By The Star Staff
The Financial Oversight and Management Board recently asked for a panel rehearing of the U.S. First Circuit Court of Appeals decision on Nov. 13 that found that bondholders had perfected their security interest in future net revenues of the Puerto Rico Electric Power Authority (PREPA).
The Unsecured Creditors Committee and the Puerto Rico Fiscal Agency and Financial Advisory Authority (AAFAF by its initials in Spanish) also filed requests for rehearing. The parties are seeking to overturn an appeals court decision that net revenues were general intangibles, which require only filing a public notice to perfect, rather than currency and bank accounts, which require the revenue to exist before the security interest can be perfected.
“There is no evidence in the record that net revenues ever take any form except money or deposit accounts,” the oversight board argued in its Nov. 27 request. “As such, there are no ‘moneys’ that are not ‘currency’ or in ‘deposit accounts’ and no basis, in law or in the record, for the panel’s ruling that the net revenues constitute ‘general intangibles’.”
In June, the First Circuit Court of Appeals in Boston initially ruled that bondholders had a $8.3 billion secured claim, overturning an earlier district court ruling that found that they had only a $2.4 billion unsecured claim. The ruling has delayed PREPA’s bankruptcy as none of the parties want to settle. U.S. District Judge Laura Taylor Swain, who is overseeing the Title III court process, ordered a litigation moratorium to encourage parties to reach a consensual resolution to the case since the plan before the court was unlikely to be confirmed.
The oversight board requested a rehearing in which they argued that the claim wasn’t perfected, a situation that would allow for the avoidance of the claim. The First Circuit, however, ruled for a second time on Nov. 13 that the security interest was perfected, which the board is now appealing.
The AAFAF argued the present dispute about the definition and applicability of ‘general intangibles’ will ultimately have an enormous impact on the electricity rates paid by Puerto Rico residents.
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