Bondholders, insurers ask court to dismiss PREPA bankruptcy
By The Star Staff
Puerto Rico Electric Power Authority (PREPA) bondholders and insurers of 65% of $8.3 billion in outstanding utility debt asked the Title III bankruptcy court on Monday to dismiss the utility’s bankruptcy after the latest mediation to restructure some $9 billion in debt failed.
They also asked the court to put PREPA under receivership.
The Ad Hoc Group of PREPA Bondholders and bond insurers Assured Guaranty Corp. and Assured Guaranty Municipal Corp., National Public Finance Guarantee Corp., and Syncora Guarantee Inc. cited what they said have been undue delays by the Financial Oversight and Management Board as one of the reasons for dismissing the case.
PREPA has been in bankruptcy for five years and bondholders say it is farther away from confirming a plan of adjustment today than it was in July 2017, when it filed for bankruptcy, the bondholders said.
PREPA, they said, has reneged on three negotiated restructuring support agreements (RSAs) to reduce and repay its bond debt through a “reasonable rate increase,” they said.
“The Board is now perpetuating that dysfunction, despite Puerto Rico’s growing economy and billions of dollars in federal aid, by improvidently backing the government’s decision to tear up PREPA’s most recent consensual bondholder deal and forge ahead with value-depleting, futile litigation,” they said.
The bondholders were talking about an oversight board request to restart litigation against the bondholders.
The litigation, the board said, will focus on whether the bondholders’ security interest securing their bond claims is limited to money PREPA deposits, which is about $8.8 million, in accounts the bond trustee created pursuant to the trust agreement governing the issuance of the bonds.
The oversight board also asked that the so-called current expense complaints that have been stayed for over two years be decided on the papers without a hearing. On July 9, 2019, the administrative agent and certain fuel line lenders under credit agreements pursuant to which PREPA was a borrower filed a complaint against PREPA, the oversight board, the Puerto Rico Fiscal Agency and Financial Advisory Authority, and U.S. Bank National Association, alleging amounts owed to them constituted “Current Expenses” entitled to payment in full in advance of any recovery to PREPA’s bondholders. PREPA’s retirement system separately is asking the court for payment of pension debt before payments are made to PREPA’s bondholders.
The oversight board also asked that a petition by bondholders to put PREPA under a receiver be stayed pending the resolution of the “Lien Challenge Complaint.”
The bondholders argued that for nearly four years, PREPA’s bondholders abided by the RSAs’ terms and refrained from seeking a receiver for PREPA or objecting to issues in its bankruptcy case and the commonwealth’s.
“The Oversight Board used that peace and stability to solicit and maximize federal funding commitments, obtain and negotiate privatization proposals for PREPA’s operations, and resolve the Commonwealth’s Title III case,” they said. “Along the way, the Government Parties repeatedly reiterated their continued support for the RSA.”
They noted that Gov. Pedro Pierluisi Urrutia abandoned a 2019 debt deal pointing to elevated oil prices and inflation as bases for the termination notice, but a temporary uptick in the price of oil and other goods, during a more than 40-year deal, was hardly unexpected. Oil prices have retreated since then.
The oversight board abandoned the latest mediation agreement because it would lead to rate increases.
With the resolution of Puerto Rico’s other Title III cases, even the full payment of bondholders’ claims would keep the island’s total obligations under a manageable debt-to-GNP ratio, they argued.
“So what is the real reason for the Government Parties’ stunning about-face? In a word, politics,” the bondholders said. “There is simply no other excuse for the Board’s failure to restore a restructuring support agreement during mediation, nor for its proposal to fixate on litigation, that it will lose, instead of the plan that Puerto Rico needs.”
“Moreover, while PREPA remains in bankruptcy it has been stalled from moving forward with FEMA [Federal Emergency Management Agency]-reimbursable projects to improve its grid — delaying long-awaited progress on rebuilding and hardening PREPA’s grid,” they said. “To date, in fact, FEMA has disbursed only $40 million of the $12.2 billion available to fund projects to improve the grid. That lack of progress is a direct result of the Government Parties’ decision to keep PREPA in bankruptcy.”