April 28, 2017 / 1:41 PM / a year ago

UPDATE 3-Puerto Rico board OKs agency fiscal plans as deadline looms

(Adds details about impending negotiation deadline)

By Nick Brown

NEW YORK, April 28 (Reuters) - Puerto Rico’s financial oversight board on Friday approved fiscal plans for four public agencies, including a liquidation of the island’s Government Development Bank, as the struggling U.S. territory stares down a potential bankruptcy filing next week.

The oversight board, appointed under the Puerto Rico rescue law known as PROMESA, certified a 10-year wind-down for the GDB, which served as the island’s fiscal agent until defaulting on debt last year.

The board approved turnaround plans for water authority PRASA, highway authority HTA and power utility PREPA, but conditioned approval on tweaks aimed at making the agencies more efficient.

The plan approvals effectively give the board the option to push the agencies into bankruptcy in the near term, as such plans are a prerequisite to file a so-called Title III proceeding under PROMESA, an in-court debt restructuring process akin to U.S. bankruptcy.

Puerto Rico faces a deadline on Monday to restructure its $70 billion debt load or open itself up to lawsuits from creditors. Title III is seen as a way for the island to avoid those lawsuits and impose deep repayment cuts on bondholders.

Bankruptcy is not a foregone conclusion. The island’s government is urging creditors to agree to extend talks past Monday, and even if that effort fails, the political backlash of a bankruptcy may deter the board from filing.

Whether and when to trigger a Title III bankruptcy, either for Puerto Rico itself or specific agencies, is the board’s decision. Chairman Jose Carrion, however, told reporters after Friday’s meeting the board was “fully aligning, and we hope to be aligned, with the government.”

Carrion would not elaborate on the board’s leanings regarding Title III.

Puerto Rico is trying to escape a crisis marked by a 45 percent poverty rate, unemployment more than twice the U.S. average and near-insolvent healthcare and pension systems, in addition to its debt.


Board member David Skeel said it was “with sadness” that the GDB be wound down, but that he believed it was “the most effective way to disentangle GDB from the rest of the economy.”

Puerto Rico’s former governor declared a state of emergency at the bank in April 2016. GDB defaulted on $422 million of debt the following month.

PREPA, which last month reached a tentative deal with its creditors to restructure $8.9 billion in debt, was told by the board to tweak its fiscal plan to achieve customer rates no higher than 21 cents per kilowatt hour by 2023.

Board member Carlos Garcia told reporters the board was approving “an overall framework” for PREPA which includes the debt deal. It was unclear if the board had formally approved the restructuring.

The contentious deal, nearly three years in the making, would cut repayments to PREPA bondholders by 15 percent, in exchange for new bonds secured by a charge on customer bills.

Water authority PRASA, whose plan will seek to reduce a 10-year funding gap of $3.5 billion, was ordered to raise rates, while highway authority HTA must alter its blueprint to address its fiscal sustainability asset by asset.

HTA must also come up with better solutions for losses at its mass transit system, the board said. (Reporting by Nick Brown; Editing by Meredith Mazzilli)

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