Fitch Downgrades Prepa Revenue Bonds to ‘C’
SAN JUAN – Fitch Ratings has downgraded $8.2 billion of Puerto Rico Electric Power Authority (Prepa) power revenue bonds to ‘C’ from ‘CC’.
In addition, the credit-rating company is assigning an Issuer Default Rating (IDR) of ‘C’ to Prepa “in anticipation of a distressed debt exchange, which will allow Fitch to reflect the potentially different effects of the exchange on outstanding securities,” according to Monday’s announcement.
The bonds remain on Negative Rating Watch. The IDR is placed on Negative Rating Watch.
The following was extracted from Fitch’s release:
The power revenue bonds are secured by a senior lien on net revenues of the electric system.
KEY RATING DRIVERS
RESTRUCTURING OR DEFAULT APPEARS INEVITABLE: The downgrade and maintenance of the Negative Watch reflect Fitch’s view that a payment default or restructuring of PREPA’s debt obligations is inevitable. Although existing agreements between PREPA and certain creditors (including bondholders) have provided temporary relief, a key component of PREPA’s restructuring plan is the reduction of existing debt by means of a proposed distressed debt exchange. PREPA is seeking to complete its restructuring by Dec. 31, 2016.
CASH FLOW CONCERNS REMAIN: PREPA’s net cash receipts and existing funds on hand remain insufficient to meet long-term working capital, debt service and other funding requirements. Although debt service payments due July 1, 2016 may be paid, funding for such payments is likely to come from existing bond purchase agreements with existing creditors and new re-lending agreements.
FISCAL 2014 AUDIT RELEASED: PREPA’s most recent audited performance (fiscal year ended June 30, 2014) was weak as Fitch-calculated debt service fell to 0.69x, cash on hand totaled only 24 days and leverage rose to 16.1x (total debt/funds available for debt service). The opinion of PREPA’s auditor (Ernst & Young LLP) also notes that the financial difficulties experienced by the authority raise substantial doubt about its ability to continue as a going concern.
FINANCIAL PERFORMANCE REMAINS WEAK: For the 12 months ended June 30, 2015, PREPA reported unaudited earnings before interest and depreciation of $770 million, but a change in net position of ($320 million). The net loss was larger than PREPA’s budgeted loss of $198 million. Poor performance for the fiscal year was further characterized by declining energy sales (1.6% for the period), declining customers (0.4%), high concentrations of accounts receivable (25% of revenue), high fuel costs (12.3 cents/kWh) and an unwillingness to increase base electric rates.
NONPAYMENT OR DISTRESSED DEBT EXCHANGE: The Puerto Rico Electric Power Authority’s failure to meet debt service obligations as scheduled or execution of a distressed debt exchange, where creditors are offered securities with diminished structural or economic terms compared with the existing power revenue bonds to avoid a probable payment default, would result in a downgrade of the Issuer Default Rating to ‘RD’ and any affected securities to ‘D’. Securities that continue to perform will have ratings maintained at ‘C’.
Being Vigilant of the 7 Benchmarks to end 2022
We are just about to end the fourth quarter of...
- Posted November 22, 2022
Inflation Heading Down, What Happens Now?
The Four Benchmarks to review that confirm inflation may be...
- Posted November 14, 2022
The Six Factors to Expect during the end of 4Q22
We are deep within the fourth quarter we thought it...
- Posted November 10, 2022
Puerto Rico Banks Deliver strong earnings, beating most banks
Puerto Rico Banks Transformed their operational model The Puerto Rico...
- Posted November 9, 2022
US Congress Discrimination affecting the Puerto Rico’s Healthcare Ecosystem
The market dynamics that changed the Healthcare Ecosystem as we...
- Posted November 8, 2022
MCS contributes over $5 million to support member healthcare
The insurer distributed the amount among 409 community pharmacies in...
- Posted November 7, 2022
Droguería Betances Launches 60th Anniversary Ad Campaign
Droguería Betances has launched a new advertising campaign, “60 Reasons...
- Posted October 31, 2022
Puerto Rico Food Industry Helps Communities in Aftermath of Hurricane Fiona
Over three-quarters of a million dollars in aid to...
- October 24, 2022
Medplus Solutions celebrates 10 years Saving Lives
Innovation and continuous growth Expansion of specialized and more...
- May 18, 2022
Amazon Web Services Expands Operations in Puerto Rico
Local Office Will Offer Services to other Caribbean Islands...
- April 22, 2022
García Padilla: Rubio Is No Friend of Puerto Rico
Governor Says Rubio's Remarks Confirm he Works for 'Vultures'
- February 26, 2016
Why the plebiscite was a disaster
A column by A. W. Maldonado
- June 16, 2017
[Annotation] The People Have Spoken
By abstaining, you can’t express anything
- June 15, 2017
You must be logged in to post a comment Login