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  • The San Juan Daily Star

Fiscal board looks to bar expert testimony that favors PREPA bondholders’ secured payments claim


Robert A. Lamb

By The Star Staff


The Financial Oversight and Management Board is seeking to exclude expert testimony from a municipal bond expert who said the Puerto Rico Electric Power Authority’s (PREPA) trust agreement is unambiguous and bondholders correctly interpreted that their bond payments were secured no matter what.


U.S. Bank National Association as Trustee, the Ad Hoc Group of PREPA Bondholders, Assured Guaranty Corp. and Assured Guaranty Municipal Corp., and Syncora Guarantee Inc. are objecting to the oversight board’s calling for the exclusion of the declaration by municipal bond expert Robert A. Lamb, president of the municipal advisory firm Lamont Financial Services.


In November, Lamb stated in a declaration that bondholders would have interpreted the 1974 trust agreement, the document regulating the utility’s bonds, to state that the bonds are secured. The oversight board is arguing that his statement should be excluded because creditors are saying the trust agreement is unambiguous, which makes the expert testimony unnecessary.


The dispute is the latest event in the proceeding to determine whether PREPA bonds are secured and must be paid in full or whether they are only secured up to the amount available in a sinking fund, which has a balance of about $16 million. PREPA has been in bankruptcy since 2017 to restructure almost $10 billion in debt, of which about $8 billion is bonded debt.


The oversight board is seeking a summary judgment on the dispute over the bonds.


PREPA creditors argued that Lamb’s declaration sets forth the municipal bond market’s understanding of the terms and features of revenue bonds like those governed by the trust agreement in the PREPA case.


The bondholders said Lamb provides expert opinion testimony as to how the market understands revenue bonds and specific provisions of those bonds like those in the trust agreement.


“Courts regularly consider that type of testimony in the course of interpreting contracts,” they said. “Second, the Oversight Board argues that, because both sides contend that the Trust Agreement is unambiguous (albeit in opposite directions), the Agreement therefore is unambiguous, such that parol evidence is inadmissible. There is zero support for that theory.”


“It is true that defendants contend the Trust Agreement unambiguously gives the Trustee and bondholders a secured right to repayment from PREPA’s revenues; Lamb’s opinions are offered, in the alternative, in the event the Court decides the agreement is ambiguous on any of the relevant points,” they argued.


Regarding the oversight board’s contention that Lamb is unqualified to speak to the market’s understanding of the trust agreement because it was executed in 1974, 10 years before he began working on revenue bonds in 1984, the bondholders noted that experts routinely offer testimony about torts that occurred, items that were created, and documents that were written, before they achieved their degrees or otherwise earned their stripes.


The oversight board asserts, in favor of summary judgment, that, pursuant to the trust agreement, bondholders invested billions of dollars in PREPA without any meaningful security or enforceable means of being repaid.


“Defendants, in turn, have demonstrated that the Oversight Board’s position badly misreads the Trust Agreement,” the bondholders asserted. “For his part, Lamb explains that the oversight board’s proposed reading of the Trust Agreement is directly at odds with longstanding custom and practice in the municipal bond market.”

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