PREPA bondholders lose bid to end briefing in $3.7 billion administrative claim

U.S. District Judge Laura Taylor Swain

By The Star Staff

In the ongoing legal battle surrounding the Puerto Rico Electric Power Authority’s (PREPA) bankruptcy case, bondholders have encountered resistance in their pursuit of a $3.7 billion administrative expense claim.

The claim arises from PREPA’s alleged failure to pay bondholders net revenues since the bankruptcy proceedings began in 2017. The Financial Oversight and Management argued that the money was spent maintaining PREPA’s electrical system, and therefore wasn’t net revenue.

U.S. District Judge Laura Taylor Swain, who is overseeing the Title III bankruptcy case, recently ruled that the oversight board may submit additional briefing regarding the bondholders’ claim. This decision comes despite the oversight board’s previous indication that it would request extra briefing ahead of the bondholders’ final reply. Judge Swain argued that a surreply from the bondholders would assist the court in its decision-making process.

“The bondholders’ specific qualms with respect to the manner in which the Oversight Board pursued additional briefing are well taken,” Swain wrote in her order. “However, given that the bondholders are asserting a substantial administrative expense claim that, if allowed, may meaningfully affect the debtor’s ability to propose a confirmable plan of adjustment, and that supplemental briefing may assist the court, the court will permit modest supplemental briefing including an opportunity for the Bondholders to respond.”

The oversight board maintains that new arguments have emerged during the proceedings, necessitating a response. They include bondholders’ assertions that their claim does not impact PREPA’s assets, that uninsured disaster repair costs should have been funded by PREPA’s self-insurance fund, and that PREPA’s post-petition collateral use equates to the extension of post-petition credit.

The oversight board has until this Friday to file its surreply and bondholders have until June 6 to respond to it.