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PREPA FAQ

PREPA Plan of Adjustment

5th Amended PREPA Plan of Adjustment
Disclosure Statement

Frequently Asked Questions

What is a Plan of Adjustment?

A Plan of Adjustment under Title III of PROMESA defines the terms of a debt restructuring to allow PREPA to reduce debt to become a solvent, stable, and sustainable utility.

PREPA had a potential debt deal in place in 2017 that would have paid bondholders a recovery of over 80% and paid several creditors in full. At that time, the Oversight Board was not involved in the negotiations between PREPA and its bondholders, and their preliminary agreement was not a Plan of Adjustment under Title III of PROMESA. A Plan of Adjustment can provide for a much more comprehensive restructuring of PREPA’s liabilities than an out-of-court deal with bondholders that would require broader consent.

The Oversight Board reviewed the 2017 agreement and concluded that the terms, including recoveries to certain bondholders, were not in Puerto Rico’s best interests.

PREPA has many different classes of creditors with different legal rights. The Plan of Adjustment defines the terms of repayment for each type of claimholder, including bondholders, other lenders, vendors, and its pension system.

Under PROMESA, only the Oversight Board may file a Plan of Adjustment on behalf of PREPA. Any Plan of Adjustment must be confirmed by the U.S. District Court for the District of Puerto Rico, which has jurisdiction over PREPA’s Title III case. To be confirmed, the Plan of Adjustment must be accepted by at least one class of creditors being impaired by the Plan. Once the court confirms the Plan, it becomes binding on all groups, even those who rejected it.

Who are PREPA’s creditors?

  • Bondholders, ranging from mutual funds and individual investors to large hedge funds and bond insurance companies
  • Lenders who provided financing for fuel for PREPA’s power plants
  • Unsecured creditors, including other vendors providing goods or services to PREPA, who were not paid before PREPA filed for a debt-restructuring case under Title III of PROMESA
  • PREPA’s pension system, which is entitled to receive certain contributions from PREPA as employer of system participants for the purpose of funding pension payments to PREPA’s more than 12,000 retirees

How much do creditors claim PREPA owes them?

Creditors including bondholders, vendors, and others claim PREPA owes them over $10 billion, excluding contributions owed to the pension system. In addition, PREPA owes its retirement system around $4.4 billion in present and future obligations.

Bondholders alone claimed PREPA owed them about $8.5 billion. While the bondholders have a claim for about $8.5 billion, that is not the amount they will be paid under the proposed Plan of Adjustment. The Plan of Adjustment proposes paying bondholders about $1.4 billion (excluding fees related to the Plan).

The Plan of Adjustment also includes an agreement with the holders of approximately $700 million in fuel line loans to PREPA to reduce their claim by 16%, to about $590 million.

The claims of unsecured creditors, including for example vendors PREPA did not pay before it filed bankruptcy under Title III of PROMESA, are estimated at about $800 million. Under a settlement with the Official Committee of Unsecured Creditors, unsecured creditors would receive an initial recovery of approximately 42% of this estimated claim amount, or $335 million (even if the estimated claim were to end up higher), plus the potential for other contingent recoveries. Their recovery percentage will increase or decrease depending on the amount of unsecured claims ultimately allowed when the claim objection process is finished, as well as whether other contingencies come to pass.

If PREPA is insolvent, why does it have to pay back the debt?

For decades, PREPA did not set electricity rates sufficient to cover its operating expenses, including contributions to its retirement system. Instead, it neglected the maintenance of its grid – and kept borrowing to pay its debt. 

The borrowings were mostly made in the form of bonds. Bonds are certificates that represent agreements with investors to lend PREPA money under specific contractual terms, including interest.

In addition, PREPA incurred other debt. It borrowed money to pay for fuel, it failed to put sufficient money aside to provide for the pensions it promised retired employees, and it owed money to vendors. 

To address its unsustainable debt burden, the Oversight Board filed a petition to restructure PREPA’s debt under Title III of PROMESA in July 2017. In Title III proceeding, PREPA can discharge certain of its debts subject to the provisions of PROMESA and the Bankruptcy Code. 

None of these debts are being paid in full under PREPA’s proposed Plan of Adjustment. However, the U.S. Court of Appeals for the First Circuit held that bondholders have a secured claim with a lien on PREPA’s Net Revenues, defined as revenues minus necessary expenses to operate the energy system.

The Court also said that bondholders do not have recourse to any source of payment other than PREPA’s net revenues. If net revenues do not exist or are insufficient to pay bondholders in full, there is no other source of payment available for bondholders under the applicable agreement. Given PREPA’s current condition, the Oversight Board does not believe there are, or likely ever will be, sufficient net revenues to satisfy the bondholders’ claim, and the proposed Plan of Adjustment contemplates discharging the bondholders’ claims after a valuation of PREPA’s net revenues is conducted to determine bondholders’ legal entitlements.

Through our analysis of Puerto Rico household income, electricity demand, and needed costs to repair and stabilize the grid, the Oversight Board determined that PREPA cannot pay more than $2.6 billion to bondholders and other non-pension creditors and will rely on cash provided by other sources to fund distributions to these parties under the Plan totaling approximately $2.6 billion.

How much will the PREPA Plan of Adjustment save Puerto Rico?

The Plan of Adjustment would reduce more than $10 billion of total asserted claims by various creditors against the Puerto Rico Electric Power Authority (PREPA) by almost 80%, to the equivalent of $2.6 billion, excluding pension liabilities.

The Plan would save Puerto Rico about $15 billion in principal and interest payments, reducing payments to creditors from about $20 billion to about $5 billion.

The proposed plan has the support of creditors holding approximately 44% of PREPA’s debt.

Can the Oversight Board cancel PREPA’s debt?

The Plan of Adjustment filed by the Oversight Board would cut PREPA’s non-pension debt by almost 80% and provides a path to end bankruptcy by reducing PREPA’s debt in a way the Oversight Board believes the U.S. District Court for the District of Puerto Rico will confirm and PREPA will be able to satisfy.

It is not legally possible, however, to eliminate PREPA’s debt entirely.

Do PREPA’s customers have to pay for the reduced debt?

The Fifth Amended Plan filed in March 2025 eliminated the Legacy Charge to PREPA customers contemplated in previous versions of the Plan to repay the significantly reduced debt.

The Oversight Board is working with the Government of Puerto Rico to identify the source of funds to support the recovery for creditors proposed in the Plan of Adjustment and offset the cost to PREPA’s customers. However, PREPA must set electricity rates at a level that fully covers all expenses necessary to run the energy system reliably and in a fiscally responsible manner.

Can the Government pay PREPA’s debt?

Under PROMESA, the Oversight Board is the sole representative of Puerto Rico and PREPA in the debt-restructuring process. The PREPA Plan of Adjustment is the result of extensive mediation and litigation, and a significant number of creditors agreed to the realistic terms of the drastically reduced debt and interest payments.

Though certain bondholders continue to litigate the amount they claim to be owed even after Judge Swain’s decision, the Oversight Board believes the Plan it filed is confirmable by the court.

Going forward, PREPA must generate sufficient revenue to cover all its operating costs to be on a sound financial footing. PREPA must never go bankrupt again.

Why was the Plan of Adjustment amended?

In all public bankruptcy proceedings, plans of adjustment are often amended between the initial filing and the court’s confirmation to reflect current information and data, and to modify agreements with some parties or add agreements with parties who hadn’t initially agreed to the plan.

For example, in December 2023, the Oversight Board amended the Plan to reflect the agreement with the Official Committee of Unsecured Creditors, a group of mainly Puerto Rican creditors.

Previously, the Plan of Adjustment was also amended to conform to the debt-sustainability analysis in the revised PREPA Fiscal Plan the Oversight Board certified in June 2023. That analysis was based on the most recent projections at the time of PREPA’s operating costs and future demand for its services. The analysis showed PREPA might sustainably repay materially less debt than the prior analysis indicated.

In March 2025, the Oversight Board filed the Fifth Amended Plan of Adjustment, reflecting the projections and findings of the new PREPA Fiscal Plan. The Fifth Amended Plan would continue to reduce PREPA’s debt by almost 80%, to the equivalent of $2.6 billion in cash or bonds, excluding pension liabilities and incorporates several amendments to the previous structure.

What are the elements of the Plan of Adjustment?

  • Agreements with several creditor groups who support the Plan 
    • Restructuring Support Agreement (RSA) with BlackRock Financial Management Inc., Nuveen Asset Management LLC, Franklin Advisers, Whitebox Advisors LLC, and Taconic Capital Advisors LP, as well as other bondholders who joined this agreement in 2023
    • RSA with Fuel Line Lenders
    • Settlement with the Unsecured Creditors Committee
    • RSA with Vitol Inc.
  • Terms for bondholders who do not join the RSA
  • Terms for PREPA’s pension plan

For more information, including the Plan of Adjustment, the Disclosure Statement, and other important documents, please visit the Oversight Board’s website at https://oversightboard.pr.gov/debt/

How does PREPA’s Plan of Adjustment benefit the people of Puerto Rico?

The Plan of Adjustment will enable PREPA to end its bankruptcy. No company can succeed in bankruptcy. Bankruptcy has real costs to PREPA customers. For instance, PREPA has limited options to raise money for modernization and transition to cleaner energy until it exits bankruptcy.

If PREPA had to pay its contractual debt under its original terms, it would have to pay around $20 billion in interest and principal through the date of final payment. Under the Plan of Adjustment, the total debt payments should be around $5 billion. [See prior comment]

The Plan of Adjustment is necessary for PREPA to remain a sustainable utility, continue critical investments, and complete the transformation of Puerto Rico’s energy system to provide reliable energy and support Puerto Rico’s economic growth and fiscal stability.

How are PREPA pensions treated in the Plan of Adjustment?

PREPA’s pension plan is insolvent. The Plan provides treatment to the pension system that will enable PREPA retirees to receive the same treatment as Commonwealth retirees under Puerto Rico law enacted before PROMESA, and the Commonwealth Plan of Adjustment:

  • PREPA’s defined benefit pension system will be frozen as of the Plan of Adjustment’s effective date, and the cost-of-living adjustment will be eliminated.
  • PREPA will pay its more than 12,000 retirees all pension benefits they will have earned as of the effective date, when due in the ordinary course upon and during their retirement.

Active participants in the system will be moved into defined contribution accounts similar to those established by Act 106 in 2017.

How would PREPA pay pensions for employees who are already retired when the Plan of Adjustment is effective?

PREPA will fund payments to its more than 12,000 retired employees through the existing PREPA retirement system subject to the terms of the Plan. Funding PREPA’s retirement system is an operating expense financed, like all operating expenses, by PREPA’s charges to customers.

Why did the Oversight Board support PREPA’s rejection of the collective bargaining agreement (CBA) with PREPA’s primary union (UTIER)?

PREPA has two remaining CBAs – one with UTIER, with approximately 139 active members remaining, and one with UEPI, with approximately 3 active members remaining.

PREPA has reached a consensual agreement with UEPI to modify the terms of its CBA to permit the proposed modification to the pension system and beneficiaries’ rights with respect thereto.  PREPA has not been able to reach a similar consensual agreement with UTIER.  Absent such a consensual amendment, rejecting PREPA’s CBA with UTIER is necessary to allow for essential reform of pension benefits. The need for reform of PREPA’s pension system is unavoidable and urgent. PREPA’s pension system is insolvent.  Unfortunately, UTIER has not agreed to a consensual resolution that would both protect PREPA’s customers and provide certainty for PREPA’s pensioners.

The Oversight Board has gone to great lengths to ensure that retirees continue receiving their needed pensions. Most recently, the Oversight Board approved a loan from the Government of Puerto Rico to PREPA to continue to pay pensions because PREPA was unable to pay. Under the Plan of Adjustment, which would cut PREPA’s debt by 80%, PREPA retirees receive the same benefits treatment as, teachers, judges, police officers, and other public sector employees.

For more information, please see PREPA’s motion to reject the collective bargaining agreements and grant related relief.

What are the main parameters for the U.S. District Court for the District of Puerto Rico to confirm the PREPA Plan of Adjustment?

Under Section 314(b) of PROMESA, in addition to the impaired class acceptance requirement, the Plan must meet additional criteria:

  • The debt payments must be feasible. That means PREPA’s revenue and expense projections that determine the payments to creditors must be realistic and attainable. PREPA must be able to sustain the payments for the reduced debt.
  • The Court must consider what all creditors would collectively receive outside bankruptcy if each were to litigate their claim in court by themselves.
  • The Plan must be consistent with the PREPA Fiscal Plan.
  • The Plan must be proposed in good faith.

Does the Plan of Adjustment require legislative approval?

No.

Would the Plan of Adjustment invalidate Puerto Rico Laws?

The Plan of Adjustment identifies certain laws, rules, and regulations preempted by PROMESA.

Preemption does not mean those laws, rules, or regulations would be entirely invalidated or changed. Preemption means that to the extent certain laws, rules, and regulations of the Commonwealth of Puerto Rico, or portions thereof, are inconsistent with PREPA’s obligations under the debt restructuring, and thus inconsistent with PROMESA, the Plan shall prevail.

The preemption is limited to what is sufficient for implementation of the Plan of Adjustment.

The Plan does not nullify Act 17-2019 (nor its modification under Act 1-2025), does not impede the transition of PREPA’s power generation to renewable energy sources as defined by Act 17 (as modified by Act 1), and does not seek to preempt the rate setting authority of the Puerto Rico Energy Bureau (PREB).

Certain provisions of Act 106-2017 are preempted to the extent they affect PREPA’s retirement system. Under the Plan, PREPA will provide funding to pay retirees all pension benefits earned through the Plan effective date, and active employees will be moved into defined contribution accounts established for other public sector employees under Act 106-2017. PREPA’s defined benefit pension system will be frozen and cost of living adjustments will be eliminated.

For more information, please see the Oversight Board’s statement on preemption.