Puerto Rico’s $3B Power Debt: What Creditors Need to Know

Puerto Rico’s federal oversight board made a new offer to PREPA bondholders last week. The terms: $3 billion in cash, new bonds, or a combination. That’s roughly 35% recovery on $8.5 billion in claims, up from about 19% under the current restructuring plan. Whether bondholders accept will determine when one of the largest municipal debt restructurings in U.S. history finally ends. For companies with exposure to government-owned entities, Puerto Rico power debt offers a clear lesson in what happens when a government utility can’t pay.

What Is PREPA and Why Has Its Debt Taken a Decade to Resolve?

PREPA is a government-owned utility that supplies electricity across Puerto Rico. The territory announced in 2015 it couldn’t pay more than $70 billion in total debt. Congress passed PROMESA in 2016 to create a federal oversight board, and PREPA filed for bankruptcy under Title III in July 2017.

The case has been slow for reasons beyond normal bankruptcy complexity. Multiple mediation rounds failed. In August 2025, the Trump administration removed five of the seven oversight board members. Bondholders terminated their existing settlement in response. Proceedings restarted in October 2025. This past March, a federal court rejected the bondholders’ claim for $3.7 billion in administrative expense priority, ruling it failed as a matter of law. The new $3 billion offer followed.

What Does the New Settlement Actually Offer?

The oversight board’s proposal covers bondholders who haven’t settled under the existing plan. It includes cash, new bonds, or a mix of both, plus a contingent value instrument tied to net cash flow if PREPA’s energy sales exceed projections in its 2025 Certified Fiscal Plan. BlackRock and Nuveen have already settled under earlier terms. OppenheimerFunds and Franklin Templeton are among the largest remaining non-settling bondholders.

One thing the oversight board put on the table alongside the number: no financing source for the $3 billion has been identified yet. That’s not a minor caveat. PREPA ran negative cash flow for 36 of the last 49 months, and the restructuring has cost over $2 billion in professional fees before creditors saw a dime. Bondholders are weighing a certain 35 cents now against the possibility of more, eventually, with no clear path to financing either option.

What Does PREPA Debt Restructuring Mean for Political Risk Insurance?

PREPA stopped paying bondholders in 2015. Some of those bondholders are still working toward recovery nine years later. That’s not an abstract argument for political risk and nonpayment insurance. That’s the case study.

Political risk insurance covers losses when a government entity can’t or won’t honor a financial obligation. PREPA is a government entity. Its fiscal problems were visible for years before the 2015 default. Puerto Rico’s debt load had been building for decades, the power company was chronically underfunded, and the trajectory was clear to anyone watching the numbers. Companies that had nonpayment coverage at the time of default didn’t spend nine years in PROMESA proceedings.

The less-discussed risk is political interference in the recovery process. When five of seven oversight board members were removed in 2025, bondholders who had been working toward a negotiated settlement lost their footing overnight. That kind of disruption isn’t exclusive to emerging markets. It happened in a U.S. territory, with institutional creditors, under federal court oversight.

Frequently Asked Questions About Political Risk Insurance and Government Buyers

Does political risk insurance cover government-owned utilities like PREPA? Yes. Policies can be structured to cover nonpayment by government entities, including public utilities and state-owned enterprises. Coverage applies when the entity fails to pay a contractual or financial obligation, regardless of whether the cause is fiscal insolvency or political interference.

Is this kind of coverage only relevant for cross-border business? No. PREPA is a domestic example. Government-owned buyers operate in the U.S. market, and the same credit and political risks apply. The PREPA restructuring is a reminder that government default risk doesn’t require crossing a border.

The PREPA case may close in 2026. It may not. Either way, companies that bought nonpayment coverage before 2015 haven’t been waiting. That’s the point.

Disclaimer: 

This blog post is meant to be informative and provide helpful tips and insights into credit insurance policies. It is not meant to supersede any policy requirements. Please consult your credit insurance policy for all requirements including claim filing deadlines and required documentation. 

Since 2004, Securitas Global Risk Solutions, LLC has helped clients develop trade credit and political risk transfer solutions. As an independent brokerage, Securitas is focused on developing comprehensive solutions that meet client needs, ensuring a complete understanding of policy wording and delivering excellent responsive service.