Search
 

Huge Default Looming in Municipal Bonds

Oil and politics pave path leading toward $9 billion default for Puerto Rico Electric Power Authority.

By Alex Nussbaum, Bloomberg | Updated on May 12, 2015

The Puerto Rico Electric Power Authority wasn’t destined to fall $8.6 billion in debt, putting it on the cusp of the biggest default in U.S. municipal bond history. Reaching this point required a unique combination of bad decisions and poor execution. ‎A decades-long failure to wean itself from the use of expensive fuel oil has left the government-run utility with electric rates among the highest in the U.S. The result: On an island where about half the people live below the U.S. poverty line, the agency loses a sixth of its energy to theft and, at one point last year, was owed about $1.75 billion in unpaid customer bills.

While Prepa, as it’s known, has tried to escape its oil dependency, its efforts—including the failure of an experimental nuclear plant and two unsuccessful tries at building natural gas pipelines—have largely fallen flat, leaving the agency struggling to survive.

“Prepa has become a dinosaur,” said Pedro Nieves-Miranda, special counsel for Puerto Rican law firm Fiddler, Gonzalez & Rodriguez PSC and the former chairman of a task force that studied the authority in 2012. “If you can think of an inefficiency at a utility, you’ll find it there.”

Complete your profile to continue reading and get FREE access to Treasury & Risk, part of your ALM digital membership.

Your access to unlimited Treasury & Risk content isn’t changing.
Once you are an ALM digital member, you’ll receive:

  • Critical Treasury & Risk information including in-depth analysis of treasury and finance best practices, case studies with corporate innovators, informative newsletters, educational webcasts and videos, and resources from industry leaders.
  • Exclusive discounts on ALM and Treasury & Risk events.
  • Access to other award-winning ALM websites including PropertyCasualty360.com and Law.com.

Already have an account?

NOT FOR REPRINT

© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.

Recommended Stories

Treasury & Risk

Join Treasury & Risk

Don’t miss crucial treasury and finance news along with in-depth analysis and insights you need to make informed treasury decisions. Join Treasury & Risk now!

  • Free unlimited access to Treasury & Risk including case studies with corporate innovators, informative newsletters, educational webcasts, and resources from industry leaders.
  • Exclusive discounts on ALM and Treasury & Risk events.
  • Access to other award-winning ALM publications including PropertyCasualty360.com and Law.com.

Already have an account? Sign In Now
Join Treasury & Risk

Copyright © 2024 ALM Global, LLC. All Rights Reserved.