PREPA bondholders ask appeals court to revive challenge to decade-long bankruptcy stay
By THE STAR STAFF
For the fifth time over the past few years, a coalition of Puerto Rico Electric Power Authority (PREPA) bondholders has asked the U.S. Court of Appeals for the First Circuit to hear its appeal of a lower court order that has prevented creditors from pursuing relief from PREPA’s bankruptcy protections for years, arguing that the delay is allowing their collateral to be steadily depleted without compensation.
In a filing submitted last week, bondholders including GoldenTree Asset Management, Syncora Guarantee, Assured Guaranty, National Public Finance Guarantee, the PREPA Ad Hoc Group and U.S. Bank, as trustee for PREPA bondholders, urged the First Circuit to reject a jurisdictional challenge and proceed with an appeal stemming from U.S. District Judge Laura Taylor Swain’s refusal to lift a litigation stay that has blocked efforts to seek relief from the Puerto Rico Oversight, Management and Economic Stability Act’s (PROMESA) automatic stay.
The bondholders contend that the district court’s actions have effectively kept them “out of court” for at least four years, despite repeated attempts to pursue motions designed to protect their collateral interests in PREPA revenues.
“The district court has, for at least four years, prevented them from prosecuting numerous motions for relief from the automatic stay that they filed to protect their collateral from dissipation,” the creditors argued.
At the center of the dispute is whether bondholders can move forward with motions seeking adequate protection for their security interests while PREPA’s Title III restructuring remains unresolved. PREPA’s bankruptcy case, filed in 2017 under PROMESA, has now entered its 10th year without a confirmed plan of adjustment.
The creditors argue that the prolonged delay is particularly significant because the First Circuit previously ruled that PREPA bondholders hold a perfected lien on the utility’s past, present and future net revenues. The appeals court’s 2024 decision reversed earlier findings that had limited the scope of those lien rights.
According to the filing, bondholders have sought relief from the automatic stay on five separate occasions since PREPA entered Title III proceedings. Their initial request came just days after PREPA’s bankruptcy filing in July 2017. Although the First Circuit later ruled that secured creditors could pursue stay-relief motions, subsequent efforts were either stayed or deferred as settlement negotiations and litigation over the scope of the bondholders’ collateral continued.
The bondholders argue that the district court’s latest order, issued in May 2026, indefinitely continues a broader litigation stay imposed in July 2024, preventing them from pursuing pending motions seeking relief from the automatic stay.
They contend the delay threatens irreparable harm because PREPA continues spending revenues that serve as bondholder collateral while debt service remains unpaid. More than $8.4 billion in principal and interest was outstanding on PREPA bonds when the utility entered bankruptcy, according to the filing.
The creditors also pointed to what they describe as a contradiction in the oversight board’s legal position. While the district court recently ruled that bondholders cannot recover administrative-expense claims for the alleged depletion of their collateral, the bondholders noted that the oversight board has simultaneously argued in a separate appeal that creditors should first obtain a ruling on adequate protection through stay-relief proceedings before seeking such compensation.
“The Board cannot simultaneously argue to this Court that the denial of the Bondholders’ administrative-expense claim should be affirmed for failure to seek adequate protection while at the same time arguing to the district court that the litigation stay should continue to bar Bondholders from even filing a motion to seek that very relief,” the filing states.
