Puerto Rico paved the way to overhaul the finances of its power and transportation agencies, potentially saddling investors with losses on about $13.6 billion of debt.

Puerto Rico Gov. Alejandro Garcia Padilla proposed legislation Wednesday that would allow some debt-laden public entities to restructure their bonds. The proposed bill, passed Wednesday night by Puerto Rico's House and Senate, doesn't include a way for the island's general-obligation bonds and sales-tax debt to be restructured. Gov. Padilla is expected to sign...