‘Bad to worse’: PREPA creditors spurn amended debt plan & disclosure statement
By The Star Staff
Puerto Rico Electric Power Authority’s (PREPA) creditors are objecting to the power utility’s amended debt deal and disclosure statement, describing as unfair an agreement reached with National Public Finance Guarantee Corp.
After filing a debt adjustment plan in December for PREPA, the Financial Oversight and Management Board filed amended versions earlier this month that reflected the terms of the oversight board’s settlement with National Public Finance Guarantee Corp., added two new classes of claims, and incorporated a number of new or revised exhibits regarding PREPA’s proposed “Legacy Charge” for consumers and other components of the plan.
The new plan would settle National’s bond claim for 83 cents on the dollar but offers to pay only 56 cents for settling bondholders and bond insurers if they win all litigation related to the validity of the security of their claims, and only 50 cents on the dollar if they settle their claims, the Ad Hoc Group of PREPA bondholders argued in a legal opposition filed last Friday.
“PREPA’s Plan and Disclosure Statement have gone from bad to worse,” the Ad Hoc Group said. “The First Amended Plan doesn’t correct the fundamental flaws that made its original version patently unconfirmable.”
The disclosure statement provides no basis for the wide disparities in recoveries among holders of the same bonds, other than National’s agreement to vote for the plan in exchange for wildly preferential treatment, the group said.
“To fund National’s ‘yes’ vote, moreover, the Oversight Board simply adds more than $250 million to the total amount of creditor recoveries -- thereby confirming that the Oversight Board’s asserted affordability cap is a made-up figure that it moves up or down at its whim,” the Ad Hoc Group said.
Likewise, the Unsecured Creditors Committee (UCC) called the agreement “a ‘Frankenstein’ plan,” asking that the court hold off until the outcome of litigation on the security of the bonds is completed before moving the debt deal forward.
“It is bizarre -- to put it mildly -- for the oversight board to offer National an aggregate recovery in excess of 83% (regardless of the outcome of the amended lien & recourse challenge), while taking the position in the amended lien & recourse challenge (which position the committee supports) that National has no claims at all, other than a claim secured by the very limited funds in the sinking fund,” the UCC argued. “The National settlement thus causes the committee to begin to question whether the first amended plan is even proposed in good faith.”
A hearing on the disclosure statement is scheduled for next Tuesday, Feb 28. The bond trustee, U.S. Bank National, and bond insurer Syncora also filed objections.
The oversight board and National Public Finance Guarantee Corp. said in separate legal statements earlier this week that their deal, which they acknowledged would pay the insurer more than other bondholders, is permissible because National settled.
“National’s separate classification under the first amended plan appropriately reflects National’s status as a settling party and allows it to implement settlement provisions for insured bondholders and recognizes National’s separate contractual reimbursement claims,” the municipal bond insurer argued.