Navigating the Storm: Credit Risk and Investment Opportunities in Latin American Energy Infrastructure Amid Puerto Rico's PREPA Crisis

The Puerto Rico Electric Power Authority (PREPA) has become a cautionary tale of energy infrastructure governance, with its $8.5 billion debt restructuring mired in legal battles, political interference, and operational inefficiencies. As of 2025, the U.S. District Court has suspended key deadlines in PREPA's Title III bankruptcy process following the abrupt removal of five of the seven members of the Puerto Rico Fiscal Oversight and Management Board (FOMB). This turmoil underscores a broader pattern in Latin America, where energy infrastructure projects often face similar risks: regulatory uncertainty, currency volatility, and political instability. Yet, these challenges also create opportunities for investors who can navigate the region's complex landscape with strategic foresight.

The PREPA Paradox: A Microcosm of Energy Infrastructure Challenges

PREPA's struggles reflect systemic issues in energy infrastructure across Latin America. The utility's inability to meet pension obligations, its reliance on volatile natural gas supplies, and its entanglement with private providers like New Fortress Energy mirror the vulnerabilities of energy systems in countries like Argentina, Brazil, and Mexico. For instance, Argentina's recent economic reforms under President Milei have stabilized inflation but left energy infrastructure underfunded, while Brazil's fiscal deficits limit public investment in grid modernization.

The key takeaway for investors is that energy infrastructure in the region is inherently risky but not without upside. PREPA's debt restructuring, if resolved, could serve as a blueprint for managing high-stakes energy transitions. However, the process has been delayed by opportunistic creditors and a lack of clear governance, highlighting the need for structured financing and transparent stakeholder engagement.

Credit Risk in Latin American Energy Infrastructure

Latin America's energy sector is a double-edged sword. On one hand, the region's infrastructure gap—estimated at $2.2 trillion by 2030—presents a compelling case for private capital. On the other, credit risk remains elevated due to macroeconomic volatility and regulatory shifts. For example, Colombia's 4G toll road program, while a model for public-private partnerships (PPPs), faces delays due to political transitions and inflation-driven cost overruns. Similarly, Mexico's energy reforms under different administrations have created uncertainty for long-term investors.

Currency risk is another critical factor. Countries like Argentina and Brazil have seen their currencies depreciate sharply, increasing debt servicing costs for foreign-backed projects. Investors must hedge against this through local currency financing or inflation-linked contracts. Additionally, legal system weaknesses in countries like Peru and Venezuela complicate contract enforcement, making due diligence on local partners essential.

Investment Opportunities Amid the Turbulence

Despite these risks, Latin America offers attractive opportunities for investors with a long-term horizon. Chile, for instance, has emerged as a leader in renewable energy, with projects like the seawater pipeline supporting sustainable mining and green hydrogen production. The country's stable regulatory framework and alignment with global decarbonization goals make it a safe haven for infrastructure debt. Similarly, Uruguay's BBB+/Baa1-rated economy has attracted investments in wind and solar projects, leveraging its strong legal protections and steady economic growth.

Emerging markets like Colombia and Mexico also present high-yield opportunities. Colombia's BB+/Baa2-rated energy sector, supported by its 4G toll road program, offers a blend of infrastructure and energy investments. Mexico's BBB/Baa2 rating, combined with its strategic location and growing energy demand, positions it as a hub for cross-border investments. Investors can mitigate risks by focusing on projects with government guarantees or development finance institution (DFI) backing.

Cross-Sectoral Insights and Strategic Considerations

The energy transition is reshaping Latin America's infrastructure landscape. Countries like Chile and Brazil are prioritizing green hydrogen and sustainable aviation fuel (SAF) projects, supported by frameworks like the U.S. Inflation Reduction Act (IRA) and Brazil's ProBioQAV. These initiatives not only address climate goals but also create new revenue streams for energy infrastructure. For example, Chile's ambition to become the world's lowest-cost green hydrogen producer could attract $145 billion in capital expenditure by 2030.

However, success hinges on cross-sectoral collaboration. Mining infrastructure, such as seawater desalination pipelines in Chile, is critical for supporting the energy transition by reducing water scarcity in mining operations. Similarly, transportation upgrades—ports, rail, and road networks—are essential for moving project cargo and enabling large-scale energy projects. Investors should look for diversified portfolios that span energy, mining, and logistics to balance risk and reward.

Conclusion: A Call for Prudent Diversification

Puerto Rico's PREPA crisis serves as a stark reminder of the fragility of energy infrastructure in politically and economically volatile regions. Yet, it also highlights the potential for transformative investments in Latin America, where the energy transition is creating new opportunities. Investors must approach the region with a disciplined strategy: prioritize countries with stable governance (Chile, Uruguay), leverage structured financing and PPPs, and hedge against currency and regulatory risks.

For those willing to navigate the turbulence, Latin America's energy infrastructure offers a compelling mix of resilience and growth. As the region bridges its $2.2 trillion infrastructure gap, the key to success lies in balancing risk mitigation with a long-term vision for sustainable development.