MBIA, Assured tap restructuring advisers for Puerto Rico

A man walks past a vacant building in the Santurce neighborhood of San Juan, Puerto Rico.
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A man walks past a vacant building in the Santurce neighborhood of San Juan, Puerto Rico.

A pair of big bond insurers with more than $10 billion of exposure to Puerto Rican debt have hired restructuring advisers as the commonwealth continues on a path toward a reckoning with creditors.

MBIA is working with financial advisers from The Blackstone Group, according to two sources with knowledge of the matter. Assured Guaranty has hired professionals from investment bank Houlihan Lokey, Assured's spokeswoman, Ashweeta Durani, confirmed.

The hirings are the latest sign that Puerto Rico's debt crisis appears to be moving toward a restructuring, even as some bondholders have challenged the constitutionality of a law that would allow certain of the commonwealth's public agencies to refinance their debt.

Puerto Rico is being advised by well-known New York-based restructuring lawyers, who helped write the law, and distressed debt investors have begun snapping up the commonwealth's high-yield debt.

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The move by MBIA and Assured to hire advisers comes as concerns grow about the exposure the bond insurers have to long-struggling Puerto Rico and its public corporations, the island's electric authority in particular.

A spokesperson for MBIA did not immediately return a call.

Earlier on Monday, the Puerto Rico Electric Power Authority, or PREPA, struck a deal with bank lenders providing it revolving lines to allow it to delay until July 31 certain payments that are currently due.

In addition to at least $671 million in bank loans, PREPA has some $8.8 billion of bonds oustanding. In all, Puerto Rico and its agencies are around $73 billion in debt.

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The catalyst for the latest worry among Puerto Rico creditors was enactment of a law last month setting up a path for PREPA and its sister agencies - the water and sewer and highway transportation authorities - to restructure their debts.

The law "raises questions about Puerto Rico's credit conditions and willingness to pay its debt," Moody's Investors Service analyst Stanislas Rouyer wrote in a note.

Given the sizeable exposure MBIA, Assured Guaranty and a third insurer, Radian Group Inc., have to the U.S. territory and its agencies, the new law is a "credit negative," Rouyer wrote.

MBIA's National Public Finance Guarantee unit has $4.8 billion of total net exposure to Puerto Rico debt, according to Moody's. That is 145 percent of NPFG's statutory capital of $3.3 billion. Exposure to PREPA alone, at $1.5 billion, is equal to 46 percent of statutory capital.

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Assured Guaranty insures $5.4 billion of Puerto Rico bonds through three different operating units. Comparable to MBIA's NPFG, Assured's reinsurance unit has exposure that exceeds its statutory capital.

Radian's exposure is smallest, at $452 million, equal to 31 percent of its statutory capital, and it has just $22 million of insurance written on PREPA bonds.

Shares of all three insurers ended Monday lower on Wall Street. Radian fell 2.86 percent to $14.25; MBIA fell 2.81 percent to $10; and Assured fell 0.5 percent to $23.09.