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  • Writer's pictureThe San Juan Daily Star

Fiscal board, AAFAF, fuel line lenders oppose expedited appeal of unsecured claim ruling

U.S. District Court Judge Laura Taylor Swain

By The Star Staff

The Financial Oversight and Management Board, the Fiscal Agency and Financial Advisory Authority (AAFAF by its Spanish initials) and fuel line lenders objected this week to a request by Puerto Rico Electric Power Authority (PREPA) bondholders seeking to expedite an appeal on a ruling that declared their bonded debt is an unsecured claim.

U.S. District Court Judge Laura Taylor Swain on March 22 rejected bondholders’ position that they are entitled to fully recover their $8.4 billion debt because it is secured. Instead, the court held that the 1974 Trust Agreement granted the bondholders security interests only in amounts of money deposited to the Sinking Fund, Self-insurance Fund, Capital Improvement Fund, Reserve Maintenance Fund and Construction Fund, as defined in the Trust Agreement.

Swain also ruled that the bondholders have perfected their liens in the Sinking Fund, Self-insurance Fund and Reserve Maintenance Fund, over which the Trustee had established control. However, the judge said the bondholders’ claim was unsecured.

She also said the unsecured claim is based on the value of future net revenues, not the face value of the debt.

The Ad Hoc group of PREPA bondholders, and insurers Assured Guaranty and Syncora Guarantee, earlier this month sought an interlocutory appeal of Swain’s ruling. They argued that an interlocutory appeal of the order would ensure that parties weren’t working toward an unconfirmable plan of adjustment. They also said the ruling may impact other municipal revenue.

The Financial Oversight and Management Board argued that an immediate appeal would complicate the process.

“There is almost no likelihood the appeal can be briefed, argued, and decided before the confirmation hearing.” the oversight board argued. “An immediate appeal would deprive the First Circuit of a complete record and picture while saddling all litigants with arduous briefing and preparation at lightning speed regarding issues concerning which hundreds of pages of briefs were submitted to this court, at the same time they litigate confirmation and estimation of the unsecured net revenue claim.”

The AAFAF said the appeal was not needed.

“That billions of dollars are at stake does not transform a dispute of contractual interpretation into a matter of public importance suitable for interlocutory appeal,” the AAFAF argued. “While the specific terms of the trust agreement have not been previously interpreted by a court, the court applied traditional judicially developed canons of contract interpretation to resolve competing views of the trust agreement.”

The fuel line lenders also argued that the appeal will have no benefits.

“Aspects of the court’s ruling were preliminary, but if appealed, the appellate divestiture doctrine may prevent the court from supplementing or expanding on its reasoning,” fuel line lenders argued. “And there is no realistic prospect that the First Circuit will rule before the estimation or confirmation proceedings begin, meaning that those proceedings will not benefit from appellate guidance absent a stay.”

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