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May 28, 2017

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Doubts about Puerto Rico power company's finances

SAN JUAN, Puerto Rico--U.S. investors on Thursday pressed Puerto Rico government officials about the financial health of the island's power company amid fears it might soon seek to restructure millions of dollars in debt.

The questions came after a nearly two-hour webcast in which officials sought to reassure investors and update them on steps being taken to stabilize the U.S. territory's economy and generate additional revenue for its government.

It was the first webcast held since Governor Alejandro Garcia Padilla signed a law that allows some public corporations to restructure their debt if needed. The law was approved as the U.S. territory enters its eighth year in recession and grapples with some US$73 billion in public debt, with public corporations holding nearly 40 percent of the debt.

Puerto Rico has seen a flurry of credit rating downgrades since the announcement of the law, which does not apply to the island's general obligation bonds.

David Chafey, chairman of the Government Development Bank, which oversees the island's debt transactions, stressed that the priority for cash-strapped agencies is to reach consensual and negotiated solutions with creditors.

"We will only use the Recovery Act if such solutions are not available," he said.

Investors asked if the state-owned Electric Power Authority had enough money to pay for fuel and whether it was nearing a default.

Natalia Guzman, the bank's senior vice president, said the company has enough liquidity to pay suppliers and said media reports saying it had used loan proceeds for fuel purchases were erroneous. She also noted that the government owed the power company US$240 million as of May 31 and that some US$110 million was past due.

The power company has more than US$9 billion in debt outstanding and has about US$398 million in cash in its general fund, officials said. The company recently reached an agreement to delay payment on lines of credit totaling about US$800 million with Citibank and Scotiabank.

Garcia said his administration will soon unveil a plan for comprehensive tax reform during the first half of the 2015 fiscal year. He noted the government approved a balanced budget a year ahead of schedule.

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