Managing Director of consulting firm AlixPartners Lisa Donahue has been hired to lead the restructuring of the Puerto Rico Electric Power Authority (PREPA). Donahue will lead the negotiations with PREPA’s creditors and the development of a 5-year business plan.
The Puerto Rico Electric Power Authority (PREPA) is Puerto Rico’s government-owned electric power company responsible for electricity generation, power transmission and power distribution to the island’s 3.6 million residents. Over the past years the firm has increasingly come into financial difficulty, mainly the result of Puerto Rico’s weak economy and its inability to improve the profitability of its operations. On the revenue side PREPA has been unable to boost its turnover – electricity costs in Puerto Rico are roughly double those on the mainland United States leaving little room for price hikes – while on the cost side the firm has been unable to quickly enough reduce its cost-base by shifting energy production from expensive oil-based methods to cheaper alternatives. The consequence: a piling up debt burden.
This summer, PREPA found itself in a position where it was unable to repay a large loan ($671 million) to a group of Wall Street lenders. To encounter its debts, PREPA invoked a recently in Puerto Rico enacted law that allows certain public corporations to ask its bondholders to take losses. PREPA’s lenders have agreed to extend the credit payments until March 2015. In return, PREPA agreed restructure its debt.
Part of the agreement with its lenders was to hire a Chief Restructuring Officer, for which PREPA appointed Lisa Donahue, Managing Director of consulting firm AlixPartners. Donahu will negotiate with PREPA’s creditors and lead the development of a 5-year business plan. Donahue is expected to deliver the full restructuring plan in March next year. “Lisa has a clear track record of helping companies in our industry and financial situation reach their goals by the deadlines required,” says Harry Rodríguez, President of PREPA’s Board of Directors. “She immediately convinced us that she would be able to work successfully with the existing PREPA team.”
Since PREPA is US’ biggest public power utility by customers and revenue, its debt-restructuring will according to analysts be the largest ever in the municipal-bond market that is worth $3.7 trillion.