Puerto Rico’s Financial Oversight and Management Board has thrown down its most aggressive marker yet in the stalled PREPA bankruptcy, publicly unveiling a $3 billion settlement proposal designed to force holdout bondholders toward a deal and finally close the island’s last unresolved restructuring. The offer, disclosed Tuesday after being filed on EMMA, is a dramatic […]
Puerto Rico’s Financial Oversight and Management Board has thrown down its most aggressive marker yet in the stalled PREPA bankruptcy, publicly unveiling a $3 billion settlement proposal designed to force holdout bondholders toward a deal and finally close the island’s last unresolved restructuring.
The offer, disclosed Tuesday after being filed on EMMA, is a dramatic escalation in a case that has dragged on for nearly a decade. It boosts recoveries for non‑settling bondholders to roughly 35 percent on $8.5 billion in petition‑date claims — nearly double the 19 percent recovery under the current Plan of Adjustment. The Board is offering cash, new collateralized bonds, or a mix of both, though it has not yet identified the source of the cash component or the debt service for any new bonds.
The move signals mounting frustration from both the Board and the federal court overseeing PROMESA. The U.S. District Court has repeatedly pressed parties to make real progress in mediation, and the Board’s disclosure makes clear it is now willing to put public pressure on creditors who have refused to negotiate or present a counterproposal.
Executive Director Robert F. Mujica Jr. framed the offer as a necessary step to break the impasse and protect Puerto Rico’s economic future. He warned that PREPA’s unresolved bankruptcy continues to undermine investment, reliability, and affordability in the island’s power system — and that the time for creditor indecision has run out.
The Board also revealed that advisors to the major bondholder groups are not recommending their clients become “restricted” from trading PREPA debt by receiving the offer. That determination effectively forced the Board to disclose the proposal publicly, underscoring the unusual dynamics of a mediation process where parties can continue trading the very debt they are negotiating.
To sweeten the deal, the Board said it is willing to negotiate a contingent value instrument tied to PREPA’s future performance. Bondholders would receive a share of any increases in net cash flow if electricity sales exceed projections in PREPA’s certified 2025 Fiscal Plan — but only if higher volumes actually produce higher cash flow. The structure is designed to prevent payouts based solely on increased consumption without corresponding financial gains.
Several creditor groups — including fuel line lenders, unsecured creditors, and some bondholders — have already signed onto the Plan of Adjustment, and those agreements remain intact. But the majority of bondholders have refused to engage, betting that litigation over the validity and security of PREPA’s bonds could yield a better outcome. If they accept the new settlement, total recovery for all non‑pension creditors would reach $4 billion, resolving more than $10 billion in PREPA debt.
The Oversight Board emphasized its broader track record, noting that it has already eliminated more than $55 billion in debt payments across 12 restructurings. PREPA remains the lone holdout — and the most politically and economically consequential.
With the new offer, the Board is signaling that it is prepared to push harder, publicly and in court, to end the stalemate. Whether bondholders finally move toward a deal will determine whether Puerto Rico can close the book on its fiscal crisis or remain stuck in the most contentious restructuring of them all.
Former Popular Democratic Party Secretary General Jorge Colberg Toro, who is now a consultant, told Caribbean Business that the Oversight Board’s new $3 billion offer to PREPA bondholders appears to be a direct response to the recent U.S. Supreme Court ruling on Monday that gave President Donald Trump sweeping new authority over approximately two dozen multi-member agencies that Congress intended to be independent. By a vote of 6-3, the justices struck down a federal law that bars the president from firing members of the Federal Trade Commission except in cases of “inefficiency, neglect of duty, or malfeasance in office.”
Colberg Toro noted that the proposal “surges basically the day after the Supreme Court decision,” suggesting that the ruling may have shifted the negotiating dynamics and prompted the Board to move quickly. Still, he cautioned that the offer is unlikely to satisfy creditors, who continue to insist on recovering the full $12 billion they claim, plus interest.
Colberg argued that while bondholders have the legal authority to seek the full amount owed to them, once PREPA fulfills its obligations, their leverage is not unlimited. He said the creditors will eventually have to recognize that the utility cannot sustain payments that would force electricity rates to spike to economically destructive levels. “You can’t take the tariff to 40 cents or more just to pay bondholders,” he said, warning that such an outcome would collapse Puerto Rico’s economy and leave creditors unable to collect anything.
