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Fiscal board opposes request for discovery of Vitol settlement, insists on pushing PREPA debt deal


The Financial Oversight and Management Board said in a filing last week that the fuel line lenders’ motion “is premature because it seeks discovery regarding the confirmability of a non-existent hypothetical proposed plan.”

By The Star Staff


The Financial Oversight and Management Board opposed a request from the Puerto Rico Electric Power Authority’s (PREPA) fuel line lenders to seek discovery of a court settlement reached by PREPA and one of its creditors, Vitol Inc., that the oversight board will use to move forward the bankrupt utility’s debt adjustment plan.


The oversight board said in a motion last Thursday that the fuel line lenders’ motion “is premature because it seeks discovery regarding the confirmability of a non-existent hypothetical proposed plan.”


The fuel line lenders earlier this month said they learned for the first time on Nov. 2 that Vitol had settled litigation with PREPA for about $45 million and that it would be put in its own class to try to push through PREPA’s debt adjustment plan.


The oversight board’s counsel stated that Vitol had agreed to accept 50% of the ultimate recovery percentage for the general unsecured claims class. Vitol will be placed in its own class, which will receive such separate treatment, and Vitol will vote in favor of the plan, creating an impaired accepting class.


Given the importance of the oversight board’s responsibility for filing a debt adjustment plan for PREPA on Dec. 1 with a realistic prospect of confirmation, the fuel line lenders said they believe that information about the actual terms of the agreement between the oversight board and Vitol, including the circumstances under which Vitol’s commitment to vote in favor of the plan arose, must be made available promptly.


The U.S. Bank National Association as trustee under the trust agreement for the PREPA bonds, Assured Guaranty Corp. and Assured Guaranty Municipal Corp., the Ad Hoc Group of PREPA Bondholders, National Public Finance Guarantee Corp., and Syncora Guarantee Inc. asked to join the urgent motion of PREPA’s fuel line lenders seeking to examine the Vitol settlement agreement.


The trustee, on behalf of the PREPA bondholders and other bondholders, has filed a proof of claim arising from over $8 billion in unpaid PREPA debt. The utility has been in bankruptcy since 2017.


“The Court made clear at the [Nov. 2] omnibus hearing that it expects the plan submitted on Dec. 1 to be much more than a mere placeholder, but rather to reflect the Oversight Board’s realistic effort — including as a result of its negotiation and compromise with affected parties — to satisfy PROMESA’s [the Puerto Rico Oversight, Management and Economic Stability Act’s] confirmation requirements,” the groups said.


“The Trustee and PREPA Bondholders share the fuel line lenders’ concerns with the Oversight Board’s proposed path toward a confirmable Plan, and so also share the same need for discovery to evaluate information about the actual terms of the agreement between the Board and Vitol, including the circumstances under which Vitol’s commitment to vote in favor of the plan arose,” the groups said in the motion signed by Heriberto Burgos Pérez, of the law firm Casellas Alcover & Burgos.


The oversight board said that after the bankruptcy court denied PREPA’s summary judgment motion against Vitol and granted Vitol a judgment in the approximate amount of $41 million on Vitol’s unsecured, prepetition claim, PREPA appealed. Vitol and PREPA had been in litigation since 2009 after the power utility sought to get back money it had paid for fuel because Vitol had been convicted in November 2007 of a crime in New York state court.


Then, PREPA and Vitol settled the appeal. The settlement provides that PREPA will dismiss its appeal in exchange for Vitol’s agreement that its treatment under PREPA’s Title III plan of adjustment will provide Vitol half the consideration provided to other non-bond general unsecured claims and a release from PREPA.


“Because that treatment is unique to Vitol in that Vitol will receive half what other unsecured claims receive and will obtain a release from PREPA (which PREPA is not providing other creditors), Vitol will be in a separate class under any PREPA Title III plan of adjustment,” the oversight board said.


Under PROMESA, a debt adjustment plan containing more than one impaired class with one class accepting, or no impaired accepting class in a single-class plan, can be confirmed under section 1129(b) without acceptance of other classes.


The foregoing “is disturbing” to the holders of fuel line claims because Vitol’s acceptance of the foregoing treatment satisfies the Bankruptcy Code requirement that a plan have at least one impaired accepting class, the oversight board said.

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