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May 03, 2024

Kramer Levin Advises Bondholders in Successful Restructuring of AES Puerto Rico L.P., Ensuring Continued Viability of Critical Energy-Generating Assets

Kramer Levin negotiated a comprehensive restructuring of AES Puerto Rico L.P. (AES-PR) and its liabilities in a complex and unanimously consensual out-of-court restructuring that was consummated through the dual closing of a consensual bond exchange and new-money financing, through which participating bondholders received their pro rata share of new super-senior notes, tax-exempt bonds and preferred equity in the parent of AES-PR. AES-PR’s parent, AES Corp., will continue to own AES-PR and operate its generating assets. The Puerto Rico Electric Power Authority (PREPA) also supported the restructuring, by entering into a new Power Purchase and Operating Agreement (PPOA) with AES-PR, which provides necessary economic enhancements that will enable AES-PR to continue to provide energy to the commonwealth for years to come. Kramer Levin represented UMB Bank N.A. as indenture trustee on behalf of investors in the municipal bonds that were indirect obligations of AES-PR.

Retained in the summer of 2023, Kramer Levin immediately began working to address AES-PR’s urgent restructuring needs, moving swiftly to replace the indenture trustee and prepare for a potentially contested in-court restructuring. To provide AES-PR a necessary breathing spell, Kramer Levin negotiated a short-term forbearance of several outstanding bond defaults, and in return PREPA released substantial funds to AES-PR, alleviating AES-PR’s immediate liquidity concerns.

Over the next several months, Kramer Levin, working in partnership with RPA Advisors, engaged in lengthy negotiations with the advisers to AES-PR and PREPA. These negotiations culminated in a restructuring support agreement (RSA) signed in October 2023 with the following key terms: (i) Participating bondholders would exchange their bonds into $133 million of new secured, tax-exempt bonds plus $43.5 million of preferred equity in the parent of AES-PR, (ii) participating holders would invest $23 million in the form of super-senior secured notes issued by AES-PR, and (iii) AES-PR and PREPA would amend the PPOA such that PREPA would provide AES-PR with significantly increased revenue to support continued operations and fund its restructured financial obligations. After obtaining regulatory approval of the amended PPOA in February 2024, the restructuring was consummated on March 5, 2024.

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