GoldenTree, Invesco unite against Puerto Rico utility debt plan

A collection of bondholders and insurers of Puerto Rico Electric Power Authority debt are banding together in their opposition to the bankrupt utility’s proposal to slash its debt by 75%.

GoldenTree Asset Management, Syncora Guarantee, Assured Guaranty and certain members of an ad hoc group of the power utility’s bondholders — which includes Invesco Advisers — entered a cooperation agreement where they pledge to work together against the agency’s potential debt-cutting plan, according to a court document.

The amount of creditor opposition to PREPA’s restructuring plan is greater than those supporting it. GoldenTree and the other parties in the new agreement hold or insure more than 49%, or about $4 billion, of the utility’s roughly $8.3 billion of outstanding debt. That’s more than the $2.4 billion held by an investor group led by BlackRock Financial Management that has signed on to the debt-cutting proposal.

The agreement between GoldenTree and others directs the firms to “cooperate and coordinate activities in good faith (to the extent practicable and subject to the terms hereof) with the other parties to support the parties’ efforts in connection with any potential transaction and opposition to the plan,” according to the court document filed Tuesday.

The PREPA ad hoc group holds a combined $2.3 billion of PREPA debt, as of Oct. 1, and along with Invesco includes MacKay Shields, Goldman Sachs Asset Management and Alliance Bernstein, among other firms, according to a court document.

The pact aims to prevent bondholders or insurers from striking their own deals with PREPA and Puerto Rico’s financial oversight board, which is managing the island’s bankruptcy cases. GoldenTree and others claim that the BlackRock group forged their own debt-cutting plan with the oversight board and excluded other creditors.

U.S. District Court Judge Laura Taylor Swain is expected to hold a confirmation hearing on PREPA’s debt restructuring plan in March. That proposal would reduce combined claims of $10 billion down to about $2.5 billion of new bonds. That plan reflects the reality of PREPA’s financial future and investment needs, Matthias Rieker, the board’s spokesperson, said in a statement Wednesday.

“The plan is the result of deliberate mediation and litigation, and a significant number of creditors agreed to the realistic terms of the drastically reduced debt and interest payments,” Rieker said.

GoldenTree and Syncora are seeking to install a receiver for PREPA that would help repay the utility’s obligations. The U.S. Court of Appeals for the First Circuit on Tuesday set an oral argument for Dec. 4 on whether to lift a stay and permit a receiver.