Saturday, October 29, 2016

Promesa oversight law contains a provision,that forces investors to take losses while also resolving legal suits.

by Michelle Kaske
Oct 29, 2016

(Bloomberg) -- What some Puerto Rico bondholders dreaded the most under the creation of a federal oversight board may end up leading to a long-sought resolution to the first debt-restructuring agreement reached by the commonwealth.

After coming to terms with creditors and bond insurers in January, the Puerto Rico Electric Power Authority, the island’s main electricity provider, has been unable to close the deal, in part because of seven different lawsuits in Puerto Rico courts that oppose the $9 billion workout plan and a new customer surcharge that will repay the restructuring bonds.

Both creditors and the utility had pushed forward for nearly two years on the deal under the premise that an agreement would be more beneficial to all parties rather than having the matter resolved by a judge once the oversight board was in place. It turns out that the Promesa oversight law passed in June contains a provision, called Title III, that’s similar to municipal bankruptcy and forces investors to take losses while also resolving legal suits.

“That proceeding will resolve all claims,” said attorney James Spiotto, managing director at Chicago-based Chapman Strategic Advisors LLC, which advises on municipal restructurings. “It’s to prevent the annihilating litigation that leads to meltdown, because that’s in nobody’s best interest because this is a necessary public service, electricity.”

Bondholder Outlook

Under the agreement bondholders would take a 15 percent loss and wait longer to be repaid in exchange for new debt with stronger repayment pledges. While the accord is set to expire Dec. 15, the agency is working to extend the pact with creditors as it has done several times through the negotiations, according to Javier Quintana, executive director of the utility known as Prepa.

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Most Dreaded Provision of Puerto Rico Law Seen Spurring Pact  by Michelle Kaske