Puerto Rico’s main electricity provider, Prepa, is heavily in debt – the company owes creditors around $9 billion. In a bid to stave off default Preda has called in a number of external financial advisors, management consultants and lawyers to restructure its debt, including restructuring experts from AlixPartners. 

The country of Puerto Rico, one of the US unincorporated territories, has found itself in financial strife. The territory is heavily in debt, to the tune of $70 billion or 68% of Puerto Rico's GDP, but lacks the sovereignty to deal with the issue itself – while US congress continues to kick the can down the road.

As the problem comes to a head, certain segments of the highly indebted country, such as Prepa, the country’s main electricity provider, have sought to restructure their debts. Last year the company hired a range of external consultants and lawyers to develop a restructuring plan for the company’s $9 billion debt burden.

AlixPartners was, in 2014, called in by Prepa to restructure around $6.8 billion in debt. The consulting firm has worked with creditors as well as the company itself to create a way forward that would avoid default while improving operational efficiencies and cutting costs. According to AlixPartners’s Harry Rodriguez, President of the Preda’s Board of Directors, the firm has so far delivered $212 million in one-time cash relief and $202 million in recurring savings. A restructuring deal with creditors was also recently completed, which is set to, in exchange for a 15% haircut, prevent a default through a restructuring of the debt.

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The restructuring deal with creditors involved a 3.10 cent per kWh surcharge for residents, on top of other previous price increases, which means costs have risen by up to 4.2 cents per kWh, or 22%, in less than a year – drawing a considerable backlash from residents and businesses.

Based on the successful collaboration to date, Prepa has extended its contract with AlixPartners until at least 15 December – the management consultancy has so far received more than $43.5 million for its support. “AlixPartners will remain with Prepa leading the restructuring process and ultimately secure a sustainable capital structure and long-term business plan. It is important for Prepa to keep the continuity and forward movement of the process uninterrupted at this time”, states a spokesperson for the energy company.

Questions about the fees being paid to consultants and lawyers working on the restructuring processes are though being raised by outside parties. In total more than $100 million has been paid, with AlixParnters and other consultancies earning well above the 1% of total debt seen as the normal rate for external advisory in a restructuring deal. 

The Puerto Rico Energy Commission has interested itself in the situation, stating that there is “concern that PREPA’s customers will be exposed to fees without limit” and is said to be exploring court options – however, the Revitalization Act passed by the Puerto Rico Legislature has stripped the commission of any means of reeling in potentially excessive fees taken in by external advisors.

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