The San Juan Daily Star
PREPA bondholders ask judge to clarify order on security of debt
By The Star Staff
Puerto Rico Electric Power Authority (PREPA) bondholders are asking U.S. District Court Judge Laura Taylor Swain to clarify her March 22 order on the security of the utility’s debt before engaging in new mediation.
Swain had ruled that payment of the $8.4 billion PREPA 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 ruling was part of an adversary proceeding between U.S. Bank National Association as Trustee, the Ad Hoc Group of PREPA Bondholders, Assured Guaranty Corp. and Assured Guaranty Municipal Corp., National Public Finance Guarantee Corp., and Syncora Guarantee Inc. against the Financial Oversight and Management Board seeking a judgment that the $8.4 billion in PREPA bonds was secured by the utility’s 1974 trust agreement. PREPA has been bankrupt since 2017 to restructure its almost $10 billion debt.
Bondholders on March 29 asked Swain to clarify that the clause “the remainder of the term of the bonds” doesn’t limit the time that bondholders have to exercise their rights, and asked her to remove the language or change it to “at any time.”
The bondholders pointed to the oversight board’s public remarks that the phrase indicates there is a time limitation.
“Clarification of this point is essential to allow for the possibility that the parties engage in a fruitful and immediate return to mediation as the court directed,” bondholders said.
Accordingly, the bondholders said the judge’s order confirms that the trustee and PREPA’s bondholders will have an allowed unsecured claim in the amount of net revenues that could have been made available to them, outside of Title III, if PREPA were compelled to charge and collect reasonable rates and to pay bondholders under terms of the Trust Agreement.
“That unsecured claim, which represents the right to seek payment through the exercise of remedies, is not limited to any particular period of time but continues while the bonds remain unpaid,” the bondholders said. “Under the Trust Agreement, the bonds and rights and remedies under the Trust Agreement remain in full force and effect until the bonds are paid in full and defeased.”