Dive Brief:
- The Puerto Rico Electric Power Authority (PREPA) met its July 1 obligation to bondholders of $417.6 million for maturing bonds and interest by using about $41.6 million in reserve funds.
- This reflects the ongoing financial woes that also forced Puerto Rico’s dominant electricity supplier, presently carrying $8.6 billion in debt against $4.94 billion in revenue in 2012, to use $100 million from its capital fund to purchase fuel in May.
- PREPA was given until July 31 to meet its $250-million debt to CitiGroup and its $550-million debt to a Scotiabank-led five-bank consortium. This ongoing shuffling of money to meet its obligations suggests restructuring for the utility and big losses for the banks are likely.
Dive Insight:
A rate increase is not a practical solution because the PREPA power price is already twice the mainland electricity price due to the island’s 60% reliance on imported oil for power generation. Political and regulatory obstacles block the utility from reaching its goal of cutting its oil dependency to 2% by 2017 through a transition to more affordable natural gas.
Moody’s Investors Service recently downgraded the PREPA rating to a lower level of junk bond. PREPA supplies electricity to 1.45 million Puerto Ricans and is the biggest U.S. public power utility, according to the American Public Power Association.
Because many of Puerto Rico’s corporations are expected to seek bankruptcy protection under a just-instituted Recovery Act, a PREPA restructuring would likely set precedents as the island territory works through debt problems permeating its entire economy.
