The Puerto Rico Electric Power Authority got a breather on Thursday in the form of an extension of vital lines of credit which it uses to buy oil. The cash-strapped utility also agreed with bondholders to develop a restructuring plan to revive it.

Puerto Rico Muni

Earlier PREPA was facing a deadline on Thursday to extend its lines of credit with banks or a face a possible restructuring of about $9 billion in total debt.

Puerto Rico to complete five-year plan by December

The debt-stricken utility said Thursday that as part of the agreement, it has committed to appoint a chief restructuring officer by Sept. 8 and to complete a five-year business plan by Dec. 15. The utility authority also indicated that the recent agreement will enable it to use $280 million that’s held in its construction fund for payment of current expenses and capital improvements starting later this month.

The banks providing revolving lines of credit used to pay for purchased power, fuel and other expenses have agreed to extend into next year their previously announced agreements to not exercise remedies as a result of certain credit downgrades and other events. The latest agreement will let PREPA continue to delay certain payments that were due to the lenders in July and August until March 31, 2015. However, during this period, the banks will receive interest payments on these amounts.

PREPA was facing D-Day

As reported earlier, PREPA announced an extension of its forbearance agreement on a $146 million payment to Citigroup Inc (NYSE:C)’s Citibank unit on July 31. However, both that payment and $525 million of a $550 million line of credit from The Bank of Nova Scotia (USA) (NYSE:BNS) (TSE:BNS) were due on Thursday, Aug.14.

On June 30, Puerto Rico enacted the Public Corporation Debt Enforcement and Recovery Act with an aim to create a clear legislative framework to help financially stressed public corporations overcome their problems. Thursday’s extension will greatly help PREPA with its cash squeeze.

For instance, a loss of credit to buy fuel could lead to blackouts on the island, causing further economic weakness at a time when businesses have to increasingly cope with a long, harsh recession and when residents are increasingly departing for the United States mainland. PREPA’s primary fuel source is oil, and that is the main reason that power prices in Puerto Rico are close to 26 cents per kilowatt hour (kWh), as against the average price of approximately 11 cents per kWh across the U.S.