Oversight Board asks court to reject PREPA bondholders push for broader discovery.

Costa Sur in Guayanilla (AEE)

By THE STAR STAFF

Puerto Rico’s Financial Oversight and Management Board asked the federal court overseeing the Puerto Rico Electric Power Authority’s bankruptcy case to deny a renewed bid by PREPA bondholders to force additional document production, arguing the request is overbroad, duplicative, and aimed at privileged work product rather than the limited accounting issues the court has allowed to proceed.

Recently, the court partially lifted the litigation stay to allow the utility’s bondholders’ long‑pending accounting counterclaim to proceed, along with limited discovery focused on how PREPA’s revenues and expenses should be calculated under federal bankruptcy law and the governing bond trust agreement. 

In a filing submitted in the PROMESA Title III proceedings this week, the Oversight Board said it has already produced roughly 3,500 documents totaling nearly 180,000 pages in discovery tied to earlier litigation, including financial records underlying monthly operating reports from fiscal year 2014 through 2025, trial balances, cash-flow information, operational spending reports, and materials related to capital projects and grid planning. Those productions, the Board said, provide a detailed record of PREPA’s finances and operations across the pre- and post-bankruptcy periods and should be sufficient for the narrowly scoped accounting counterclaim now moving forward.

The dispute arises from long-running litigation between PREPA, represented by the Oversight Board, and groups of bondholders and insurers asserting rights under PREPA’s 1974 Trust Agreement. Bondholders have maintained that PREPA generated “Net Revenues” that should have been available for debt service and that PREPA’s reporting supports their interpretation. The Oversight Board has disputed that premise, contending that the monthly operating reports and certain historic disclosures rely on methodologies—such as recognizing revenue on an accrual basis—that do not match the Trust Agreement’s definition of “Revenues” as “moneys received.”

The Oversight Board told the court that earlier this year Judge Laura Taylor Swain lifted a litigation stay only for a “limited and discrete” purpose: to allow prosecution of the bondholders’ accounting counterclaim and “appropriate limited discovery” that is nonduplicative and proportionate. Against that backdrop, the Board said the bondholders’ renewed motion attempts to reopen expansive discovery fights from a now-denied administrative expense claim, including requests reaching far back into the pre-bankruptcy period and into materials the Board says are irrelevant to the methodology questions the court is trying to resolve.

Among the categories the bondholders seek, the filing said, are additional “prepetition” records to support a “course of performance” theory based on how PREPA historically prepared its monthly operating reports. The Oversight Board responded that it has already produced years of those reports and available source material, and that a demand for information “for as long as records exist” is not proportional to the needs of the current phase of the case.

The bondholders have also pressed for underlying source materials tied to PREPA bond offering documents from 2012 and 2013. The Oversight Board argued those materials have limited value for the present dispute and do not justify additional discovery burdens. The Board also pointed to prior findings that certain historic offering disclosures were unaudited and contained errors, and said those documents do not establish the “proper methodology” for calculating Net Revenues under the Trust Agreement.

Another flashpoint involves requests that, according to the Oversight Board, seek its internal analyses and those of its experts and lawyers—information the Board characterizes as protected work product. The bondholders say they need the factual basis for the Board’s contention that the monthly operating reports overstate revenues and understate expenses, but the Board replied that it has already produced the underlying factual data and that demanding the Board’s “current calculations” and categorizations of expenses would amount to premature expert discovery and intrusion into privileged materials.

The filing also rebuts a bondholder push to focus on the role of federal disaster and recovery funding in PREPA’s post-bankruptcy spending. The Oversight Board said it has already produced significant project-level materials describing funding sources and reimbursement pathways, including a “Master Tracker” updated in early 2026 and detailed project data from the private operators managing portions of the system. It criticized additional requests as an attempt to support what it called an “astonishing” theory that federal recovery funds should be treated as bondholder collateral, arguing those funds are restricted by statute to disaster recovery and grid resiliency purposes and were not intended to pay pre-existing bond debt.

Finally, the Oversight Board opposed demands for documents about annual budgets prepared under a section of the Trust Agreement, saying the definition of “Current Expenses” does not turn on whether an expense appeared in a budget and that any alleged budget noncompliance would at most support a breach-of-contract claim rather than advance the court’s targeted inquiry into how Net Revenues and necessary operating expenses should be determined.

The Oversight Board asked the court to deny the renewed motion in full, saying the bondholders’ requests risk expanding discovery beyond what the court authorized and slowing progress toward resolving the methodological questions that the court has identified as a necessary step toward moving PREPA’s restructuring case forward.