Oversight board’s promise to pay legal expenses of all parties to PREPA RSA called into question
By The Star Staff
At a time when legal fees for the island’s bankruptcy processes have reached the $858 million mark, the Financial Oversight and Management Board has agreed to pay the professional fees of all of the parties to the Puerto Rico Electric Power Authority’s (PREPA) restructuring support agreement (RSA), which was negotiated in 2019.
Fee Examiner Brady Williamson submitted to the U.S. District Court last week a report in which he provided an update on the legal fees of professionals subject to review under the Title III bankruptcy process of the federal Puerto Rico Oversight, Management and Economic Stability Act (PROMESA). Puerto Rico has been billed for $831.9 million in fees and $26.4 million in expenses.
The oversight board said in a statement that the high costs were unavoidable because Puerto Rico’s approximately $130 billion bankruptcy is the largest in municipal bond history, exacerbated by economic decline, recession, significant outmigration, and natural disasters, but failed to mention that it had agreed as part of PREPA’s RSA to pay the legal fees of all the parties, including the utility’s creditors, an action that Williamson objected to.
“The prospect that the commonwealth or PREPA would reimburse dozens of commercial parties for professional compensation or compensate their professionals directly -- without limit, without review, and without court approval -- appears inconsistent with PROMESA’s commitment to transparency and fiscal responsibility,” the fee examiner said.
The provision could also go against the provisions of the Bankruptcy Code, Williamson noted.
PREPA has been in bankruptcy since 2017 and reached a debt deal in 2019 with its creditors. Because of the impact of the global pandemic on revenues, the RSA has to be reevaluated and renegotiated.
“All I can say is that extending the bankruptcy process, which has been very long, has resulted in elevated legal fees that definitely are detrimental to consumers,” said Tomás Torres, the consumer representative to the PREPA governing board. “Legal fees must be minimized to the benefit of the consumers.”
Popular Democratic Party Rep. Luis Raúl Torres expressed surprise upon learning of the provision and questioned the need for its inclusion in the RSA. As chairman of the House Energy Committee, the lawmaker is launching an investigation this month into PREPA’s contract with LUMA Energy to manage the utility’s transmission and distribution system and is holding public hearings on other matters related to PREPA through another investigative initiative.
“We are going to be conducting an investigation into PREPA’s debt with its bondholders because the more we examine things, the more flaws we find,” he said.