PREPA, AAFAF, creditor group oppose use of a debt mediator

By The Star Staff

The Puerto Rico Electric Power Authority (PREPA), the Fiscal Agency and Financial Advisory Authority (AAFAF by its Spanish initials) and the Unsecured Creditors Committee objected on Monday to a request for a mediator to renegotiate PREPA’s $10 billion debt and one that would impose deadlines on resolving the utility’s bankruptcy.

AAFAF and PREPA said they are committed to working with the Financial Oversight and Management Board to achieve a sustainable restructuring of Puerto Rico’s debt. But PREPA, its creditors, and the people of Puerto Rico will not benefit from the artificial deadlines urged by the Ad Hoc Group of PREPA bondholders, they said.

“The RSA [restructuring support agreement] as written requires legislation to implement the restructured bonds’ securitization structure. … AAFAF and PREPA agree with the oversight board and the Ad Hoc Group that mediation can play an important role in bringing PREPA’s Title III case to an appropriate conclusion,” the entities said. “However, AAFAF and PREPA do not agree with the Ad Hoc Group’s request that mediation occur solely with the oversight board and solely on limited ‘mechanics’ of RSA implementation.”

“AAFAF and PREPA are indispensable parties to any negotiation with the bondholders and other parties in interest in these cases,” they said. “AAFAF and PREPA have been party to all of the material negotiations and litigations in PREPA’s Title III case — AAFAF and PREPA are both parties to the RSA and the motions before the Court associated therewith. AAFAF and PREPA agree with the oversight board that mediation should not only include bondholders, but should also include all significant parties in interest in this Title III case.”

AAFAF and PREPA said they do not object to former Judge Barbara Houser serving as mediator; however if PREPA’s complex restructuring is mediated by a non-judicial mediator, maximally productive negotiations may require appointment of a mediator with experience in the utility sector, they said.

Finally, they said the Ad Hoc Group’s mandatory deadlines for a plan of adjustment are unrealistic and counterproductive. The group wants an April deadline for a plan of adjustment.

The Unsecured Creditors Committee said it has long known and has been asserting in its filings with the court for nearly two years that despite the oversight board’s repeated assertions that it remains committed to the settlement in the RSA it entered into with PREPA bondholders in May 2019, no actionable settlement agreement exists any longer — and apparently has not for some time.

“If an agreement did exist, the PREPA bondholders would not have filed the Motion asking the Court, apparently against the Oversight Board’s wishes, to appoint a mediator to facilitate a resolution of the outstanding disagreements between the Oversight Board and the PREPA bondholders and regardless of the outcome of that mediation, impose binding deadlines on the Oversight Board to file and prosecute a plan of adjustment for PREPA,” the committee said.

“As the Committee has argued previously, because no actionable settlement exists, it is inappropriate for the Oversight Board to let the 9019 Motion, which seeks approval of such nonexistent settlement, languish on the docket for the sole purpose of ‘occupying the field’ and preventing the Committee — and any other party in interest — from objecting to the PREPA bondholders’ claims,” the committee said.

To be clear, the committee said, it is not opposed to mediation to try to reach a global resolution with all parties in interest, including the committee, regarding a PREPA plan of adjustment.

“No global resolution will occur, however, if the PREPA bondholders and the Oversight Board are allowed to negotiate a deal among themselves first and then attempt to involve the Committee and other parties later,” the group said. “This approach has not succeeded in the past in these cases — including when the Oversight Board mediated unilaterally with the HTA [Highways and Transportation Authority] bondholders in the HTA case, relegating the Committee to the sidelines until after the Oversight Board reached a deal with the HTA bondholders — and will inevitably fail again here. Any mediation process must involve all of PREPA’s key stakeholders, including most notably the Committee.”