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Writer's pictureThe San Juan Daily Star

CVI could be used to break PREPA impasse




By The Star Staff


The incorporation in the Puerto Rico Electric Power Authority’s (PREPA) debt adjustment plan of a contingent value instrument (CVI) that could provide additional recoveries to PREPA creditors may help break the impasse in the public utility’s bankruptcy case.


The suggestion was made earlier this week during a court hearing by Martin Bienenstock, the lawyer representing the Financial Oversight and Management Board in PREPA’s bankruptcy case. A CVI is an instrument that gives the holder the right to receive additional debt service payments from the debtor if certain growth-linked triggers, such as increases in gross domestic product or government revenues, are met.


“This type of instrument would be especially apt in Puerto Rico’s situation, where sizable haircuts are inevitable given the limited ability of the commonwealth to pay its contracted debt going forward,” lawyers Richard Cooper and Luke Barefoot said when they suggested the CVI a few years ago. “For creditors, it offers an instrument that gives them the opportunity to recoup losses due to a haircut on their original principal and allows them to participate in the upside of economic growth and recovery. For Puerto Rico, it allows the island to make significant debt relief more palatable to creditors and create incentives for creditors to be partners in growing the island’s economy.”


Nonetheless, lead mediator Judge Shelley Chapman said that none of the stakeholders has proposed a solution to help draft a consensual debt adjustment plan.


For that reason, the judge overseeing PREPA’s Title III bankruptcy, U.S. District Judge Laura Taylor Swain, ordered all parties to mediation and imposed a 60-day moratorium on all litigation and plan proposals.


PREPA holds over $9 billion in debt and other claims but efforts to restructure it have failed. The latest effort to get a debt adjustment plan approved was thwarted by a U.S. First Circuit Court decision that bondholders have an $8.5 billion secured claim, rather than a $2.4 billion claim as Swain had ruled. As a result of the June ruling, Swain is tasked with determining how much bondholders would be able to collect.


“Movement is necessary to resolve this,” Swain said during the two-hour hearing held Wednesday in New York. “I need response with alacrity.”


She ordered all sides to work in good faith starting immediately to reach a compromise.


“Please keep Puerto Rico’s people in mind as you go into this,” she said.

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