NEW YORK, July 31 (Reuters) - Puerto Rico must reforms its indebted public corporations, the New York Federal Reserve said in a report released on Thursday, the same day the island’s electric power authority faces a deadline to renew vital loan facilities with banks.
Public corporations were responsible for 85 percent of the U.S. Commonwealth’s debt growth from 2000 to 2012, the report said. Electric power authority PREPA is expected to restructure some $9 billion of debt under a new law that provides public corporations with a bankruptcy-like process.
PREPA is negotiating with creditors, including Citigroup and a consortium of banks led by Scotiabank, to extend up to $671 million in credit lines. The authority is facing a payment of $146 million to Citigroup on Thursday and the entire amount of the credit line expires through the end of August.
“Key elements of a successful reform strategy should include strengthening the public-sector corporations’ financial standing and greatly increasing the efficiency of their operations,” the New York Fed said in its report.
Puerto Rico is part of the second district in the Federal Reserve System, which is administered by the New York Fed.
The report said that the Commonwealth’s new restructuring law, passed in late June and known as the Recovery Act, may change investors’ perceptions of the relationship between the central government and the public corporations.
“Generally, debts of these public-sector corporations are not legal obligations of the central government, but historically, market participants may have perceived them to be contingent liabilities of the government,” the report said. (Reporting by Edward Krudy; Editing by James Dalgleish)