Oversight board: PREPA debt plan remains confirmable

Says loss of key creditor support is no dealbreaker

By THE STAR STAFF

The Financial Oversight and Management Board told U.S. District Judge Laura Taylor Swain that it continues to believe its Fifth Amended Plan of Adjustment for the Puerto Rico Electric Power Authority (PREPA) is confirmable despite the collapse of support from major creditors that once backed the restructuring.

In a status report filed ahead of a hearing Wednesday, the oversight board acknowledged that most parties to the August 2023 Restructuring Support Agreement have withdrawn their support for the plan. Those departures include creditors that had previously agreed not only to support the restructuring but also to purchase new bonds that were expected to help fund distributions to unsecured fuel line lenders and other unsecured creditors. Some of those include Blackrock and Taconic.

Even so, the board said, the plan remains viable and argued that the withdrawal of support from those creditors has actually made the proposed restructuring less expensive to confirm, provided its legal positions prevail in ongoing litigation with PREPA bondholders.

The board reiterated that the Fifth Amended Plan, filed in March 2025, was designed around the conclusions of the 2025 PREPA Fiscal Plan, which found that the utility lacks the ability to impose sustainable rate increases to support meaningful debt service while maintaining affordability for Puerto Rico ratepayers.

Under the proposed restructuring, the oversight board says settling creditors would receive recoveries consistent with previously negotiated settlements while holders of PREPA revenue bonds that do not settle would receive payment of their allowed secured claims as determined by the court. The plan also preserves settlements with PREPA’s unsecured creditors and fuel line lenders and allows consenting creditors to share in potential upside recoveries generated through litigation with bondholders.

The board noted that it recently made another settlement proposal to bondholders that included the possibility of contingent value instruments, but that offer was rejected. According to the filing, achieving substantial bondholder support remains difficult while bondholder cooperation agreements remain in place.

The status report also highlighted PREPA’s continuing financial distress. The utility’s fiscal year 2023 audited financial statements, released earlier this year, concluded there is substantial doubt about PREPA’s ability to continue as a going concern. The utility reported a net deficit of approximately $10.1 billion and continues to face financial pressures stemming from years of operational deterioration, bankruptcy proceedings, natural disasters, and ongoing reliance on commonwealth support.

At the same time, major litigation remains unresolved. Bondholders are pursuing appeals related to administrative expense claims they value at at least $3.7 billion after Swain rejected those claims earlier this year. Oral arguments on that appeal were scheduled before the First Circuit on Tuesday. Separate litigation involving accounting claims and the scope of bondholder collateral rights is also moving forward.

Despite those disputes and the withdrawal of support from major institutional investors, the oversight board concluded that the Fifth Amended Plan remains confirmable. The board’s position signals that it intends to continue pursuing confirmation rather than returning to the negotiating table to develop a fundamentally different restructuring framework.

The hearing comes as the PREPA bankruptcy enters its ninth year with no consensual resolution in sight, leaving the central issues unchanged: the value of bondholders’ secured claims, the treatment of unsecured creditors, and whether the utility can emerge from bankruptcy without imposing debt-service charges that Puerto Rico’s electrical system and consumers cannot afford.