Omnibus hearing expected to spotlight friction between gov’t, PREPA bondholders

U.S. District Court Judge Laura Taylor Swain

By THE STAR STAFF

An omnibus hearing scheduled for this Wednesday is expected to spotlight growing friction between Puerto Rico Electric Power Authority (PREPA) bondholders and the island’s Financial Oversight and Management Board over the handling of discovery tied to a $3.7 billion administrative expense claim.

The dispute came to a head in a joint status report filed on Nov. 24, when the bondholders accused the oversight board of using the report to “approximate a motion for a protective order” rather than comply with court instructions. U.S. District Judge Laura Taylor Swain, who oversees Puerto Rico’s Title III bankruptcy proceedings, had directed both sides to propose a timeline for limited and targeted discovery into the bondholders’ claim.

Bondholders argue they are entitled to an administrative expense claim on net revenues PREPA spent during its years-long bankruptcy, a position that could significantly impact creditor recoveries. In their filing, they criticized the oversight board for failing to provide “the specific information actually requested by this court,” noting that the oversight board did not outline a discovery schedule and instead asserted that document production was largely complete.

The oversight board countered that it had already been responsive to document requests and said there was little left to produce. It also argued that it could not “discuss or assist” with discovery until after its rate review proceeding before the Puerto Rico Energy Bureau, a process that could influence PREPA’s future revenue structure, concludes on Dec. 19.

Complicating matters is the current state of the oversight board itself. The case remains stayed while the board undergoes reconstitution following President Donald Trump’s decision in August to remove most of its members. Although some members were reinstated by court order, the board still lacks a five-member quorum, leaving key decisions in limbo.

Swain has emphasized that any discovery process should be “limited and targeted,” but the lack of consensus between the parties -- and the oversight board’s internal uncertainty -- has slowed progress. Bondholders maintain that the oversight board’s approach effectively seeks to shield it from further obligations, while the board insists it has already fulfilled its responsibilities.

The administrative expense claim represents one of the most contentious issues in PREPA’s restructuring. If granted, it could give bondholders priority over other creditors, reshaping the financial landscape of the utility’s bankruptcy. PREPA, which has been under Title III protection since 2017, is the largest public power utility in the U.S. and a critical component of Puerto Rico’s economic recovery.

Wednesday’s omnibus hearing is expected to address the procedural disputes and set the tone for how discovery -- and potentially the broader claim -- will move forward once the oversight board regains full functionality.