(Adds Standard & Poor’s downgrade)
By Edward Krudy
NEW YORK, April 24 (Reuters) - A group of bondholders in Puerto Rico’s power authority, PREPA, slammed on Friday the public utility’s criticisms of their $2 billion restructuring plan, saying the objections were flawed and based on misunderstandings.
The statement came in response to PREPA’s rejection late on Thursday of the bondholders’ plan to overhaul the utility. PREPA said the plan underestimated costs by $3.1 billion over its nine-year span and was based on “numerous incorrect or unrealistic assumptions.”
The eight-month-old negotiations between PREPA and its bondholders are showing little outward sign of progress and relations between the sides have become increasingly frosty.
Standard & Poor’s cut its rating on the utility’s debt further into junk on Friday. The agency criticized PREPA’s use of reserve funds to make bond payments and said some form of debt impairment was inevitable in the next six months.
PREPA is struggling with more than $9 billion in debt. The bondholder group, which calls itself the Ad Hoc Group, holds about 60 percent of more than $8 billion in outstanding bonds.
After a liquidity crisis last summer, those bondholders agreed not to call a default if PREPA took certain steps to restructure.
Since then PREPA has repeatedly drawn on its reserve funds to meet debt payments, most recently using $8.8 million to make a quarterly bond payment on April 1.
“In our opinion, the draws suggest that despite falling oil prices, the authority has a continuing structural imbalance between revenues and expenses,” S&P said on Friday.
The agency cut its rating on PREPA to ‘CCC-’ from ‘CCC,’ a mid-level junk rating.
PREPA is facing a $400 million bond payment on July 1 which it is uncertain it will be able to meet.
Negotiations with bondholders became public after bondholders released their plan earlier this month in a sign of growing frustration with the utility’s restructuring efforts, led by AlixPartners’ Lisa Donahue.
Donahue has said bondholders’ demands for repayment in full and on time were unlikely to work as a starting point for negotiations. Thursday’s presentation said that no change to debt services would mean raising electricity rates to customers, a move Puerto Rico’s government is resisting.
Donahue was brought in as PREPA’s chief restructuring officer under the bondholder agreement last August. (Editing by Lisa Von Ahn and Ted Botha)