By The Star Staff
U.S. District Court Judge Laura Taylor Swain has set a schedule of matters to be discussed in the Puerto Rico Electric Power Authority (PREPA) bond claim estimation hearing set for Tuesday.
Last week, she said on June 6 she will hear legal arguments, on Wednesday, June 7 there will be an evidentiary hearing, and Thursday, June 8 will be the day for closing arguments.
Previously, Swain has said that the size of the bonded debt claim should guide the plan of adjustment for PREPA’s debt, which is about $9 billion.
In March, Swain ruled that payment of PREPA’s $8.4 billion bonded debt is not secured by a 1974 Trust Agreement. She said bondholders have security interests only in sums deposited to the Sinking Fund, Self-insurance Fund, Capital Improvement Fund, Reserve Maintenance Fund, and Construction Fund, as defined in the Trust Agreement. She also said bondholders have an unsecured claim against the utility to be liquidated by a “reference to the value of future net revenues.”
The Financial Oversight and Management Board for Puerto Rico, which represents PREPA in the proceedings, had a plan of adjustment that in the event they won against the bondholders in a lien challenge, they would receive less than 1% of the payment.
In the Lien Challenge opinion, the court held that bondholders have “an unsecured claim to be liquidated by reference to the value of future Net Revenues.”
According to the oversight board, the unsecured net revenue claim is approximately $2 billion.
The bondholders said the court has held that the claim arises from equitable remedies and that estimation is therefore necessary to determine the allowable amount of that claim.
“Thus, the inquiry here is, What amount would Bondholders have had the right to be paid through their equitable remedies outside of Title III as of the Petition Date?” the bondholders said. “The answer is that the allowed amount of the PREPA Bond Trustee’s Claim is the full $8.4 billion of outstanding principal and unpaid pre-petition interest.”
PREPA’s retirement system (SREAEE by its Spanish initials) said the amounts owed in pensions must be discounted from PREPA’s revenues as part of the determination of net revenues. To that extent, those amounts must be subtracted from PREPA’s revenues from that period to reach the net revenues.
“Moreover, should the Unsecured Net Revenue Claim be calculated up to their maturity date, the future contributions for SREAEE must be considered. Pursuant to the SREAEE Bylaws, these payments include employer contributions as well as administrative costs of SREAEE,” the bondholders said.
Those amount to an additional projected total of $5.0679 million through 2060.
PREPA has been in bankruptcy since 2017 to restructure almost $10 billion in debt.
While it is subject to change, the PREPA debt plan in essence proposes to restructure PREPA’s debt principally through an issuance of $5.68 billion of new bonds to fund partial recoveries on creditors’ claims. PREPA owns about $8.26 billion in revenue bonds, plus some $218 million in prepetition accrued interest on such bonds. The utility also owns $700 million in fuel line loans and projects some $246 million to $4.9 billion in general unsecured claims. It also has over $3 billion in unfunded pension liabilities.
Under the proposed plan, PREPA will pay for the new bonds over a 35-year period through revenues from a legacy charge to PREPA’s customers. This legacy charge comprises a monthly flat fee for customers’ connection to PREPA’s power grid and volumetric charges based on energy consumption.
The oversight board determined the legacy charge by developing a view of what it deems affordable for PREPA’s customers, concluding that an affordable and sustainable legacy charge will generate only $5.68 billion in additional net revenues.