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KBW: Prepa Deal Positive for Local Banks

By on January 5, 2016

An agreement reached late last year between the Puerto Rico Electric Power Authority (Prepa) and its monoline insurers is a significant step forward in the electric utility’s restructuring and a positive for local banks with Prepa exposure, investment bank Keefe, Bruyette & Woods (KBW) said in its latest North America equity research report.

“The next step in the process should be for the governor [Alejandro García Padilla] to call a special session of the legislature to pass the Prepa Revitalization Act, which is also required under the restructuring agreement,” KBW’s Brian Klock and Glen Manna said in their latest equity report.

The restructuring agreement includes holders of 70% of Prepa’s $9 billion debt. The Ad Hoc Group of Prepa Bondholders, fuel line lenders and the Government Development Bank (GDB) had previously agreed to terms with Prepa.

Local banks with Prepa exposure include OFG Bancorp (OFG, $200 million), First BanCorp (FBP, $75 million) and Popular Inc. (BPOP, $75 million).

The KBW financial analysts pointed out that getting the monocline insurers on board with the restructuring was required by the preliminary restructuring agreement released last month.

“Another major step in putting the restructuring agreement in force is the enactment of the Prepa Revitalization Act by the Puerto Rico legislature. The governor has yet to call a special session of that body to address the bill,” the KBW equity research report said.

While implementation of the of the restructuring plan still requires passage of the Prepa Revitalization Act, Klock and Manna indicated they believed an agreement with the creditors brings the Prepa situation one step closer to resolution.

“We view this as a positive for OFG, FBP and BPOP,” the KBW financial analysts said.

By José L. Carmona

By José L. Carmona

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