Bond insurers are suing Puerto Rico's financial oversight board over a $9 billion utility debt-restructuring agreement, accusing the U.S. territory's financial supervisors of improperly withholding approval of the controversial deal.
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Assured Guaranty Ltd. and MBIA Inc.'s National Public Finance Guarantee Corp. on Monday night asked for a court order requiring the federal oversight board to accept the existing debt agreement covering the cash-strapped power monopoly known as Prepa. That deal, three years in the making, has failed so far to gain sufficient support among the oversight board's seven voting members, leaving the agreement wobbling on the brink of collapse, The Wall Street Journal reported this month.
The oversight board presented Prepa's creditors with a counteroffer this week that would further revise those proposed terms to obtain additional debt relief, according to a person familiar with the matter.
Puerto Rico's central government and several agencies are under court supervised restructuring proceedings in San Juan, but so far the board hasn't invoked those same bankruptcy protections for the electric utility. Whether the oversight board has authority to veto the deal has generated controversy between the board, Prepa's creditors and the members of Congress who wrote Puerto Rico's federal rescue package. The insurers' lawsuit said the deal was preordained by Congress under that law and can't be "second-guessed" now by the board.
"The clock is ticking on Prepa's restructuring, and Puerto Rico cannot afford to endure a Prepa bankruptcy that could turn the lights off," the lawsuit said.
Bondholders under the existing deal would receive new debt worth 85% of their claims, paid from a new charge on utility customers. Critics, which include local manufacturers, say the deal would impose new costs on utility ratepayers to repay creditors that risk stifling economic growth and crowding out private generation projects. Without a settlement framework in place, Prepa could join in the territorial government's court-supervised bankruptcy, where a judge would decide who gets paid what.
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Write to Andrew Scurria at Andrew.Scurria@wsj.com
(END) Dow Jones Newswires
June 27, 2017 10:54 ET (14:54 GMT)