Judge orders PREPA debt deal talks extended through Aug. 1

By The Star Staff

U.S. District Court Judge Laura Taylor Swain, who is overseeing Puerto Rico’s bankruptcy cases under Title III, agreed Wednesday to extend through Aug. 1 the mediation that seeks to obtain a deal to restructure the $9 billion debt of the Puerto Rico Electric Power Authority (PREPA).

It was the second time the Financial Oversight and Management Board had sought an extension after mediators were unable to reach an agreement by June 1.

At the deadline, the oversight board must file either a plan of adjustment, a term sheet for a plan of adjustment, a litigation schedule, or a declaration and memorandum of law showing cause why the court should not consider dismissal of PREPA’s Title III case.

The Unsecured Creditors Committee opposed the extension in part and asked the court to allow certain litigation to move forward on two discrete legal issues: The first is whether the PREPA bondholders’ security interest is limited to funds actually deposited into specified accounts held by the PREPA bond trustee (in the amount of around $8 million as of PREPA’s petition date); and the second on whether the PREPA bonds are non-recourse obligations such that the PREPA bondholders have no claim against, and are not entitled to distributions from PREPA for any difference between the face amount of the bonds and the funds on deposit in the specified accounts. The Electrical Industry and Irrigation Workers Union (UTIER by its Spanish acronym) and the Former PREPA Workers Retirement System (SREAEE by its Spanish initials) asked to be included in the negotiations.

“The Court is persuaded by the Mediation Team’s extension request that there is still productive work to be done in the mediation context over the next month, and has concluded that the commencement of litigation (even litigation regarding litigation priorities) in that timeframe would impair the opportunity for progress in the negotiation,” Swain ordered. “Further, the Court expects that the Oversight Board will fulfill its representation that it is ‘committed to negotiating with all of its most important stakeholders,’ and that it will continue to engage in discussions with, inter alia, the Committee, UTIER, and SREAEE ‘in coordination with the Mediation Team.’”

Swain said the termination date may be further extended only upon the court’s approval after notice of such additional proposed extension to parties in interest; provided, however, the termination date may be extended by the mediation team for purposes of its involvement in any secondary or drafting items.