Puerto Rico’s debt-ridden power authority PREPA is expected to ask bondholders to take some pain as part of a turnaround plan it will present to creditors on Monday, kicking off what could be heated negotiations over terms, sources familiar with the situation said.
PREPA and its creditors must reach agreement quickly or risk hurting the Caribbean island’s broader efforts to climb out of a $73 billion debt hole. Not all creditors are in step, with some more willing to compromise by accepting payment deferrals, those sources say.
The PREPA talks are seen as a critical forerunner of whether the U.S. territory can overcome political and other challenges in fixing broken public entities. With Puerto Rico itself facing a June 30 deadline to approve a new budget and under pressure to raise capital, time is running short as it seeks to persuade investors that it can right the ship.
PREPA on Monday faces a deadline to present creditors with a proposed framework for turning around its business and tackling $9 billion in debt.
“If they fail to resolve PREPA, Puerto Rico is in trouble,” said David Tawil, president of New York-based hedge fund Maglan Capital, which sold its Puerto Rico exposure about a year ago.
The island’s 3.5 million residents rely on PREPA for electricity. Outdated plants and an inability or unwillingness to collect bills or raise rates have contributed to its troubles.
According to several sources close to the matter, Monday’s proposal from PREPA is likely to include some financial engineering that could mean sacrifices by creditors, such as extending maturities or forgoing interest payments. PREPA may make some broad elements of the plan public, sources say.
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