Puerto Rico’s financial oversight board is seeking to reopen the confirmation hearing on the debt-restructuring plan for the island’s power utility, following a pivotal ruling by the US Court of Appeals for the First Circuit. This recent decision established that bondholders have a right to future net revenue from the Puerto Rico Electric Power Authority (Prepa), overturning an earlier ruling that restricted their claim to reserve accounts.
In a motion filed on Monday, the oversight board asked US District Court Judge Laura Taylor Swain to convene a hearing to determine the value of non-settling bondholders’ share of the net revenue and outline how this obligation will be met. The appeals court’s decision expanded the bondholders’ lien to include future net revenue and set their allowed claim at the face value of the bonds plus accrued interest, approximately $8.5 billion. This contrasts sharply with the $2.4 billion limit previously imposed by Judge Swain.
David Skeel, chairman of the oversight board, expressed optimism about the adjusted plan’s viability, saying, “We continue to believe the Prepa plan of adjustment, as adjusted to reflect the appellate ruling, can be confirmed after a hearing limited to the collateral value and its payment.”
Prepa, which has been undergoing bankruptcy proceedings for seven years, faces about $10 billion in claims. The proposed restructuring plan aims to slash this to $2.5 billion in new bonds. The original plan offered 12.5 cents on the dollar to investors who agreed to the terms and 3.5 cents to those who did not. The oversight board intends to revise this plan in line with the appeals court’s findings rather than starting anew.
The First Circuit’s ruling has already significantly impacted Prepa’s bond market. Following the decision, the price of a Prepa bond maturing in 2037 with a 5% coupon saw a notable increase, trading at an average of 50.3 cents on the dollar, up from an average of 27.2 cents over the past year, according to Bloomberg data.
Resolving Prepa’s financial challenges is essential for Puerto Rico. A successful debt restructuring and infrastructure modernization would greatly improve the island’s economic stability and reduce the frequent power outages that disrupt daily life and business operations.
