A Breakthrough Plan for PREPA and Puerto Rico

The third amended Plan of Adjustment to end the bankruptcy of the Puerto Rico Electric Power Authority (PREPA) is a breakthrough and a significant win for the people of Puerto Rico. This Plan reduces more than $10 billion of total asserted claims by various creditors against PREPA by almost 80%, to the equivalent of $2.5 billion.

The Plan is a breakthrough because it is a viable compromise that reflects the good faith of all participants. It reflects Puerto Rico’s reality, and it reflects the legal standing of bondholders and other creditors.

The pressure on the Financial Oversight and Management Board for Puerto Rico, which represents Puerto Rico in the bankruptcy-like process under Title III of PROMESA, has been considerable — from bondholders, unions, and from the public.

We know what is at stake for Puerto Rico. That is why the legacy charge imposed on PREPA’s customers to pay the much-reduced debt is significantly reduced. The median bill for a residential household not currently benefiting from subsidized electricity would increase by $8.71 per month, or 5%. For Puerto Rico’s roughly 97,000 small businesses, the increase would be $35.53 per month, an 8% increase. Roughly 620,000 of PREPA’s 1.35 million residential customers will not pay the fixed connectivity charge or a volumetric charge for up to 425 kWh of monthly consumption.

The Oversight Board had challenged the debt in court, and the court clearly stated that PREPA owed bondholders less than what they said they were owed. This third amended Plan reflects the court order and has substantial support from bondholders. Bondholder support makes the plan more confirmable by the court, and confirmation by the court is the goal of any debt restructuring under U.S. bankruptcy law and under PROMESA.

Most bondholders receive between 12.5% and 44.4% on their claim as allowed by the court (Media Release). We understand the terms might be difficult to accept for some bondholders who didn’t agree to support the plan yet, but we still hope we can get more bondholders to join the agreement that will end PREPA’s bankruptcy once and for all.

PREPA was the first instrumentality that had a potential debt deal in place. The Oversight Board was created after the deal was negotiated. The Oversight Board reviewed that agreement closely and realized the terms were onerous and not in Puerto Rico’s best interests. A debt charge of almost 6 cents per kilowatt hour in fiscal year 2023 was not a good deal, which is what that agreement would have cost PREPA’s customers.

The agreement simply did not support the energy transformation so critical for Puerto Rico’s future. Nobody wins – not Puerto Rico and not the bondholders – if PREPA remains financially unstable.

This third amended Plan is very different from that agreement. It reflects Puerto Rico’s reality today, after Hurricane Maria, after COVID. And it reflects Puerto Rico’s future with renewable energy and the incentives for Puerto Rico to become more energy efficient.

The bottom line is this: This plan will allow for PREPA to remain a sustainable utility, continue critical investments, and complete the transformation of Puerto Rico’ energy system to provide reliable energy and support Puerto Rico’s economic growth and fiscal stability.

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