach a recovery and support agreement.

Under the economic terms of the bond exchange, bondholders will provide a reduction in the amount of outstanding bond debt, near-term debt service relief and a lowering of interest rates.

Collectively, the bondholder group said these benefits will significantly enhance the authority’s ability to invest in operational improvements and will benefit ratepayers.

In return for these concessions, bondholders are receiving certainty of repayment through a proven securitization financing structure, the release said.

“We believe [the agreement] provides PREPA with a fresh start and financial flexibility,” Stephen Spencer of Houlihan Lokey, the bondholder group’s financial adviser, said in the release.

“We are committed to working with PREPA to finalize these steps and complete the transaction as quickly as possible.”

Agreement details

According to a release from the Government Development Bank for Puerto Rico, the bondholder agreement includes two options.

Under the first option, current interest securitization paper will be issued by a new bankruptcy-remote subsidiary or new bankruptcy-remote special purpose vehicle. The securitization paper will be supported by a non-bypassable adjustable charge with a semi-annual true up.

Under the second option, convertible capital appreciation securitization paper will be issued by a new bankruptcy-remote subsidiary or special purpose vehicle with the same support. This paper would convert from a capital appreciation bond to current interest five years after issuance.

The exchange rate for both options will be 85%.

The interest rate on both paper options will depend on the final investment-grade rating, with the rate on the first-option paper ranging from 4% to 4¾% and the rate on the second-option paper ranging from 4½% to 5½%.

The first-option bonds will be callable after 10 years at par, and the second-option bonds will be callable after 10 years from conversion at par.

Under both options, securitization bonds will receive interest only for the first five years following issuance, with level debt service thereafter.

The scheduled maturity on the bonds will be 2043 under both options, with final legal maturity at least two years after that date or the length of time required to obtain investment-grade status.

The bondholder group said it will negotiate with the authority to provide a backstop for the financing of a cash tender for non-forbearing unwrapped bondholders. One of the conditions to the agreement is success of the exchange offer, with no more than $700 million of legacy unwrapped revenue bonds outstanding.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.