The U.S. territory is reeling, navigating both the largest government bankruptcy in U.S. history, with $120 billion of bond and pension debt, and its worst natural disaster in 90 years in September's Hurricane Maria.
The storm killed dozens and exposed PREPA's structural weaknesses, cutting power to all of Puerto Rico's 3.4 million American citizens. More than a third still haven't gotten it back, toiling in the dark more than four months later.
PREPA, already insolvent when Maria hit, has fetched more unwanted attention since, drawing investigations over a questionable repair contract and the discovery of undistributed hurricane recovery materials in one of its warehouses.
The utility's bondholders have lobbied for fresh blood at PREPA's helm, either in the form of an independent receiver or an injection of private capital.
But outright privatization creates uncertainty on how to carry over creditors' claims - and their collateral - to whoever buys PREPA's assets, said two sources familiar with creditors' thinking.
PREPA's bonds are secured not by physical assets but by PREPA's revenues, putting it "in weird territory," said Drew Dawson, a bankruptcy expert and professor at Miami University School of Law.
"Normally when collateral is sold, the security interest travels with it," Dawson said, "but when the lien is future revenues generated by PREPA, and PREPA is no longer in existence, it's uncertain."
Creditors would likely litigate any attempt to strip the lien, said the sources familiar with their thinking - a long and costly prospect.
Ultimately, Dawson said, it was likely parties to a sale would negotiate some debt repayment, though creditors may not have the leverage they would like.
Even if they lost, creditors could assert a claim against Puerto Rico's central government for impairing their PREPA lien, though that might be of little comfort given the island's bankrupt status.
No magic bullet
The sale plan met with skepticism among locals, too.
Israel Morales, a spokesman for a group of Puerto Rican mayors, said, "People think this privatization will be like magic, because the situation is so awful," but that rate hikes sometimes follow privatization.
"They privatized the highways, and now we are going to pay more expensive tolls every three to five years," Morales said.
Currently, PREPA's rates must be approved by the commonwealth's Energy Commission, which did not respond to requests for comment.
Even if the privatization plan passes the review of the court, finding a buyer may prove difficult, as the acquisition would be fairly small by U.S. utility standards, said Travis Miller, a strategist at Morningstar.
"Any U.S. utilities that might be interested would drive a hard bargain in terms of securing ratemaking protections," Miller said.