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  • Writer's pictureThe San Juan Daily Star

Fiscal board, unsecured creditors settle on PREPA debt as board releases recoveries report

The Financial Oversight and Management Board

By The Star Staff

The Financial Oversight and Management Board and the Unsecured Creditors Committee (UCC) have reached an agreement on their debt payments from the Puerto Rico Electric Power Authority (PREPA).

The information was reported in a joint informative motion filed Monday in federal bankruptcy court. PREPA has been in bankruptcy since 2017 to restructure about $9 billion in debt.

The oversight board and the UCC agreed that the UCC will receive a fixed payment of $335 million, the proceeds from avoidance actions, and up to another $200 million if the court reduces bondholder claims, among other considerations.

If settling bondholders’ recovery is increased, other unsecured claims will be increased. The changes will not affect other creditors’ treatment under the plan, according to the motion.

“The committee settlement would not result in the reduction of the treatment of any creditors as provided in the plan,” the document notes.

The UCC had sued arguing that its claims should be superior to bondholders, but the case was stayed pending plan confirmation in March 2024.

The announcement came on the same day that the oversight board issued an informative motion on the expected recoveries of PREPA bondholders and insurers. Those recoveries will vary from 3.5% to 69.1% of the par value of their debt, depending on when they agreed to settle with PREPA.

On Nov. 16 of this year, the oversight board filed the fifth amended debt adjustment plan. Prior to that, on Aug. 25, the board entered into the Second Bond Settlement Agreement with holders of over 37.5% of uninsured PREPA bonds.

The debt plan contemplates that all bondholders who had not settled with PREPA would have another opportunity by joining the Second Bond Settlement Agreement by the joinder deadline of Nov. 30.

Assuming there are no changes to U.S. District Judge Laura Taylor Swain’s lien and recourse challenge ruling on appeal, National Public Finance Guarantee Corp., which had agreed to settle its debt, would receive 69% of par value. National agreed to a reduced payout before Swain ruled earlier this year that bondholders that held $8.3 billion in outstanding debt had only a $2.4 billion unsecured claim. First settling bondholders, which agreed to a deal before the August filing of the latest plan of adjustment and agreed to finance the exit plan, would receive half of par. Those who settled by Nov. 30 will receive 12.5% of par and nonsettling bondholders will receive 3.5% of par according to Monday, Dec. 18 informative motion.

Supposing that the oversight board wins the lien and recourse challenge on appeal, nonsettling bondholders’ recoveries will be significantly cut as they get 0.24%, with general unsecured creditors receiving a higher settlement.

If the oversight board loses the lien and recourse appeal, then nonsettling bondholders will receive only 7.9% of par, with general unsecured creditors essentially being wiped out at 0.10% at par.

Fuel line lenders receive an 84% recovery no matter the outcome of the lien and recourse challenge.

The differences in payouts of holders of the same debt will be one of the issues argued during the March 2024 hearing on confirmation of the plan of adjustment.

GoldenTree Asset Management and Syncora Guarantee, two of the creditors that oppose the debt plan, have filed an adversary proceeding alleging that the oversight board has engaged in illegal vote buying. The board has asked the court to dismiss the case.

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