The San Juan Daily Star
PREPA bond trustee says it will oppose debt adjustment plan
By The Star Staff
U.S. Bank National Association, the Puerto Rico Electric Power Authority’s (PREPA) bond trustee, said it will oppose the utility’s debt adjustment plan as it advised bondholders that they have until June 7 to vote for or against it.
The information is contained in a filing to the markets, according to the Electronic Municipal Market Access (EMMA). June 7 is the deadline for bondholders insured by U.S. Bank National Association to complete an election regarding their treatment and rights, and the deadline to object to the confirmation of the proposed plan. It is unclear how the vote will impact the approval of the debt plan since bondholders account for a significant portion of the utility’s $10 billion debt.
“The PREPA bond trustee opposes confirmation of the proposed plan on numerous grounds,” the bond trustee’s filing said. “The trustee currently intends to coordinate with members of the majority bond group to oppose confirmation of the proposed plan and anticipates jointly seeking leave for an interlocutory appeal of the summary judgment order together with the majority bond group.”
On March 22 of this year, the U.S. District Court in San Juan issued an opinion and order in a Lien and Recourse Litigation upon cross motions for summary judgment. In the order, the Title III bankruptcy court rejected the position of the PREPA bond trustee and majority bondholders that the indebtedness evidenced by the bonds is secured by a lien in all of PREPA’s future revenues of the system. Instead, the Title III court granted partial summary judgment in favor of the Financial Oversight and Management Board and ruled that the Trust Agreement only created a security interest in the moneys actually deposited by PREPA to the Sinking Fund, Self-Insurance Fund, Capital Improvement Fund, Reserve Maintenance Fund and Construction Fund.
“This is an adverse ruling because it limits the security interest securing the Bonds to relatively small sums of money that are insufficient to provide a material recovery to Bondholders on account of the PREPA Bond Trustee’s secured bankruptcy claim,” the EMMA publication says.
With respect to the PREPA bond trustee’s unsecured claim based on the bonds and the Trust Agreement, the Title III court rejected the argument advanced by the oversight board and the Official Committee of Unsecured Creditors that the amount of the unsecured claim held by the PREPA bond trustee could be no greater than its secured claim. The Title III court ruled that the PREPA bond trustee holds an unsecured claim based upon PREPA’s payment and equitable relief covenants in the Trust Agreement.
The Title III court, however, declined to rule that the amount of the PREPA bond trustee’s unsecured claim was equal to the full amount of the bond indebtedness. Instead, the court indicated that it intends to conduct additional proceedings.
“Under the proposed plan, a Class 2 unsecured claim is to receive the same treatment as general unsecured creditors,” the filing says. “... The PREPA Bond Trustee opposes confirmation of the Proposed Plan on numerous grounds, and nothing herein is intended to constitute a waiver or admission with respect to any of the rights of the PREPA Bond Trustee or grounds for opposing confirmation of the Proposed Plan.”
Confirmation hearings on the oversight board’s proposed PREPA adjustment plan under the Title III case are scheduled for July 17-28, according to the document.
Separately, PREPA’s retirees on Tuesday sought a meeting with Gov. Pedro Pierluisi Urrutia to discuss the future of the utility’s retirement system, which under the plan will change to a “Pay as You Go” structure.