Nov. 18 hearing set in PREPA bond revenue dispute as parties confront confidentiality questions
By THE STAR STAFF
U.S. District Judge Laura Taylor Swain has scheduled oral arguments for Nov. 18 in a closely watched phase of the long-running litigation over Puerto Rico Electric Power Authority’s (PREPA) bond debt, setting the stage for another key proceeding in a case that could influence how billions of dollars in claims are treated in the utility’s bankruptcy restructuring.
In an order issued Oct. 29, Swain said the court will hear arguments on competing motions for summary judgment filed by parties in adversary proceeding 19-00391-LTS, a lawsuit stemming from PREPA’s Title III bankruptcy case under the Puerto Rico Oversight, Management and Economic Stability Act, commonly known as PROMESA.
The hearing will take place during an omnibus session scheduled to begin at 9:30 a.m. Atlantic Standard Time on Nov. 18. The court said it will devote no more than two and a half hours to arguments on the cross-motions and directed the parties to coordinate in advance on how time will be divided among participants.
The adversary proceeding is one of the most consequential lawsuits associated with PREPA’s restructuring. Originally filed by the Financial Oversight and Management Board on behalf of PREPA against U.S. Bank National Association, the trustee for PREPA bondholders, the case centers on the rights of holders of more than $8 billion in PREPA bonds issued under a 1974 trust agreement.
At its core, the litigation seeks to determine what security bondholders possess over PREPA’s revenues and what claims they may assert in the utility’s bankruptcy. Bondholders have argued that they are entitled to broader claims against PREPA’s revenues, while the oversight board has maintained that their rights are more limited under the trust agreement and applicable bankruptcy law.
The case has already produced several landmark rulings. Judge Swain previously concluded that bondholders do not hold a continuing lien on all of PREPA’s present and future revenues and determined that their secured claims are limited to specific funds and accounts established under the trust agreement. The court also estimated a substantial unsecured claim for bondholders, a determination that became a critical component of negotiations over PREPA’s debt adjustment.
The latest phase of the litigation involves what have become known as the “accounting counterclaims,” disputes over how PREPA accounted for and handled revenues under the trust agreement and whether certain funds should have been deposited into accounts benefiting bondholders. The competing summary judgment motions now before the court seek rulings on those issues without the need for a trial.
The litigation involves a broad array of parties beyond PREPA and the bond trustee, including the Puerto Rico Fiscal Agency and Financial Advisory Authority, the Official Committee of Unsecured Creditors, several hedge funds and investment entities, labor unions, PREPA’s employee retirement system, bondholder groups and bond insurers.
In her latest order, Swain also highlighted a procedural issue that could complicate public discussion of the case during the hearing. The judge noted that filings related to the summary judgment motions and associated motions in limine (preliminary) contain extensive redactions.
As a result, the parties were ordered to meet and confer and submit a joint status report by Nov. 9 explaining how oral arguments can proceed in open court while addressing confidentiality concerns.
Specifically, the court directed the parties to indicate whether confidential designations attached to evidentiary materials will be removed, waived or otherwise resolved before the hearing, and to identify any remaining disputes regarding the treatment of sensitive information.
A decision on the summary judgment motions could narrow the issues remaining in the adversary proceeding or resolve key questions concerning PREPA’s management of revenues under the trust agreement. The outcome could have implications for the value of bondholder claims and ultimately for the structure of any final debt adjustment plan for the bankrupt utility.
