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  • Writer's pictureThe San Juan Daily Star

Judge sets limits on proceeding to determine size of PREPA bondholders’ claim

U.S. District Court Judge Laura Taylor Swain

By The Star Staff

The judge overseeing the Puerto Rico Electric Power Authority (PREPA) bankruptcy said in a recent order that the proceeding to determine the amount of the bondholders’ claim will be limited. U.S. District Court Judge Laura Taylor Swain said that after reading the different motions, she intends to hear the various positions regarding the claim size.

“The court intends the … process to be appropriately informed by fact, and to respectfully give hearing to the separate viewpoints of the several parties, but the proceedings will be -- as is appropriate -- a true estimation process, not a protracted trial to establish a precise computation of the unsecured net revenue claim,” Swain said in her April 13 order.

Swain set the claims estimation hearing for June. The order is part of the FOMB et al. v US Bank National Association et al., adversary proceeding in PREPA’s bankruptcy case.

On March 22, Swain rejected bondholders’ position that they are entitled to fully recover their $8.4 billion debt because it is secured. Instead, the court held that the 1974 trust agreement granted the bondholders security interests only in amounts of money deposited to the Sinking Fund, Self-insurance Fund, Capital Improvement Fund, Reserve Maintenance Fund, and Construction Fund, as defined in the trust agreement.

Swain also ruled that the bondholders have perfected their liens in the Sinking Fund, Self-insurance Fund, and Reserve Maintenance Fund, over which the trustee had established control. However, the judge said the bondholders have no security interest in the covenants and remedies provided for by the 1974 trust agreement on the bonds.

She said the bondholders have an unsecured claim to be liquidated by reference to the value of future net revenues. The judge launched a process to estimate the amount of the bondholders’ claim. In the April 13 order, she set guidelines to help the parties make a decision.

“The informative motions underscore the continuing deep divisions between the parties -- disagreements on basic principles which have the effect of preventing the accord necessary to resolution of the dispute at hand,” Swain ruled. “Some guidance, therefore, should assist the parties in their deliberations and negotiations.”

Swain said that when she referred to the “term of the bonds” in her March 22 order, she was not referring to the stated maturity of each bond, as the Financial Oversight and Management Board contended, nor, as bondholders argue, did she mean the bonds effectively had no expiration.

“When formulating their positions as to the remainder of the term of the bonds, the court advises the parties to consider the period of time during which the bondholders would be in a position to realize legal or equitable relief in the aid of recovery,” she wrote.

Swain said she expected the parties to engage in good-faith negotiations.

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