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Fiscal board may abandon PREPA RSA, submit debt adjustment plan instead


Title III Bankruptcy Court Judge Laura Taylor Swain

By The Star Staff


The Financial Oversight and Management Board for Puerto Rico may abandon the restructuring support agreement (RSA) for the Puerto Rico Electric Power Authority (PREPA) and, instead, submit a debt adjustment plan in March for the public utility, lawyer Rolando Emmanuelli told the STAR Sunday.


PREPA has been in bankruptcy since 2017 to restructure some $9 billion in debt.


The island Legislature has declined to pass measures to enable PREPA’s current debt adjustment plan because of objections to possible rate hikes.


“They will abandon the RSA because they will not get the Legislature’s green light for approval of a three cent hike [to pay for the debt],” Emmanuelli said.


The debt adjustment plan could be one in consensus with bondholders or one that is not, which means bondholders could get very little for their investment.


Meanwhile, the oversight board submitted the latest version of the central government’s debt adjustment plan last Friday but reserved its right to appeal some of the provisions of the plan.


For instance, the oversight board said it may appeal Judge Laura Taylor’s Swain decision that eminent domain claims should be paid. The board has classified them as unsecured creditors.


The plan calls for the elimination of the retirement systems for the courts and the teachers, who could appeal the decision to the circuit court. The debt adjustment plan will change the current retirement systems for those groups to one that is a defined benefits plan.


By reason of the plan’s provisions freezing defined benefit accruals and future costs of living adjustments, Swain said that upon the plan’s effective date, the Puerto Rico Oversight, Management and Economic Stability Act (PROMESA) preempts Acts 91-2004, establishing the Teachers Retirement System (TRS), and 12-1954, establishing the judiciary retirement system (JRS), providing for the future accrual of defined benefits and future cost of living adjustments.


“Absent preemption, the amount of Commonwealth revenues that would need to be spent on TRS and JRS pension benefits in fiscal year 2022 is $984 million. Absent preemption, these inconsistent statutes would undermine the restructuring contemplated by the Plan,” Swain said. “Enabling legislation is not required to establish the freeze of defined benefits or the elimination of COLAs [cost of living adjustments]. Obligations arising from Commonwealth statutes, including statutes providing employees the right to accrue pension or other retirement benefits, give rise to claims which can be impaired and discharged pursuant to the Plan.”


In her order last week asking for changes to the debt deal, Swain said the confirmation order is a final order intended to be binding on all parties in interest, and shall not be subject to collateral attack or other challenge in any other court or other forum, except as permitted under applicable law.


“Confirmation of the Plan constitutes a judicial determination, pursuant to section 4 of PROMESA, that all laws, rules, and regulations giving rise to obligations of the Debtors discharged by the Plan and this Confirmation Order pursuant to PROMESA are preempted by PROMESA and such discharge shall prevail over any general or specific provisions of territory laws, rules, and regulations,” Swain said.

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