The Examiners Turn to Puerto Rico’s Turnaround

Bankruptcy Beat’s panel of restructuring experts, The Examiners, this month will weigh in on Puerto Rico’s ongoing turnaround efforts.

In June, the Puerto Rican government approved a new law allowing the island’s public corporations to restructure their debts, although investors have lined up to challenge the law. Since then, one of those public corporations—the cash-strapped Puerto Rico Electric Power Authority utility—has grappled with its lenders over how to restructure some $9 billion in total debt. Known as Prepa, the utility’s troubles caused credit-rating agencies to push its bonds deeper into junk territory and sent bond prices plummeting.

Prepa’s woes come as Puerto Rico—which, including Prepa’s debt, owes mutual funds, individuals and others more than $70 billion—confronts high unemployment and an economy that hasn’t bounced back from the downturn. In this context, Prepa’s woes aren’t just affecting financial creditors; they’re also hitting Puerto Ricans hard.

In August, Prepa announced a deal with key creditors to delay loan payments while it spends the next several months working on a turnaround plan (here’s more on the conditions of the agreement). In early September, the utility hired AlixPartners’ Lisa Donahue (one of our Examiners) to serve as chief restructuring officer. With a new leader in place, Prepa’s lenders are now requiring the utility to complete two significant tasks in the coming months: to complete a five-year business plan as well as a plan to restructure its multibillion-dollar debt load, the inspiration for this month’s question:

Puerto Rico’s Prepa utility has until mid-December to come up with a new business plan and early March to propose a debt-restructuring plan. What should such a plan consider?

You can read a Wall Street Journal interview with Ms. Donahue here, and our other Examiners’ responses will be posted in the coming days. In the meantime, please feel free to share your views in the comments section.

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