LUMA Energy, PREPA bondholders object disclosure statement
By The Star Staff
LUMA Energy and some of the Puerto Rico Electric Power Authority (PREPA) creditors have filed objections in the Title III Bankruptcy Court to PREPA’s disclosure statement for its debt adjustment plan, arguing that certain unsecured creditors will get more money than secured creditors.
PREPA has been in bankruptcy since 2017 to restructure some $9 billion in debt. The Financial Oversight and Management Board (FOMB) recently filed a debt adjustment plan, the third one, to restructure the debt. The FOMB also filed a disclosure statement explaining in layperson’s terms, the restructuring.
LUMA Energy, the private operator of PREPA’s transmission and distribution system since June 1, 2021, filed a limited objection, arguing the Disclosure Statement lacks adequate information to allow stakeholders to make an informed decision on whether to support the debt deal.
The Disclosure Statement does not accurately describe LUMA’s role concerning PREPA. While the debt deal says LUMA is tasked with providing the data and projections, the private operator noted that the debt deal should specify that LUMA relies on guidance from other professionals, such as Siemens AG, which provides the critical fuel and power cost projections, and the FOMB which provides macroeconomic predictions.
LUMA officials also said the Disclosure Statement does not accurately describe why the FOMB filed a third amended adjustment plan. The Oversight Board received from LUMA and PREPA updated information and data which projected cost increases related to insurance and fuel for PREPA’s Generation fleet, which were significantly above those projected in the 2022 PREPA Fiscal Plan.
LUMA also said the Disclosure Statement should disclose that the proposed adjustment plan would eliminate the electric bill transparency requirements under Puerto Rico law by purporting to preempt a law that ensures that customers’ bills contain clear, itemized categories of charges. “Similarly, the Disclosure Statement should specify that the Legacy Charge will be a separate, itemized charge on customers’ bills,” LUMA Energy said.
GoldenTree Asset Management LP, which holds $828 million in PREPA bonds, said the debt deal violates both the spirit and the letter of applicable law as some bondholders get better treatment than others despite having the same type of claim.
One group of bondholders receives premium recoveries compared to other bondholders because they entered into agreements with the FOMB to support the debt deal. The Plan also contains a mechanism under which the first two-thirds of Bondholders in Class 3 or Uninsured Bondholder Unsecured Claims who support the Plan will share in a $210 million so-called “RSA Fee” not available to all Bondholders. In addition to receiving the RSA Fee, a group of five individual bondholders who are former members of the Ad Hoc Group of Bondholders, are obtaining divergent recoveries through out-of-market fees and above-market interest for providing financing that the Oversight Board did not seek from the market and that the Oversight Board cannot shop or improve upon.
Golden Tree said the Fuel Line Lenders, who have unsecured claims, are unjustifiably receiving materially superior treatment compared to bondholders who have secured claims simply because they entered into agreements with the Oversight Board to support the debt adjustment plan.
Under the Plan, bondholders are to receive markedly different treatment, with some receiving more than their allowed claims and others having their claims effectively wiped out, Golden Tree said.
“Three of the five unsecured bondholder claim classes (Classes 3, 5, and 7) are provided the same 12.5% baseline recovery on account of the estimated amount of their claim. Bondholders in these classes, however, may receive an increased recovery as a carrot, but only if they vote to accept the Plan and surrender to an improper and unprecedented individual deathtrap election that punishes individual Bondholders for voting against it. In two other unsecured bondholder claim classes (Classes 1 and 9), preferred Bondholders not only receive a premium recovery compared to the other three unsecured Bondholder classes, but these Bondholders may receive distributions that exceed 100% of their share of their estimated allowed claim,” Golden Tree said.
Golden Tree said bondholders among the first to settle their debt are entitled to more than 175% of their share of their estimated allowed unsecured claim. National, a bond insurer, could receive a 245% distribution on its portion of the same claim. “It is impermissible to pay a creditor more than its allowed claim (no matter how badly the debtor needs its vote). Additionally, in a complete reversal from all predecessor plan proposals, the Oversight Board will no longer distribute new debt to PREPA’s creditors under the Plan; rather, it will needlessly sell bonds to the handful of former Ad Hoc Group Bondholders comprised of BlackRock, Whitebox, Taconic, Franklin, and Nuveen. The Oversight Board will then use the proceeds of that sale to provide cash recoveries to creditors. None of the proceeds of this debt issuance are going to fund PREPA’s operations,” Golden Tree said.
Golden Tree said that the Oversight Board intends to buy the votes of most of the former Ad Hoc Group members, thereby fracturing its longstanding position and neutering its professionals from continuing to defend bondholder rights.
PREPA’s retirement system and the utility’s workers’ union, UTIER, also filed objections to the disclosure statement.