Judge partially lifts litigation stay to settle PREPA debt

U.S. District Judge Laura Taylor Swain

By The Star Staff

U.S. District Judge Laura Taylor Swain has ordered a partial lifting of the litigation stay and set new deadlines to settle the main disputes that have prevented the resolution of the Puerto Rico Electric Power Authority’s (PREPA) bankruptcy, filed in 2017.

The judge agreed to lift PREPA’s litigation stay to litigate the debt adjustment plan, which must be turned in by this Friday. Bondholders who have refused to settle their debt dispute (non-settling bondholders) will also be able to litigate their administrative expense motion, in which they also claim that PREPA has used billions of dollars of their collateral during the pendency of the bankruptcy. The claims are entitled to the highest priority in distribution of the assets of the estate.

“The stay of PREPA plan confirmation and bond-related litigation in PREPA’s Title III Case is extended sine die except as specifically provided herein,” the judge said.

The order was filed after last week’s omnibus hearing.

Swain lifted the litigation stay to permit the Financial Oversight and Management Board, which represents PREPA in its bankruptcy, to file an amended proposed plan of adjustment and amended proposed disclosure statement for PREPA. The judge said those materials must be filed by March 28.

She also lifted the litigation stay to permit litigation concerning a motion for allowance of an administrative expense claim against the utility. The Non-Settling Bondholders are directed to file their administrative expense motion on April 7. The oversight must file its objection to the administrative expense motion on April 28.

Joinders to the oversight board’s objection must be filed by May 2 of this year while the Non-Settling Bondholders’ reply in support of the administrative expense motion must be filed by May 16, 2025.

Following completion of briefing, Swain said the court will take the administrative expense motion under advisement and the parties are directed to meet and confer and file a joint status report on May 30.

“The joint status report must provide a proposed discovery plan and order approving such plan setting forth the timetable and deadlines for targeted limited discovery necessary for the resolution of the Administrative Expense Motion,” she said.

The oversight board has argued that the primary concern in the administrative expense motion is whether the claim is recourse, as non-recourse claims can only be paid from net revenues like the main claim. The recently released fiscal plan indicates that PREPA will not generate sufficient net revenues, raising questions about the bondholders’ constitutional right to collateral, which they assert as a basis for their claims.

The oversight board’s position highlights the importance of distinguishing between recourse and non-recourse claims, as the latter are only payable from the same source as the main claim, in this case, net revenues.

The judge also allowed the lifting of the stay to permit the oversight board to file a motion concerning the proper classification of the PREPA Bond Trustee’s claim. The board was directed to file the classification motion on April 7. Parties in interest supporting the classification motion must file non-duplicative supplemental briefs on April 11.

The PREPA Bond Trustee and/or the Non-Settling Bondholders must file their objection to the classification motion on April 28. Joinders to the objection must be filed by May 2. Replies must be filed on May 16.

The court will thereafter take the classification motion on submission, unless it determines that a hearing is necessary, the judge said.