The San Juan Daily Star
Judge denies PREPA bondholders’ request for clarification of previous ruling
By The Star Staff
U.S. District Court Judge Laura Taylor Swain has denied a request by Puerto Rico Electric Power Authority (PREPA) bondholders asking her to clarify an earlier order in which she had determined that the utility’s bonded debt is unsecured and ordered the parties to estimate the claim’s value.
The judge ordered the bondholders and the Financial Oversight and Management Board to file their respective proposals for estimation by April 7.
Swain, who is overseeing Puerto Rico’s Title III bankruptcy cases, had ruled that payment of the $8.4 billion PREPA bonded debt is not secured by a 1974 trust agreement. She said bondholders have security interests only in sums deposited to the Sinking Fund, Self-Insurance Fund, Capital Improvement Fund, Reserve Maintenance Fund, and Construction Fund, as defined in the trust agreement. She also said bondholders have an unsecured claim against the utility to be liquidated by a “reference to the value of future net revenues.”
The ruling was part of an adversary proceeding between U.S. Bank National Association as Trustee, the Ad Hoc Group of PREPA Bondholders, Assured Guaranty Corp. and Assured Guaranty Municipal Corp., National Public Finance Guarantee Corp., and Syncora Guarantee Inc. against the oversight board seeking a judgment that the $8.4 billion in PREPA bonds was secured by the utility’s 1974 trust agreement. PREPA has been in bankruptcy court since 2017 to restructure its almost $10 billion debt.
Bondholders on March 29 asked Swain to clarify that the clause “the remainder of the term of the bonds” doesn’t limit the time that bondholders have to exercise their rights and asked her to remove the language or change it to “at any time.”
In her March 31 ruling, Swain said she had previously advised the parties that the value of the unsecured net revenue claim as described in the March 22 order “must be determined consensually or through proceedings under section 502 of the Bankruptcy Code.”
“The several points of disagreement noted are not matters for clarification or reconsideration, but go to the determination of the value of the Unsecured Net Revenue Claim and thus are instead the proper subjects of proceedings under section 502 of the Bankruptcy Code or negotiations with the assistance of the Mediation Team, as contemplated by the order,” Swain said.
She reiterated that the parties must commence working with the mediation team immediately in good faith efforts to consensually resolve the outstanding disputes concerning the proposed plan of adjustment for the power utility.
The judge said the court expects the parties to address the impact of the trust agreement, economic projections, relevant contingencies, and any relevant bankruptcy and nonbankruptcy law on the estimation of the claim.