Merion Capital Maintains Neutral Rating on Oriental Despite Prepa RSA Extension
SAN JUAN – In a company update released Thursday, Merion Capital Group announced it was keeping its Neutral (Hold) rating for OFG Bancorp, the bank holding company of Oriental Bank, despite the Restructuring Support Agreement (RSA), and the related Bond Purchase Agreement (BPA) between the Puerto Rico Electric Power Authority (Prepa) and several groups of creditors—representing 70% of the utility’s debt—being back on track after having broken down last Friday.
“The collapse of these agreements caused us to downgrade the stock from Outperform [Buy] to Neutral [Hold] earlier this week as we re-assessed the risk-reward trade-off on this stock,” Joe Gladue, Merion Capital director of research, said in his latest report. “It also caused us to reduce our Price target from $12.00 to $6.75.”
While the renewal of the RSA and BPA are very encouraging, Gladue noted there are still several major hurdles before these agreements take effect, including approval by the Puerto Rico legislature and approval by the Puerto Rico Energy Commission of proposed securitization of the debt.
“While we believe the RSA will be approved, there has been some opposition in the legislature to the agreement. Consequently, we are maintaining our cautious stance toward the restructuring and keeping our Neutral rating and $6.75 price target intact, at least until we achieve legislative approval,” Gladue said.
OFG is scheduled to announce fourth quarter 2015 results Monday, Feb. 1.