U.S. District Court Judge Laura Taylor Swain
By THE STAR STAFF
The judge overseeing the Puerto Rico Electric Power Authority (PREPA) bankruptcy case, U.S. District Court Judge Laura Taylor Swain, has ordered the electrical utility’s representatives and creditors to settle a dispute over the utility’s trust agreement by Tuesday.
Swain ordered the Financial Oversight and Management Board, which is PREPA’s representative in the Title III bankruptcy proceedings, to meet with creditors and by Tuesday file a conformed trust agreement that incorporates the original 1974 trust agreement and all its 19 supplemental agreements that all parties agree on. The trust agreement is what regulates matters related to PREPA’s bonds.
According to court documents filed last week, PREPA’s bondholders had initially filed the conformed trust agreement in October 2022.
However, the fuel line lenders, who have a $700 million claim against PREPA, in a November 2022 motion disputed language in the conformed trust agreement. The fuel line lenders noted that as filed by bondholders, the conformed trust agreement prohibits the creation of a lien other than a lien created by the agreement. Fuel line lenders argue that it should prohibit the creation of any liens.
In December 2022, the fuel line lenders reached a deal with the oversight board to settle their $700 billion claim against PREPA that would give them priority over bondholders’ treatment in the authority’s proposed debt restructuring. The agreement would reduce the fuel line lenders’ claim by 16% through newly issued PREPA bonds.
The principal to be paid on the bonds issued to the fuel line lenders would have priority over principal payments to be paid on other bonds to be issued under the plan described in the agreement.
The fuel line lenders in a motion last week noted that language in the conformed trust agreement may impact the settlement.
“The Fuel Line Lenders file this response to ensure that issues of importance for future Current Expense litigation are not predetermined in a manner that would prejudice the Fuel Line Lenders,” the Fuel Line Lenders said.
The judge’s order is part of an adversary proceeding related to the security of the over $8 billion in PREPA bonds. Creditors argue that $8 billion in bonds are secured and must be paid through PREPA’s revenues, but the oversight board argues that they are backed only by a sinking fund that has about $16 million or less in it. The fuel line lenders have sided with the oversight board in the dispute.
PREPA filed a proposed plan of adjustment in mid-December 2022. A ruling on the dispute over the security of the bonds would alter the proposed plan of adjustment.