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Puerto Rico Announces Restructuring Agreement With Some Bondholders, But Broader Fiscal Crisis Remains

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Puerto Rico Announces Restructuring Agreement With Some Bondholders, But Broader Fiscal Crisis Remains

The Puerto Rico Electric Power Authority (PREPA) has agreed to a new debt deal with its creditors, but the U.S. territory is still teetering on the brink of bankruptcy.

Earlier this month, PREPA and its creditors agreed to restructure $8.9 billion in debt in a deal that would save $2.2 billion over five years.

Unfortunately, Puerto Rico’s next debt deadline on May 1 is rapidly approaching.

Last year’s PROMESA rescue law blocked creditor lawsuits until May 1, 2017, allowing a U.S. oversight board to negotiate with debt holders to restructure $70 billion in debt. Prospects of a deal by May 1 look bleak. If a deal isn’t reached by the deadline, Puerto Rico is expected to pursue a bankruptcy-like court-sanctioned restructuring.

Related Link: Title III Restructuring For Puerto Rico Likely To Result In Significant Paid Claims For Monolines

Height Securities' Edwin Groshans isn’t optimistic about the long-term prospects for Puerto Rico, but says the PREPA deal is a positive for Assured Guaranty Ltd. (NYSE: AGO) and MBIA Inc. (NYSE: MBI).

“The amended PREPA RSA is beneficial for AGO and MBI; however, it neither aggresses the Commonwealth’s broader fiscal crisis nor improves its certified budget,” Groshans said.

“Our increased insured loss estimates for all other PR issues remains unchanged, and we continue to expect a restructuring under Title III of PROMESA is the likely outcome for these debts.”

The Market Vectors ETF Trust (NYSE: HYD) is up 3.5 percent so far in 2017.

Latest Ratings for AGO

DateFirmActionFromTo
Jan 2020MaintainsBuy
Aug 2019MaintainsBuy
Oct 2017MaintainsBuy

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