Puerto Rico’s governor announced on Tuesday that his administration was canceling a proposed debt restructuring deal for the island’s state-owned power company, calling it unworkable.
The deal had been in the works for several years and was delayed by the pandemic, with many expecting it to be approved soon as Puerto Rico’s government begins to emerge from bankruptcy after declaring in 2015 that it was unable to pay her more than 70 dollars. billions of public debt.
The island’s Electric Power Authority holds more than $9 billion of this debt, the largest of any government agency, and economists consider restructuring this debt essential to the island’s economic progress.
Governor Pedro Pierluisi said the currently proposed deal is neither feasible nor in Puerto Rico‘s best interest.
“I am determined to get (the company) out of bankruptcy,” he said, adding that he supported a deal that would ensure an efficient, cleaner and reliable electric power system for the island.
A federal board of control that oversees Puerto Rico‘s finances and the pending bankruptcy process in federal court said it supports Pierluisi’s decision. However, he noted that the plan would have reduced the power company’s debt by 32% and that lawmakers whose approval was needed “unfortunately rejected some of the key terms…as unacceptable.”
The board said it expects to negotiate a new resolution through mediation or another process.
The board and governor’s office said global economic conditions — including rising inflation and soaring oil prices — have changed significantly since the deal was negotiated with creditors in 2019.
On Monday, the Institute for Energy Economics and Financial Analysis criticized the plan, saying it “ignores Puerto Rico’s financial vulnerability and jeopardizes the future of its energy grid.”
Tom Sanzillo, director of financial analysis at the Ohio-based nonprofit, said the deal would have imposed a “significant rate hike” while reimbursing bondholders for 8.2 billions of dollars of inherited debt.
He said that by imposing new debt service to pay off old debt, the deal would have negated any benefit of the $12 billion Puerto Rico is expected to receive from the US federal government to rebuild its power grid after the hurricane. Mary.
“(The company) would actually use the money to redeem the bondholders,” he said. “It’s a tax gimmick.”
José Caraballo-Cueto, a Puerto Rican economist and university professor, welcomed the plan’s rejection, adding that a good debt restructuring deal cannot leave a government with more debt than assets.
“It was a good decision,” he said, noting that the cost of energy in Puerto Rico is one of the highest of any U.S. jurisdiction and that the proposed deal would have resulted in an even higher increase. higher electricity bills amid ongoing blackouts.
“They have to sit down and look for a reasonable deal,” he said.
Creditors who hold debt issued by the Puerto Rico Electric Company could not immediately be reached for comment.