WASHINGTON Puerto Rico's governor told U.S. lawmakers on Wednesday the island's struggling power utility, PREPA, could undergo an in-court restructuring process akin to U.S. bankruptcy if a consensual deal with creditors cannot be achieved.
Governor Ricardo Rossello said at a U.S. House Natural Resources subcommittee hearing his administration would prefer a consensual deal to bankruptcy, as lawmakers questioned him about delays in completing a $9 billion restructuring at PREPA.
The hearing showcased growing discord between Rossello's administration and PREPA's creditors, which seemed to concern the committee in charge of leading Congress' response to Puerto Rico's ongoing crisis.
PREPA and its creditors reached a tentative debt restructuring in December 2015, before Rossello took office, under which bondholders accepted 15 percent cuts to repayment in exchange for new bonds backed by an added charge on customer bills.
Rather than rubber-stamp that deal when he took office in January 2017, as many had predicted, Rossello said he would seek new terms. On Monday, his administration made public a revised offer to creditors.
"If PREPA was pushed into (bankruptcy), do you expect that outcome would be better for Puerto Rico?" asked Representative Doug LaMalfa, a Republican from California.
Rossello replied that "I champion and value" consensual renegotiation efforts, but that "doesn't take a back seat" to seeking the best terms for PREPA.
The utility is seen as a bellwether for Rossello's approach to restructuring $70 billion in public debt that is pushing Puerto Rico's economy toward collapse. The island has a 45 percent poverty rate and near-insolvent public health and pension systems.
Rossello campaigned in 2016 on compromising with bondholders, so his approach on PREPA has worried investors.
At Wednesday's hearing, the governor said the existing deal could hurt consumers because of the added charge on invoices.
Stephen Spencer, an adviser to PREPA creditors, fought that notion, testifying that the charge is smaller than the costs customers would bear if PREPA did not restructure its debt or modernize operations.
"Without a deal, PREPA faces a liquidity crisis or a rate hike," Spencer said.
But Puerto Rico's federally-appointed fiscal oversight board supports Rossello's effort to tweak the deal, in part because the concessions it seeks from PREPA creditors are much smaller than the ones likely to be pushed on other Puerto Rico investors, board member Ana Matosantos testified on Wednesday.
Under a fiscal turnaround blueprint approved by the board on March 13, Puerto Rico will have $800 million annually to pay debt, just 21 percent of what it owes next fiscal year.
A forbearance agreement at PREPA, which keeps creditors from suing while sides negotiate, expires March 31. Rossello said he supports extending it, but it was unclear if creditors share that willingness.
"We have an execu table deal" already, Spencer said when asked whether creditors were open to renegotiating.
KBW Inc analyst Chas Tyson said in a Wednesday note that "Creditors were visibly frustrated."
"The body language of the hearing participants indicated there is still a wide distance between" Rossello and PREPA creditors, Tyson said.
(Reporting by Nick Brown; editing by Grant McCool and Chizu Nomiyama)