(New throughout, adds background on PREPA restructuring)
By Nick Brown
NEW YORK, March 28 (Reuters) - A congressional subcommittee on Tuesday urged Puerto Rico Governor Ricardo Rossello to finalize an $8.9 billion debt restructuring at the island's power utility, PREPA, before a deadline to close the deal expires on Friday.
The agreement has been pending since December, 2015. In a letter to Rossello, California Republican Doug LaMalfa, who chairs the U.S. House Subcommittee on Indian, Insular and Alaska Native Affairs, said its expiration would "rattle the municipal bond market on the mainland."
Rossello, who took office in January, has called for new terms to the deal to extract more concessions from creditors.
This has worried some investors who expected Rossello to rubber-stamp the deal after a 2016 campaign in which he stressed the need to compromise with creditors.
PREPA is seen as a bellwether for the new governor's broader approach to restructuring $70 billion in public debt that is pushing Puerto Rico's economy toward collapse. The island has a 45 percent poverty rate and near-insolvent public health and pension systems.
Under the current PREPA deal, bondholders would accept 15 percent reductions in repayment in exchange for higher-rated bonds backed by a new charge on customer bills.
Expiration of the deal would open the agency up to lawsuits from creditors, and cast doubt on its ability to afford supply contracts and a $455 million debt payment due on July 1.
But at the subcommittee's hearing in Washington last week, Rossello said the added invoice charge could hurt consumers.
A creditor adviser countered in testimony that the charge is smaller than the cost customers would bear if PREPA does not restructure debt or modernize operations.
While creditors have agreed more than a dozen times to extend deadlines on the deal, their mounting frustration toward Rossello makes it a thornier issue this time around.
"Creditors were visibly frustrated" at the hearing, KBW Inc analyst Chas Tyson said in a client note last Wednesday.
Rossello this month unveiled a new proposal that would alter the agreement, including by removing the requirement for the new bonds to earn investment-grade ratings, but the offer gained no traction with creditors.
Elias Sanchez, an adviser to Rossello, told Reuters on Monday the government was meeting with PREPA creditors this week and hoping to extend the Friday deadline. "I think it's in creditors' best interest for it to get extended," Sanchez said. "I think they should give us the opportunity to talk." (Reporting by Nick Brown; Editing by David Gregorio)