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  • The San Juan Daily Star

Fuel line lenders seek to have ‘current expenses’ left out of fiscal board’s summary

By The Star Staff

The fuel line lenders of the Puerto Rico Electric Power Authority (PREPA) asked the Title III bankruptcy court over the weekend to not include their “current expenses” debt under a Financial Oversight and Management Board request for a summary judgment that seeks to dismiss the bondholders’ claims.

Cortland Capital Market Services LLC, SOLA LTD, Solus Opportunities Fund 5 LP, Ultra Master LTD and Ultra NB LLC are among the fuel line lenders who are owed about $700 million by PREPA. The fuel line lenders are one of the three major creditor constituencies in PREPA’s Title III proceeding. The other two are the bondholders and the so-called union parties (the Electrical Industry and Irrigation Workers Union, or UTIER, and PREPA’s Retirement System).

“There is no dispute that the Fuel Lines have full recourse against PREPA in the Title III case. The Fuel Lines also have an additional feature that differentiates them from the bonds. PREPA committed to the Fuel Line Lenders that the Fuel Lines would be “Current Expenses” under the Trust Agreement that governs the bonds,” the fuel line lenders said in a motion dated Nov. 25. “As ‘Current Expenses,’ the Fuel Lines were eligible and required to be paid out of the ‘General Fund’ before PREPA’s revenues were deposited into funds earmarked for payments on the bonds.”

Recently, the oversight board asked the bankruptcy court to resolve as a motion for summary judgment or without a hearing whether the holders of PREPA bonds have a secured claim against the utility. The board says the bondholders’ claim is only guaranteed and limited by a sinking fund that has about $8 million. The bondholders argue that their $8 billion claim is a secure one.

The fuel line lenders say they are afraid a court ruling may impact their $700 million claim. They reminded the court that their litigation regarding the status of “Current Expenses” and their relationship to the bondholder claims has been stayed, and thus is not before the court at this time.

“The Fuel Line Lenders file this response to ensure that issues of importance for future Current Expense litigation are not predetermined in a manner that would prejudice the Fuel Line Lenders,” they said.

The fuel line lenders said the court does not need to resolve any “Current Expense issues, including the distinction between a gross and net revenues claim, to resolve the core issue of whether the bondholders’ lien and claim are limited to specified accounts.”

The scope of the relief the bondholders have sought requires clarification, the fuel line lenders argued, because they want a more expansive ruling that could impact the current expenses dispute with PREPA.

The bondholders’ “recourse extends to all PREPA’s current and future revenues, and other moneys as they are or may become available, and is not limited to moneys deposited to the credit of the Sinking Fund or any other individual fund.”

The oversight board seeks a judgment disallowing the bondholders’ claim to the extent that it asserts a right to payment beyond moneys currently credited to the Sinking Fund, the fuel line lenders say.

“In sum, the question of whether the bondholders’ recourse or lien reaches PREPA’s revenues prior to the payment of Current Expenses should be unaffected by the Court’s ruling on these summary judgment motions, even if the ruling were to be in the bondholders defendants’ favor,” the fuel line lenders argued.

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