Puerto Rico Electric Taps AlixPartners’ Donahue in Restructuring

Puerto Rico’s Electric Power Authority, the island’s main supplier of electricity, chose turnaround firm AlixPartners LLP to cut costs and improve the junk-rated utility’s finances.

Lisa Donahue, managing director at AlixPartners, a New York-based company that advised General Motors Co. (GM) in its 2009 bankruptcy filing, will serve as chief restructuring officer for the power agency, according to an e-mailed statement from the utility. Prepa, as it’s known, has about $8.6 billion of debt. Under an August agreement to extend bank loans, it must release a plan by March 2 to restructure the securities.

“Lisa has a clear track record of helping companies in our industry and financial situation reach their goals by the deadlines required,” said 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.”

Puerto Rican lawmakers in June approved a law that allows certain public corporations, including Prepa, to ask bondholders to take a loss. About 70 percent of the utility’s debt is uninsured, according to data compiled by Bloomberg.

A Prepa debt restructuring would be the largest ever in the $3.7 trillion municipal-bond market. Puerto Rico securities are held by about 66 percent of U.S. muni mutual funds because the debt is tax-free nationwide, according to Morningstar Inc. Prepa is the biggest U.S. public power utility by customers and revenue.

Island Struggle

The Caribbean island of 3.6 million has struggled to revive its economy and its population has shrunk for eight straight years as residents move to the U.S. mainland. An index that tracks Puerto Rico’s economy has contracted by 19 percent since July 2006, according to the Government Development Bank, which handles the commonwealth’s debt transactions.

Donahue has worked as a chief financial officer for energy-production companies Atlantic Power Corp. (AT), based in Boston, and Calpine Corp. (CPN) in Houston, according to her firm’s website.

Uninsured Prepa securities maturing in July 2043 traded today at an average price of 55 cents on the dollar, up from 50.95 cents Aug. 26, the last time they changed hands, Bloomberg data show.

Prepa has limited cash. It used $41.6 million from reserves to pay investors $417.6 million on July 1 after taking $100 million from its capital fund in May to purchase fuel.

Banks that lend Prepa money to buy fuel agreed last month to extend those lines of credit through March 31. In return, Prepa pledged to craft a five-year business plan by Dec. 15 and assign a chief restructuring officer by Sept. 8. A full debt-restructuring plan is due March 2.

Fitch Ratings on June 26 slashed Prepa to CC, its third-lowest speculative grade, citing a possible debt restructuring. Moody’s Investors Service and Standard & Poor’s also grade the utility junk.

To contact the reporter on this story: Michelle Kaske in New York at mkaske@bloomberg.net

To contact the editors responsible for this story: Stephen Merelman at smerelman@bloomberg.net Mark Tannenbaum, Alan Goldstein

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