Oversight board proposes $3 billion settlement for PREPA debt

Robert Mujica, executive director of the Financial Oversight and Management Board for Puerto Rico

By THE STAR STAFF

The Financial Oversight and Management Board on Tuesday released a $3 billion offer to bondholders of the Puerto Rico Electric Power Authority (PREPA) in an attempt to resolve the public corporation’s bankruptcy under Title III of the Puerto Rico Oversight, Management and Economic Stability Act, commonly known as PROMESA.

“We have to resolve PREPA’s bankruptcy,” said Robert Mujica, executive director of the oversight board, in a written statement.

The offer, presented on June 1 during mediation, contemplates a cash payment, the issuance of new bonds, or a combination of both options for bondholders who have not yet agreed to the settlement.

According to the oversight board, the proposal would represent an approximate recovery of 35% of the $8.5 billion in claims filed by these bondholders, compared to about 19% under the current Adjustment Plan.

The agency indicated that the offer includes an additional $1.4 billion on top of the consideration that would be paid to non-consensual bondholders under the current plan.

A definitive source for any cash payments or for debt service on the new bonds has not yet been determined, according to the oversight board.

“Puerto Rico must be able to close this final chapter of its fiscal crisis and move forward,” Mujica stated.

The oversight board indicated that it decided to make the offer public after the lead mediator reported that the bondholders’ advisers were not recommending their clients accept it, as they would be subject to restrictions on negotiating.

“The Board … has shown a strong willingness -- both through our Adjustment Plan and now, in the mediation process -- to reach a fair and fiscally responsible solution,” Mujica said.

PREPA’s Adjustment Plan seeks to resolve more than $10 billion in total debt with non-pension creditors, including bondholders, fuel line lenders and unsecured creditors.

If bondholders accept the proposal, the total recovery for all non-pension creditors would amount to $4 billion.

The oversight board also indicated its willingness to negotiate a contingent value instrument based on actual increases in PREPA’s net cash flow if energy sales volumes exceed the projections in the 2025 Certified Fiscal Plan.

The instrument would pay bondholders a negotiated percentage of the increase in cash flow when the established conditions are met. PREPA would not make a payment if electricity volumes increase but net cash flow does not.

Several creditors, including fuel line lenders, unsecured creditors and some bondholders, have already accepted the oversight board’s Adjustment Plan, agreements that will remain in effect.