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  • Writer's pictureThe San Juan Daily Star

Fiscal board: Unsustainable increases can’t be part of debt mediation

Shelley Chapman leads the mediation team in the Puerto Rico Electric Power Authority bankruptcy process.

By The Star Staff

The Financial Oversight and Management Board has said it can not enter into Puerto Rico Electric Power Authority (PREPA) debt mediations if they are required to agree to increases in debt adjustment offers that are unsustainable.

Lawyers for the oversight board spoke after the judge overseeing the case, Laura Taylor Swain, had said she may dismiss the case if the board’s proposed plan isn’t confirmed. She also said she was more likely to dismiss the case than to allow the oversight board to file another plan if the one under analysis wasn’t confirmed. Therefore, she called upon parties to negotiate a plan that had more stakeholder participation and advised the oversight board to weigh the potential of a dismissal against the risk that the board would agree to an unsustainable plan that would quickly fail and put Puerto Rico at risk.

The PREPA debt plan proposes to restructure PREPA’s debt principally through an issuance of $5.68 billion of new bonds to fund partial recoveries on creditors’ claims. PREPA owns about $8.26 billion in revenue bonds, plus some $218 million in prepetition accrued interest on such bonds. The utility also owns $700 million in fuel line loans and projects some $246 million to $4.9 billion in general unsecured claims. It also has over $3 billion in unfunded pension liabilities.

Under the proposed plan, PREPA would pay for the new bonds over a 35-year period through revenues from a legacy charge to PREPA’s customers, but the board has said an affordable and sustainable legacy charge will generate only $5.68 billion in additional net revenues.

Oversight board attorney Martin Bienenstock told Swain on May 8 that the board could not mediate with established preconditions that may result in violations to its fiduciary duties.

“The board is ready and willing without preconditions of any sort, to mediate [the bondholder’s] claim amount [and the] board is ready and willing without preconditions to negotiate a global resolution with the bondholders,” Bienenstock said.

Swain convened the hearing to ascertain the reasons why the parties were not mediating a consensual debt restructuring for PREPA’s $10 billion debt.

Oversight board member Arthur González agreed with Bienenstock’s remarks in that he couldn’t see how the board could enter into negotiations if they had to agree to a position upfront that they believed was unsustainable.

“We have to be extremely careful that we don’t put the system on the verge of catastrophe a few years down the line,” González said.

However, González admitted that the board was not entirely in agreement with the assumptions underlying the plan of adjustment.

Swain, meanwhile, expressed doubt that the mediators would put preconditions on parties that may violate their duty to “craft sustainable solutions for Puerto Rico.”

Shelley Chapman, who leads the mediation team, denied erecting “unreasonable and unnecessary barriers,” saying any other understanding may result from “selective hearing.”

Swain this week ordered that by next Tuesday, the mediation team must file a schedule for future mediation sessions between the team and the principal parties.

“The Mediation team is directed to include the following information in future mediation reports: the number of completed mediation sessions in the prior month and the number of scheduled further mediation sessions as of the date of the report, whether the participants are attending with empowered principals as required above, whether the participants have made proposals and counter proposals in good faith, and whether any further assistance is needed from the Court,” the judge said.

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