A plan to restructure more than $9 billion in debt held by Puerto Rico’s ailing power company hit a big snag this week after a group of bondholders terminated their deal with a federal control board overseeing the U.S. territory’s finances.
The deal would have allowed Puerto Rico’s government to pay creditors $2.6 billion instead of the full $8.5 billion that some bondholders are demanding.
BlackRock Financial Management and other investment funds had agreed to the board’s deal and its subsequent amendments two years ago. But they walked away after the Trump administration terminated all but one member of the federal control board overseeing debt negotiations.
On Monday, bondholder groups that had opposed the board’s proposals filed a document noting that BlackRock and others were joining them in a deal that would become effective on Oct. 1. The enlarged group now holds or insures nearly 90% of outstanding bonds issued by Puerto Rico’s power company, according to a court filing.
Experts have said the dismissal of almost the entire board could lead to the appointment of new members who might be favorable to hedge funds seeking full repayment.
Earlier this year, the board’s executive director said it was “impossible” for the U.S. territory to pay the $8.5 billion that some bondholders are seeking.
Puerto Rico has one of the highest power bills of any U.S. jurisdiction, and many worry that if a debt-restructuring deal is not reached with bondholders, they’ll be hit with a massive rate hike to pay off the debt of the island’s Electric Power Authority.
A spokesperson for the board declined to comment.
Some bondholders have said that litigation over the power company’s debt should be suspended until a new board is appointed. Meanwhile, the board said in a brief filing that it prefers some processes be halted, but that it would defer to the judge overseeing the case.
It wasn’t immediately clear how quickly new board members would be appointed.
The board was created in 2016 under the Obama administration, a year after Puerto Rico’s government declared it was unable to pay its more than $70 billion public debt load and later filed for the biggest municipal bankruptcy in U.S. history.
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