Following dismissals, fiscal board prefers to pause PREPA bondholders’ $3.7 billion expense claim process

By The Star Staff

Following the dismissal of six of its seven members, the Financial Oversight and Management Board told the federal bankruptcy court earlier this week that it wants to pause the Puerto Rico Electric Power Authority (PREPA) bondholders’ $3.7 billion administrative expense claims proceedings but can continue litigation on other matters.

The oversight board communicated the request to the Title III bankruptcy court in a status report filed late Monday, which was requested by U.S. District Judge Laura Taylor Swain earlier this month to assess the situation of PREPA’s Title III bankruptcy process after President Trump dismissed the board members.

Currently, the only active litigation in the PREPA Title III case is the bondholders’ pursuit of $3.7 billion as an administrative expense claim, which would have priority in the distribution of claims. The legal issues related to this claim and the objections to it were fully briefed and argued before the court on July 23, and are now pending.

According to the oversight board, under the Puerto Rico Oversight, Management and Economic Stability Act, commonly known as PROMESA, the board, as currently constituted, has the ability and authority to proceed with the administrative expense claim litigation as well as all pending matters in the Title III cases, their adversary proceedings, and contested matters.

The PREPA bondholders indicated via email on Aug. 19 that they believe litigation related to the PREPA Title III case should not continue until a new oversight board is appointed. In contrast, the Official Committee of Unsecured Creditors for PREPA has informed the board’s attorneys that they believe litigation regarding the administrative expense claim should not be delayed pending new appointments to the board, as they plan to object to the bondholders’ claims regardless of the board’s actions.

“The Oversight Board defers to the Court’s preference regarding whether the Administrative Expense Claim discovery and any necessary hearings should be paused,” the oversight board stated. “All other matters in the PREPA Title III case have been stayed. That said, the current preference of the Oversight Board is to pause the Administrative Expense Claim discovery and any necessary hearings until new Board members are appointed.”

The oversight board also indicated that all other matters pending in different Title III cases, including claims reconciliation, claim objections, lift stay motions, and other adversary proceedings, can and should continue in the normal course as directed by the court.

Meanwhile, Blackrock broke its agreement Monday night to settle its PREPA debt and will now be part of the group of bondholders opposing PREPA’s debt adjustment plan.

The move means the oversight board may have to negotiate a new debt deal to settle PREPA’s $9 billion debt.