By The Star Staff
The U.S. Court of Appeals for the First Circuit in Boston has rejected requests from several parties involved in the Puerto Rico Electric Power Authority’s (PREPA) Title III bankruptcy case for a rehearing on a decision regarding bondholders’ security interest in future net revenues.
The court’s decision, issued last week, denied petitions from the Financial Oversight and Management Board for Puerto Rico, the unsecured creditors committee (UCC), and the Puerto Rico Fiscal Agency and Financial Advisory Authority for a rehearing on a ruling that bondholders had perfected their security interest in PREPA’s future net revenues.
The appeals court had previously ruled in June 2024 that bondholders had a secured claim of $8.3 billion, overturning an earlier district court ruling that found they only had an unsecured claim of $2.4 billion. That decision disrupted PREPA’s federal bankruptcy case, prompting presiding Judge Laura Taylor Swain to order a litigation moratorium to encourage a consensual resolution.
The oversight board challenged the ruling, arguing that the security interest was not perfected. Perfection of the security interest is significant because unperfected liens can be avoided. Although the First Circuit changed its rationale for finding that the security interest was perfected in a subsequent decision, it still found that the interest had been perfected.
The court’s denial of the rehearing petitions marks another development in the ongoing dispute over the security interest in PREPA’s future net revenues.
The determination may put a damper on attempts by the oversight board to settle the utility’s estimated $9 billion debt with bondholders.
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