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  • Writer's pictureThe San Juan Daily Star

Judge sets July 10 status hearing for PREPA’s bankruptcy

U.S. District Judge Laura Taylor Swain

By The Star Staff

The judge overseeing the Title III bankruptcy of the Puerto Rico Electric Power Authority (PREPA) has scheduled a status conference for July 10 in New York following the recent U.S. First Circuit Court ruling that handed PREPA bondholders a victory in their ongoing battle to come out of the utility’s bankruptcy with as much money as possible.

The Financial Oversight and Management Board asked U.S. District Judge Laura Taylor Swain to reopen the record of PREPA’s confirmation hearing to ascertain how much the utility will pay to its bondholders after the U.S. First Circuit ruled on June 12 that PREPA bondholders’ secured credits against the utility extend to PREPA’s net revenues.

The ruling means consumers can expect a possible hike in utility rates.

The First Circuit overturned a lower court ruling in deciding that PREPA bondholders have a secured interest against the utility that extends to PREPA’s net revenues and includes the bonds’ principal and interest, estimated at $8.5 billion.

The oversight board said on June 17 that because the First Circuit ruled the bonds are secured by an unavoidable security interest in net revenues, the PREPA Plan must pay in full the value of that security interest or its indubitable equivalent.

“Therefore, the Oversight Board plans to request a reopening of the confirmation hearing record for the limited purpose of valuing the non-settling bondholders’ share of the net revenues and showing the court how such value as determined by the court will be paid,” the oversight board said at the time.

The board said it believes its action will enable the PREPA plan to be confirmed if the court determines it is otherwise confirmable. “While the Board understands some bondholders desire to prosecute accounting claims for purported misuse of prior net revenues, if they existed, the Board believes its payment of the full value of the bondholders’ collateral moots the relevance of the accounting claims because the First Circuit ruled they can only be paid from the collateral because the bonds are non-recourse and may not file unsecured claims,” the oversight board said.

“In substance, the distribution that the amendments will provide to the non-settling bondholders and monoline insurers shall equal the value of their interest in the Net Revenues and the means by which the additional payment will be provided,” the board said.

The law firm Dechert represented the municipal bondholders on the matter.

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