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January 25, 2022 (IEEFA) — The $8.26 billion in debt claimed by the Puerto Rico Electric Power Authority (PREPA) bondholders should not be borne by island ratepayers and small investors, IEEFA Director of Financial Analysis Tom Sanzillo said in testimony to the island’s legislature.

Instead, Sanzillo told the Puerto Rico Senate Committee on Energy and Strategic Projects that reducing the total amount owed by the authority by 80 percent would be a good start—unlike the 15 percent laid out in a current agreement. He said bondholders should be prepared to accept a principal reduction between 70 percent and 90 percent of the debt paid by PREPA ratepayers.

Although $5 billion of the authority’s debt has been identified by insurers and the Financial Oversight Management Board (FOMB) as questionable, Sanzillo noted that even the full $8.26 billion is an insignificant amount in the $119 trillion worldwide bond market.

“Bondholders took a risk on Puerto Rico, and the risk did not pan out,” Sanzillo said. “The substantial losses need to be accepted.”

Sanzillo said underwriters who sold the bonds—and who manage $11 trillion in assets—should pay the price for their failure to perform proper diligence on the 2013 bond sale. In addition, criminal prosecution for fraud should be considered, and an independent private special inspector general’s office established to ensure that due diligence is done for future borrowing.

He urged the Puerto Rico Legislature to reimburse small investors on the island, where the typical household earns $20,539 annually, less than half the U.S. median. He urged lawmakers to require underwriters to establish a pool of at least $3 billion to settle claims by small investors.

“The Legislature has asked the most important question: Is there a way to provide a fair recovery for the bondholder while not burdening the ratepayer with electricity price increases? The answer is yes,” Sanzillo said. “The watchdogs of the market—the army of due diligence providers—failed the investment community in this instance. The matter should be settled largely between these parties and not at the expense of the ratepayers.”

Full Testimony: Testimony by Tom Sanzillo Before Puerto Rico Senate Commission on Strategic Projects and Energy

Testimonio en español: Testimonio de Tom Sanzillo Ante la Comisión de Proyectos Estratégicos y Energía del Senado de Puerto Rico

Comunicado de prensa en español: Legislatura de Puerto Rico debe reducir deuda de autoridad eléctrica

Author Contact:

Tom Sanzillo ([email protected]) is IEEFA director of financial analysis.

Media Contact:

Vivienne Heston (, +1 (914) 439-8921

About IEEFA: The Institute for Energy Economics and Financial Analysis (IEEFA) examines issues related to energy markets, trends and policies. IEEFA’s mission is to accelerate the transition to a diverse, sustainable and profitable energy economy.

Tom Sanzillo

Tom Sanzillo is Director of Financial Analysis for IEEFA. He has produced influential studies on the oil, gas, petrochemical and coal sectors in the U.S. and internationally, including company and credit analyses, facility development, oil and gas reserves, stock and commodity market analysis, and public and private financial structures.

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