By The Star Staff
The federal judge overseeing the Puerto Rico Electric Power Authority’s (PREPA) bankruptcy, Laura Taylor Swain, has ordered certain creditors to show cause as to why their adversary proceeding accusing the Financial Oversight and Management Board of illegal vote buying should not be stayed until after the utility’s confirmation hearing on its debt deal.
“In light of the upcoming confirmation hearing on the Corrected Fifth Modified Third Amended Title III Plan of Adjustment of the Puerto Rico Electric Power Authority, which is scheduled to begin March 4, 2024 and the arguments presented in the Memorandum of Law regarding the Oversight Board’s motion to stay the Adversary Proceeding, the parties in the Adversary Proceeding are hereby ordered to show cause in writing as to why the Court should not stay the Adversary Proceeding pending resolution of the Confirmation Hearing,” the judge said in the order, adding that responses to the order must be filed by Jan. 3.
GoldenTree Asset Management and Syncora Guarantee sued in November alleging that the oversight board has given several groups, including National Public Finance Guarantee Corp., the fuel line lenders and the BlackRock Financial Management group, juicy debt settlements so that they vote in favor of PREPA’s plan of adjustment.
The oversight board has asked Swain to dismiss the case.
The board said the creditors’ action is designed to obstruct confirmation at all costs, not on the merits but rather based on litigation overload. The oversight board noted that the plaintiffs are creditors who allegedly own or insure approximately $886 million in PREPA bonds and who intend to object to confirmation of PREPA’s proposed debt plan. They are also seeking the designation of a receiver for PREPA.
The oversight board said further that the case should be dismissed because the court lacks subject-matter jurisdiction. The declaratory judgment action does not present an actual case or controversy; it seeks only an advisory opinion on the abstract question of whether certain votes were solicited or procured in bad faith, the board said.
Secondly, the oversight board also said the plaintiffs have not presented a ripe dispute.
“To the contrary, the Complaint raises issues concerning contingent future events that might never come to pass,” the board said. “As of the filing of the Complaint, not a single ballot had been cast in favor of, or in opposition to, PREPA’s proposed Plan. Unless and until such votes are cast, the Court should not waste time and effort seeking to determine whether such uncast ballots should be designated.”
The oversight board also said the complaint is defective because it omits bringing a whole host of necessary parties to the suit such as the creditors whose votes are at issue. The complaint should also be dismissed because it does not plead a cognizable claim for solicitation or procurement of votes not in good faith; it refers only to negotiations for and entry into the plan sponsorship agreements (PSAs), the board said.
“Case law is clear that negotiating and entering into a PSA that obligates a creditor to vote does not constitute soliciting or procuring a vote and thus is not actionable under section 1126(e),” the oversight board said.
The board also said the questions raised by the plaintiffs should be addressed during the confirmation hearing next year.
PREPA has been in bankruptcy since 2017 to restructure some $9 billion in debt under the Puerto Rico Oversight, Management and Economic Stability Act. A debt adjustment plan is expected to be confirmed next year.
EDITOR’S NOTE: So that our employees can enjoy the Christmas holiday, the STAR will not publish on Monday, Dec. 25, 2023.