PREPA bondholders, creditors object to disclosure hearing schedule
By The Star Staff
Puerto Rico Electric Power Authority (PREPA) bondholders and creditors have filed numerous objections this week to the authority’s request for a schedule for the disclosure hearing that would pave the way for the utility’s exit from bankruptcy.
The Title III court expects to hold a hearing on the adequacy of the contents of the disclosure statement in February. The disclosure statement is the document that explains the terms of the restructuring of PREPA’s estimated $10 billion debt. PREPA has been in bankruptcy since 2017.
The Ad Hoc Group of PREPA Bondholders objected to the scheduling because it restricts creditor discovery until after March 2023, which is a problem because under the plan, creditors must choose whether to settle their claims or not.
Under the plan, PREPA bondholders would have between Dec. 28 and Feb. 15, 2023 to either agree to the plan or continue litigating.
The plan seeks to encourage settlement of bonded debt claims by its inclusion of two separate classes for bond claims. Bondholders and monoline insurers that settle their claim would recover about 50% to 100% of the value of their investment. Under the second class for bonded claims, bondholders that opt to litigate their claims would get a lesser recovery. The Financial Oversight and Management Board, as part of the litigation, is seeking to disallow secured claims held by the bondholders beyond the estimated $16 million in funds actually deposited in the Sinking Fund, and to limit any potential recourse, secured or unsecured, to the monies deposited in the Sinking Fund.
“There is no conceivable benefit to interested parties or the court from forcing all parties to sit on their hands for more than two months before plan-related discovery begins, only then to have to sprint to try to pack everything into only a few short weeks,” the Ad Hoc Group argued. “Not only would that process be unfair and unwarranted, but it also all but begs for even one discovery dispute, production issue, or scheduling kerfuffle to materially delay the confirmation hearing.”
The Ad Hoc Group also says the schedule provides a small amount of time for discovery. The group also listed its objections, calling the plan a “patently unconfirmable placeholder.” They argue the plan is unconfirmable because in the event bondholders win the litigation, it would pay them less than they are owed. It pays fuel line lenders ahead of bondholders, does not disclose the deal struck with National, and it pays creditors billions of dollars less than PREPA said it could pay in a Nov. 8 mediation meeting, the group says.
Bond insurer Syncora also objected because of the time limitations to the discovery. It also said that splitting bondholders into groups based on their acceptance of the plan -- especially before the court approves the disclosure statement -- was “irreconcilable” with bankruptcy law.
“There is no way the oversight board believes ‘in good faith’ that the filed plan is confirmable,” Syncora stated. “It filed a mere placeholder, by design and with premeditation, after wasting the runway granted by the Court to facilitate an earnest mediation effort.”
The Unsecured Creditors Committee (UCC) asked that the hearing’s scheduling be contingent on PREPA filing a full disclosure statement within 35 days, including its settlement agreement with National Public Finance Guarantee Corp., which has yet to be filed. The UCC said the oversight board has not filed several other exhibits, including a liquidation analysis, a load forecast, and an illustrative cash flow for new bonds.
The UCC asked the court to clarify that the approval of the procedures to provide creditors with more information doesn’t excuse the board from responding to discovery requests.
PREPA’s bond trustee, US Bank National Association, asked the court to include language in the scheduling motion to clarify that approval of the motion is not a ruling on the settlement offer solicitation process included in the plan.
Assured Guaranty filed a limited joinder to the motion asking that discovery not be delayed.