UPDATE 2-Puerto Rico's power authority likely to get credit reprieve -source
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SAN JUAN, Puerto Rico Aug 13 (Reuters) - Puerto Rico's electric power authority, PREPA, is likely to get an extension of vital lines of credit in an agreement that could see lenders appoint a restructuring expert at the debt-stricken utility, a financial industry executive familiar with the situation said on Wednesday.
The U.S. commonwealth's restructuring specialists and its Government Development Bank are in talks with banks to extend PREPA's loans of $671 million to March 2015, with an option to shorten the extension to the year end, said the source, who is in contact with the negotiating parties.
PREPA has until Thursday to secure an extension of the credit lines, which it uses to buy oil for its generators. Failure to secure an extension could force it to seek protection under Puerto Rico's new Recovery Act that allows some public entities to enter a bankruptcy-like process.
Another option would be a short-term extension similar to a recent two-week reprieve, said the source, who declined to be identified because the discussions are confidential. Talks are continuing and still may fail to produce a deal.
PREPA is on the hook for $146 million from Citigroup Inc and $525 million from a consortium led by Scotiabank . Citi and Scotiabank declined comment and PREPA was not immediately available for comment on the terms of a possible deal.
"The banks will end up folding and extending the lines until March 2015, with an option to shorten that extension to December 2014," said the source.
The option to shorten a possible extension from March to December would be triggered by a vote of 25 percent of lenders, the source said.
Gary Krellenstein, an energy specialist at Oxford Advisors, said an extension to the credit lines would be a positive development. "It will allow some of the creditors, the commonwealth, and PREPA to negotiate further to see if there are some alternatives available to them," he said. Continued...