UPDATE 5-Puerto Rico's PREPA reaches deal with bondholder group
(Adds quote from Moody's, bondholder, updates prices)
By Megan Davies
NEW YORK, Sept 2 (Reuters) - Puerto Rico's electric power utility PREPA has agreed with a bondholder group to reduce its $9 billion debt, a significant step towards restructuring the obligations of the U.S. territory, although the deal will be classed by credit ratings agencies as another default from the indebted island.
Under the deal with the so-called ad hoc group representing about 35 percent of its bondholders, those creditors would swap their bonds for new notes, receiving 85 percent of their existing bond claims, according to a statement from the utility.
Credit rating agency Standard & Poor's said the deal was a distressed exchange and "we would consider PREPA to be in default if this restructuring were to occur" and would lower the ratings on its outstanding debt to a D. S&P currently rates PREPA's bonds at CC.
Moody's said the announcement of a deal meant "a default in the form of a distressed exchange transaction is likely this year." Moody's currently rates the bonds Caa3.
The deal was reached late Tuesday night according to sources. Bondholders holding around $2.9 billion have agreed to swap and the group believes the deal will also attract the retail base which represents $3.1 billion, according to a source familiar with the situation.
Puerto Rico's Governor, Alejandro Garcia Padilla said Wednesday the deal was the next step towards PREPA getting the liquidity to invest in its infrastructure, which would create jobs and spur economic growth.
"I hope this process - and its outcome - will further confirm our commitment to work collaboratively with our creditors to find satisfactory solutions for them and the people of Puerto Rico and their families." Continuación...