Puerto Rico rejects loans from hedge funds 'trying to profit from hurricanes'

Authority asks that 'creditors refrain from making unsolicited financing offers at the expense of the people' on the island

An electrical crew attempts to repair power lines that were knocked over Hurricane Maria passed through on 27 September, 2017 in Corozal, Puerto Rico (Joe Raedle/Getty Images)

Puerto Rico has rejected a $1bn (£748m) loan from a group of investment funds in the wake of Hurricane Maria, accusing the group of trying to profit from the disaster.

The PREPA (Puerto Rico Electric Power Authority) was left devastated by the hurricane, but an investment group, which holds bonds in the authority offered a $1bn loan and a discount on a portion of existing debt after Maria, which came days after Hurricane Irma wreaked havoc on the island.

Maria crippled the island's electrical grid, leaving some 97 per cent of the island's 3.4 million residents without electricity.

The electrical grid had also already been mired in debt.

“The bondholders’ proposal is not viable and would severely hamper and limit PREPA’s capacity to successfully manage its recovery,” the island’s Fiscal Agency and Financial Advisory Authority said in a statement.

“Such offers only distract from the government’s stated focus and create the unfortunate appearance that such offers are being made for the purpose of favourably impacting the trading price of existing debt.”

The statement asked that creditors "refrain from making unsolicited financing offers at the expense of the people of Puerto Rico".

Thomas Wagner, from Knighthead Capital Management, a members of the bondholder group, told Bloomberg TV the loan could be a “win-win” both for the utility and for the bondholders. “What we’re trying to do is lend where our investors are not disadvantaged," he said.

Stephen Spencer of Houlihan Lokey, PREPA's financial adviser, responded saying the group was disappointed that Puerto Rico rejected the offer "without any discussion or counter-proposal".

He added: "We sincerely believed our loan would have helped PREPA finance its recovery and rebuilding efforts as quickly as possible in the wake of two terrible hurricanes."

Although the US Government has said its relief efforts in Puerto Rico are succeeding, residents of the island say help is scarce and food supplies are low.

Puerto Rican officials said it would take four to six months for power to be fully restored.

US President Donald Trump on Thursday waived restrictions on foreign ships delivering cargo to the island, clearing the way for aid to reach the US territory.

But Mr Trump has come under criticism for failing to provide a comprehensive aid package nine days after Maria hit.