By The Star Staff
The Financial Oversight and Management Board (FOMB) has asked the judge overseeing the Puerto Rico Electric Power Authority’s (PREPA) Title III bankruptcy to dismiss a lawsuit that claims the federally appointed panel engaged in illegal vote buying.
The filing was made recently in the case GoldenTree Master Fund vs. the FOMB under PREPA’s bankruptcy. GoldenTree Asset Management and Syncora Guarantee sued in November alleging that the oversight board has given several groups, including National Public Finance Guarantee Corporation, the fuel line lenders and the BlackRock Financial Management group, advantageous debt settlements so that they vote in favor of PREPA’s plan of adjustment.
The oversight board said the action is designed to obstruct confirmation at all costs, not on the merits but rather based on litigation overload. The board noted that the plaintiffs are creditors who allegedly own or insure some $886 million in PREPA bonds and who intend to object to confirmation of PREPA’s proposed plan of adjustment. They are also seeking the designation of a receiver for PREPA.
The oversight board said the case should be dismissed because the court lacks subject-matter jurisdiction. The declaratory judgment action does not present an actual case or controversy; it seeks only an advisory opinion on the abstract question of whether certain votes were solicited or procured in bad faith, the board said.
Second, the oversight board said, the plaintiffs have not presented a ripe dispute.
“To the contrary, the Complaint raises issues concerning contingent future events that might never come to pass,” the board said. “As of the filing of the Complaint, not a single ballot had been cast in favor of, or in opposition to, PREPA’s proposed Plan. Unless and until such votes are cast, the Court should not waste time and effort seeking to determine whether such uncast ballots should be designated.”
The oversight board also said the complaint is defective because it omits bringing a whole host of necessary parties to the suit such as the creditors whose votes are at issue. The complaint should also be dismissed, the board said, because it does not plead a cognizable claim for solicitation or procurement of votes not in good faith; it refers only to negotiations for and entry into the plan sponsoring agreements (PSAs).
“Case law is clear that negotiating and entering into a PSA that obligates a creditor to vote does not constitute soliciting or procuring a vote and thus is not actionable under section 1126(e),” the oversight board said.
The board also said the questions raised by the plaintiffs should be addressed during the confirmation hearing next year.
PREPA has been in bankruptcy since 2017 to restructure some $9 billion in debt under the Puerto Rico Oversight, Management and Economic Stability Act. A debt adjustment plan is expected to be confirmed next year.
Economist critiques debt adjustment plan
Separately, Ramón Cao, an economist, submitted an economic evaluation of PREPA’s debt adjustment plan on behalf of the Instituto de Competitividad y Sostenibilidad Económica (ICSE).
Cao noted problems with the oversight board’s “Customer Affordability Calculation,” which concluded that, under the proposed debt deal, the monthly electricity bill for unsubsidized residential customers is going to increase by 6.2% and that customers can afford to pay it, because the total monthly bill will be, on the average, about 6% of their yearly “representative income” of $25,356.
“Since electricity is an essential input for the production of every good and service in the economy, an increase in electricity tariff rates is going to certainly increase production costs for every other good and service produced on the island, inducing increases in supply prices in almost all other goods and services consumed in the economy,” Cao said. “If the general price level increases, consumers have to rearrange their consumption patterns. Such rearrangement of consumption patterns implies that they cannot afford to consume all the things they used to purchase, and [must] even readjust their consumption of electricity. The published analysis is limited to residential customers, not considering the effects of the [debt deal] on commercial, government and industrial customers. This is a major shortcoming. Nonresidential customers, particularly commercial customers, are going to bear most of the burden of proposed tariff rate increases.”
He also said PREPA’s debt has another major component: its debt to the Employees Retirement System (ERS).
“PREPA, years ago, decided to stop making the corresponding employer contribution to ERS and created a debt. The FOMB decision in this case [...] is the same that it adopted for the rest of Government and public corporations’ retirement systems; that is, to adopt a Pay Go approach for old employees and a Defined Contributions Retirement System for new employees,” the economist said. “That such a model has been adopted across the board, without making public any actuarial, financial or economic analysis for individual cases, tends to induce people to think that it is an unjustified ideological approach.”