The Puerto Rico Electric Power Authority (PREPA) announced on Jan. 24 that it has reached a temporary deal with some of its creditors that will protect the agency from litigation through Feb. 12 and thus secure time needed to continue restructuring talks with bondholders.

The U.S. commonwealth's main electricity provider and its bondholders are in the midst of negotiations on how to restructure almost $9 million, Bloomberg recalled. The talks come after PREPA filed failing to meet a deadline on Jan. 22, which in turned had caused a tentative agreement reached last month to be terminated.

Analyst: 'Too many caveats' in long term

Daniel Hanson, an analyst at Height Securities, a Washington-based broker dealer, wrote in a report released on Jan. 25 that the utility's restructuring support agreement (RSA) will help all sides assess the situation in a calmer fashion, according to Bloomberg.

"PREPA's expired RSA contains too many caveats to hold up over the medium term," Hanson noted, "but in the short term, it is likely to be renewed in a bid to promote compromise on more contentious issues throughout the commonwealth's debt structure."

PREPA deal key for Puerto Rico

Resolving the electricity provider's outstanding obligations is seen as critical to solving Puerto Rico's problems at large, Reuters explained. The island's numbers are currently upside down, as the commonwealth is facing $70 billion in debt and, at the same time, a poverty rate of 45 percent.

If PREPA administrators are creditors failed to restructure the utility's debt, the effects on the Puerto Rican economy would be devastating, the newswire predicted. It would probably pave the road for years of expensive and uncertain litigation from bondholders and suggest to investors and federal lawmakers that Puerto Rico is incapable of getting its house in order, Reuters noted.

Lisa Donahue, the agency's chief restructuring officer, meanwhile, noted in a statement that she appreciated bondholders' continued willingness to proceed with the talks. "We are grateful to our ... lenders for their support as we continue our efforts to transform PREPA," Donahue said.

Related