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  • The San Juan Daily Star

In defense of its litigation request, fiscal board rejects dismissal of PREPA’s bankruptcy case

The oversight board opposed attempts to dismiss the bankruptcy case in part because, it said, dismissal would ultimately undermine all restructurings the board has accomplished to date by putting the present and future economy of Puerto Rico at risk.

By The Star Staff

The Financial Oversight and Management Board on Tuesday opposed the dismissal of the Puerto Rico Electric Power Authority (PREPA) bankruptcy debt case as it defended its decision to pursue litigation against the utility’s bondholders.

Several bondholders have called for PREPA’s Title III bankruptcy case to be dismissed. U.S. Bank National Association, which serves as the PREPA bond trustee under the Trust Agreement dated as of Jan. 1, 1974, disagreed with the oversight board’s contention that litigation will help expedite PREPA’s exit from Title III, arguing that it is a trap that will ultimately result in more delay and expense.

The bond trustee said that in the event the court agrees with the litigation proposed by the oversight board, it wants time to respond to the board’s allegations.

After walking out of mediated negotiations, the oversight board asked the court to restart litigation against the bondholders.

The litigation, the board said, would focus on whether the bondholders’ security interest securing their bond claims is limited to money PREPA deposits, which is about $8.8 million, in accounts the bond trustee created pursuant to the trust agreement governing the issuance of the bonds.

The oversight board also asked that the so-called current expense complaints that have been stayed for over two years be decided on the papers without a hearing. On July 9, 2019, the administrative agent and certain fuel line lenders under credit agreements pursuant to which PREPA was a borrower filed a complaint against PREPA, the oversight board, the Puerto Rico Fiscal Agency and Financial Advisory Authority (AAFAF by its Spanish initials), and U.S. Bank National Association, alleging amounts owed to them constituted “Current Expenses” entitled to payment in full in advance of any recovery to PREPA’s bondholders. PREPA’s retirement system separately is asking the court for payment of pension debt before payments are made to PREPA’s bondholders.

The oversight board also asked that a petition by bondholders to put PREPA under a receiver be stayed pending the resolution of the “Lien Challenge Complaint.”

The court had required the oversight board to file either a debt plan, a plan term sheet, a proposed litigation schedule, or an explanation why PREPA’s Title III case should not be dismissed.

“The Oversight Board chose the only path to a confirmable plan,” the board said. “In the absence of a deal to serve as the cornerstone of a plan that could be proposed, it determined that ongoing negotiations in parallel with a litigation schedule embracing solely the fundamental disputes over the claims the plan must restructure is the most practical way to advance PREPA’s Title III case to achieve the purposes of PROMESA [the Puerto Rico Oversight, Management and Economic Stability Act].”

The oversight board opposed attempts to dismiss the bankruptcy case because, it said, dismissal would eliminate the ability to discharge debt necessary to regain market access and would result in chaos that would threaten the reliable generation and delivery of power, thus endangering all residents and businesses of Puerto Rico, and undermining all restructurings the oversight board has accomplished to date by putting the present and future economy of Puerto Rico at risk.

“By contending dismissal, stay relief, or the filing of a plan come first and final determinations on their claims should be stayed indefinitely, the Bondholders effectively challenge the provisions of that order,” the board said in a response. “Of course, the Bondholders’ vehement opposition to having their claims determined speaks volumes. These proposals seek to delay adjudication of creditors’ rights at all costs or move those determinations to courts not familiar with PROMESA or allowability. They are transparently designed not to advance PREPA’s case, but to terminate it altogether; stripping PREPA of the ability to adjust its debts or attain capital market access. PROMESA’s purposes would be defeated — an unacceptable result.”

“Congress has provided Puerto Rico with a once-in-a-lifetime opportunity to restructure and transform the utility serving almost the entirety of the island’s populace, and this opportunity cannot be squandered at the behest of a single group of creditors opposing determinations of their own claims,” the oversight board said.

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