Puerto Rico Eyes Deal With BlackRock and Taconic Capital on $9 Billion Utility Debt

Puerto Rico’s bankrupt utility, which needs to restructure nearly $9 billion of debt, is closing in on a deal with at least two bondholders as soon as this Friday.

(Bloomberg) — Puerto Rico’s bankrupt utility, which needs to restructure nearly $9 billion of debt, is closing in on a deal with at least two bondholders as soon as this Friday.

BlackRock Financial Management and Taconic Capital Advisors are expected to reach a settlement with the island’s financial oversight board by a Friday deadline on how to restructure the debt of Puerto Rico’s Electric Power Authority or Prepa, according to a person familiar with the negotiations.

That’s a step forward for the board, which is managing Prepa’s bankruptcy as the island struggles to modernize its aging power grid to help boost its battered economy. The board has reached a tentative restructuring agreement with investors of “substantial amounts” of utility debt, according to its lawyers in a court document filed Thursday. 

But Prepa needs to get the majority of its creditors to endorse the deal and there’s already been grumblings about the debt-restructuring proposal from members of an ad hoc group of bondholders and insurers not yet brought into the proposal.

GoldenTree Asset Management, which held $825 million of Prepa debt as of Aug. 14, claims it has been shut out of bondholder negotiations, according to court documents. While Dominic Federico, Assured Guaranty’s chief executive officer, described the power utility’s current offer in an Aug. 9 earnings call as “insulting” and said the insurer would seek litigation. The company guaranteed $446 million of Prepa’s net par debt, as of March 31.

Read more: Hedge Fund Paradise Hides Puerto Rico’s Crisis In the Making

The fewer creditors supporting the debt-cutting plan the less likely that US District Court Judge Laura Taylor Swain will approve it. It also puts the deal at risk of appeals from objecting bondholders, which would prolong a six-year bankruptcy that’s already been delayed by natural disasters and the pandemic.

“The oversight board continues to work with Prepa’s creditors on a debt restructuring plan that is fair to creditors and sustainable for Prepa and Puerto Rico,” Matthias Rieker, the panel’s spokesperson, said in an email. “The oversight board is currently documenting a settlement with significant bondholders under those terms and expects to file an amended plan of adjustment no later than August 25 that will provide a viable path to end Prepa’s bankruptcy.”

Rieker declined to comment on the negotiations beyond the prepared statement. Spokespeople for BlackRock and Taconic declined to comment.

Swain in June ruled that bondholders have a claim to $2.38 billion of Prepa’s net revenue, far short of the $8.3 billion the utility owed when it entered bankruptcy in July 2017. That has left some creditors favoring litigation while re-igniting negotiations between other bondholders and the board.

Justin Peterson, a former member of the oversight board, resigned Friday, citing his disagreement with the potential restructuring deal. 

Announcing his departure on X, the platform formerly known as Twitter, Peterson said the tentative agreement is “unfair, coercive and discriminatory” and that the board was “essentially wiping out bondholders while keeping pensions fully intact.”

BlackRock held $698 million of Prepa debt and Taconic held $92.6 million, as of Aug. 14, according to court documents.

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