Puerto Rico's PREPA meets creditors; new financing offered

Puerto Rico's electric power authority PREPA is trying to persuade creditors in a meeting on Thursday to give it more time to overhaul its business, as some bondholders push PREPA to accept new financing to avoid a default, according to sources familiar with the negotiations.

At a meeting in New York, PREPA will argue that creditors, who hold over $9 billion of its debt, should extend a forbearance agreement that expires on March 31. Once the agreement expires creditors have the right to accelerate their claims, potentially forcing the utility into insolvency.

Some of PREPA's creditors have offered additional financing to overhaul the utility's operations in return for concessions such as using a drop in oil prices to pay off debt, a source close to one of the bondholders said on Thursday.

"Bondholders will provide new financing to PREPA and PREPA will use that to modernize," the source said, describing the proposal. "One of the levers we would be looking for PREPA to pull is to use some of the saving in fuel costs to help reduce its debt burden."

Other measures needed to secure additional financing could include collecting unpaid electricity bills from the government and stepping up action on electricity theft, the source said. The source was not present at Thursday's negotiations.

PREPA did not return a request for comment.

The source, who asked not to be named because the negotiations were not public, estimated the savings to PREPA from the drop in oil at around $1 billion. Details on when the offer was made and the current status of talks were unclear.

The creditor group represents over 60 percent of PREPA's bondholders and includes large hedge funds such as Blue Mountain Capital and Appaloosa Management, mutual funds Oppenheimer and Franklin Templeton, bond insurers, as well as Citibank and Scotiabank.

PREPA missed a deadline on March 2 when it was supposed to present bondholders with a comprehensive restructuring plan. Earlier PREPA told creditors restructuring would likely take 10 years instead of an expected five years. The creditors did not take action when that milestone was missed.

Ratings agency Moody's has said it expects PREPA to default on or before July 1, the date of it next scheduled debt service payment. PREPA made a bond payment of about $214 million at the start of the year and faces another $400 million payment in July, according to Moody's. (Reporting by a contributor in San Juan and Edward Krudy in New York; Editing by Lisa Shumaker and Andrew Hay)

Puerto Rico's PREPA meets creditors; new financing offered