New York: Puerto Rico Governor Ricardo Rossello’s administration has indicated that it wants to renegotiate a deal struck more than a year ago to restructure about $9bn of electric utility debt, an effort that could result in a showdown with insurers that guaranteed some of the bonds against default, people familiar with the matter said.
Rothschild & Co, which Rossello hired to oversee negotiations after he took office last month, has explored the possibility of persuading MBIA Inc, Assured Guaranty Ltd and Syncora Guarantee Inc. to contribute more to the restructuring, according to people who spoke on the condition that they not be identified because the negotiations are ongoing.
Unlike bondholders, under the agreement reached in December 2015 with the Puerto Rico Electric Power Authority, known as Prepa, the companies didn’t take losses on the approximately $2.2bn they insure. The deal was seen as a template for other restructurings. Rossello’s interest in renegotiating it may signal he wants to take a tougher stance with creditors after a series of record-setting defaults on Puerto Rico’s $70bn of debt. Since the initial agreement, the federal government has given the island legal ability to cut its debts in court, strengthening Rossello’s bargaining power.
It’s still not clear how big a concession his administration wants from the bond insurers, nor whether it will ask bondholders to accept deeper losses. No formal request to renegotiate has yet been made and no new terms have been offered to creditors, the people familiar with the matter said.
Elias Sanchez, the governor’s representative to the US oversight board that was installed to help oversee any debt restructuring, said the administration is reviewing the agreement’s terms, though no decisions regarding potential changes have been made.
It’s also unclear how much leverage Rossello has with the insurance companies. Under the December 2015 pact, they agreed to provide a surety bond that would underpin the sale of new debt by Prepa. In a showdown with Rossello, they could withdraw the surety bond, jeopardizing the restructuring and pushing the island closer to ceding control to the federal oversight board.
