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  • Writer's pictureThe San Juan Daily Star

Bond insurer National withdraws support for PREPA’s debt plan



U.S. District Judge Laura Taylor Swain

By The Star Staff


The Financial Oversight and Management Board has lost the support of monoliner National Financial Guarantee Corp. for the Puerto Rico Electric Power Authority’s (PREPA) plan of adjustment.


The information is contained in a recent informative motion.


National, which had signed on to the original plan, withdrew its support because of the oversight board’s response to the United States Court of Appeals for the First Circuit decision that bondholders have an $8.5 billion secured claim, rather than a $2.4 billion claim, as U.S. District Judge Laura Taylor Swain, who is overseeing the Title III bankruptcy case, had ruled in March 2023.


The oversight board has asked Swain to reopen the proceedings only to value the bondholders’ secured claim, which, the First Circuit ruled, can be paid only from the system’s net revenue. The board argued that no new vote on the plan is necessary because bondholders’ claims that it has misappropriated money during bankruptcy are moot and that the supplemental confirmation hearing could be heard in September, which could mean an end to PREPA’s seven-year-long bankruptcy.


Non-settling bondholders, meanwhile, argued that the First Circuit’s June 12 decision opens up certain disputes that need to be decided.


The bondholders want to dismiss the Title III case, which, if granted, would leave creditors seeking their claims in disparate commonwealth-level court proceedings. They also are litigating what they say might be as much as $6 billion in net revenue that PREPA has misappropriated since the beginning of the bankruptcy proceedings. Bondholders also want to challenge the law governing the Title III cases as an unconstitutional non-uniform bankruptcy law.


Both parties are disputing whether their claim needs to be estimated. The oversight board argues that it does and that the confirmation proceeding should be opened to determine what that amount is. Once that’s done, the board argues, as long as bondholders receive the full amount of their secured claim, they can’t object to how other money is spent in the bankruptcy.


Bondholders said they planned to argue that no such estimation is necessary – the amount they will be paid is the amount of net revenue the utility ultimately generates. They also say they can challenge other deals the oversight board has made – with fuel line lenders, unsecured creditors, or settling bondholders – if those creditors are being paid with net revenues.


National said it is no longer a party to the deal because the oversight board is failing to recognize the legal reality of the case in light of the First Circuit’s decision and isn’t going to file a plan to garner broad bondholder and monoline support. The board said National withdrew from the deal because the upcoming amended plan will use certain funds provided to National to pay non-settling bondholders.

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