PREPA bondholders at odds over $3.7 billion expense claim litigation

By THE STAR STAFF

Bondholders of the Puerto Rico Electric Power Authority (PREPA) are at odds over whether to move forward with litigation tied to a $3.7 billion administrative expense claim, a dispute that surfaced during an omnibus court hearing this week.

While the bondholder groups remain unified in their opposition to PREPA’s current debt restructuring plan, they are split on how to proceed with the legal claim. Attorney G. Eric Brunstad, representing the PREPA ad hoc group, said nearly all bondholders who had previously supported the plan have now withdrawn, exercising their termination rights. He also noted that 92% of bondholders have signed a cooperation agreement that prevents the Financial Oversight and Management Board from conducting private negotiations with select creditors.

Brunstad, whose clients hold just under half of PREPA’s outstanding bonds, urged the court to allow litigation on the expense claim to move forward. But Thomas Lauria, representing the majority of bondholders -- including GoldenTree Asset Management, National Public Finance Guarantee Corp. and the Paul Weiss Group -- called for a pause, arguing that litigation could waste resources if the oversight board’s stance changes.

Lauria pointed to the uncertain composition of the oversight board, which currently has only four active members. Three were reinstated after a court reversed President Donald Trump’s decision to remove six members in August. The remaining three did not seek reinstatement. Since the board requires five members to approve any fiscal plan or debt restructuring, Lauria warned that any shift in membership could alter the board’s position on the claim.

Calling bondholders reluctant warriors, Lauria said they would prefer a negotiated resolution over costly litigation that might not yield results.

Brunstad pushed back, arguing that PREPA continues to spend bondholders’ collateral without consent, and further delays would only deepen the financial harm. He added that the oversight board itself had agreed that litigation should proceed.

Luc Despins, representing unsecured creditors, also supported moving forward, saying that waiting for a potentially more favorable board was speculative and inappropriate.

U.S. District Judge Laura Taylor Swain ordered all parties to meet and establish a timeline for the litigation process. While no start date was set, the parties must estimate how long each phase -- such as discovery -- will take.

PREPA has been in bankruptcy since 2017 to restructure over $9 billion in debt.