Fiscal board’s proposed litigation to resolve PREPA bankruptcy to be main focus of hearing
By The Star Staff
The Financial Oversight and Management Board’s urgent motion for litigation on certain issues that are preventing the resolution of the Puerto Rico Electric Power Authority’s (PREPA) bankruptcy will be the leading topic at today’s omnibus hearing.
U.S. District Court Judge Laura Taylor Swain will evaluate a request by mediators in the PREPA bankruptcy as to whether they should establish a schedule to continue negotiations during litigation of the issue.
The oversight board on Sept. 17 announced it had walked out of the mediation talks to restructure PREPA’s $9 billion debt due to “substantial disagreements with the mediation parties.” The oversight board then asked the Title III bankruptcy court to restart litigation of several disputes with the bondholders. The litigation will focus mainly on whether the bondholders’ security interest securing their bond claims is limited to about $8.8 million that PREPA has in accounts the bond trustee created per a 1974 trust agreement governing the issuance of the bonds.
The bondholders then asked the court to dismiss the bankruptcy case, which began in 2017, and to appoint a receiver for PREPA.
Following a request from Judge Swain, who is overseeing all of Puerto Rico’s bankruptcy cases, the mediators presented a schedule to continue negotiations during the litigation proposed by the oversight board and the creation of a new debt adjustment plan.
The mediators said they believe the mediation will benefit if the court requires the oversight board to file in 60 days a proposed plan of adjustment, or “toggle plan,” and a related disclosure statement that contemplates alternative plan treatment depending on the outcome of the primary lien and claim disputes.
They also said it would enhance the mediation if the litigation takes place as part of the oversight board’s request for confirmation of the debt plan and a confirmation hearing consistent with an expedited litigation schedule. The hearing should take place no later than June 2023.
The oversight board opposes the idea.
While the board said the court may set a deadline for filing a plan, it noted that the Puerto Rico Oversight, Management and Economic Stability Act, commonly known as PROMESA, does not provide for the court to predetermine the plan’s contents, including that it be a “toggle plan.”
The oversight board also insisted that the purpose of the requested litigation is to determine the bondholders’ and current expense claimants’ rights, which will help it strike deals with those creditors or other groups. The “current expense” claims are those in which fuel line lenders and PREPA’s retirement system said they should be paid before the bondholders.
Lawyer Rolando Emmanuelli said the mediation will continue to extend the process. He said the mediators’ first bill in the case is about $400,000.
He noted that the oversight board has finally realized what other creditors, such as the Electrical Industry and Irrigation Workers Union, have been saying, which is that if the board negotiates to pay the bondholders, it would not be able to restructure PREPA. He also said that the mediators’ proposed calendar would extend the case until at least January.