A federal control board overseeing Puerto Rico's finances has proposed a $3 billion settlement to bondholders in an effort to restructure more than $10 billion in debt held by the U.S. territory's power company. The offer includes a combination of cash payments and the issuance of new bonds to creditors seeking approximately $8.5 billion in claims.
This proposed settlement represents a $1.4 billion increase from previous offers. Puerto Rico's Electric Power Authority has been engaged in debt restructuring efforts for about a decade, following the territory's 2015 announcement of its inability to meet its more than $70 billion debt obligations. This led to the creation of the federal board by the U.S. Congress in 2016, and Puerto Rico's government subsequently filed for what was then the largest municipal bankruptcy in U.S. history.
Attempts to resolve the debt between the board and power company bondholders have faced significant disagreements, with multiple mediation efforts failing. Robert F. Mujica Jr., the board's executive director, stated that restructuring the company's debt is crucial for Puerto Rico's recovery, enabling reliable and affordable electricity and attracting new investment.
The source of funding for the proposed settlement has not yet been identified by the board. Concerns have been raised that the funds could be generated through increased electricity bills, which are already among the highest in U.S. jurisdictions, despite persistent power outages.
The board noted that existing agreements with other creditors and some bondholders of the power company remain in effect. Overall, the board has facilitated 12 debt restructurings for Puerto Rico's government, eliminating over $55 billion in debt payments over a 40-year period.