PREPA bondholders reject fiscal board request for dismissal of their claims
By The Star Staff
Puerto Rico Electric Power Authority (PREPA) bondholders, including monolines, have rejected a Financial Oversight and Management Board request to dismiss their claims without a hearing or a summary judgment.
The petition was filed last Friday by the Ad Hoc Group of PREPA Bondholders, Assured Guaranty Corp. and Assured Guaranty Municipal Corp., National Public Finance Guarantee Corp. (National), and Syncora Guarantee Inc., and together with the Ad Hoc Group, Assured and National’s opposition to the motion for summary judgment filed by the oversight board as representative of the Puerto Rico Electric Power Authority (PREPA).
“The Oversight Board’s motion for summary judgment is a ‘dramatic flip of the switch,’” the bondholders said. “For almost three years, the Oversight Board endorsed a restructuring support agreement that afforded PREPA’s bondholders a substantial recovery on their over $8 billion in unpaid revenue bonds — a recovery the Oversight Board even presented to this Court as a fair and reasonable resolution of the Trustee’s Claim. Now, the Oversight Board seeks summary judgment asserting that PREPA’s bondholders are not — and supposedly have never been — entitled to any meaningful right to payment at all.”
The trustee and PREPA bondholders have contended in their own motion for summary judgment that the oversight board’s attempt to zero-out PREPA’s bond debt is unfaithful to the Trust Agreement and Authority Act, flouts municipal bankruptcy laws, and is contrary to the board’s own actions over the past four years in support of a consensual restructuring of PREPA’s debts to its bondholders.
“The Trust Agreement makes clear that these bonds are payable from and secured by the revenues that PREPA continues to generate from the electricity system that these bonds financed,” the bondholders said.
The Trust Agreement thus calls them “revenue bonds,” and for decades PREPA sold them to investors as such, the bondholders said.
“The Oversight Board’s newfangled, contrary arguments are meritless,” they continued. “Count I of the Amended Complaint fails because the Trustee’s and bondholders’ liens extend beyond the monies that happen to be credited at this moment to the Sinking Fund and Self-Insurance Fund. Bondholders’ undisputed lien on special revenues credited to the Sinking Fund continues to attach to any future revenues credited to that fund. In addition, the Trust Agreement separately grants, to the Trustee, liens on ‘the revenues of the System,’ ‘the Revenues,’ and certain ‘other monies’ — revenue pledges that are reiterated throughout the Agreement.”
Counts II and III fail, the bondholders said, because the Trustee’s and bondholders’ liens are perfected and, in any event, not subject to avoidance or subordination.
Counts IV, V, and VI fail as well, they said.
“The Oversight Board misses the point by fixating on whether PREPA has property interests in its covenants or in the Trustee’s and bondholders’ rights to specific performance, imposition of a receivership, and other remedies,” the bondholders said. “What the Master PREPA Bond Claim (the Trustee’s Claim) correctly asserts, and the Oversight Board cannot meaningfully dispute, is that these rights and remedies are property interests of the Trustee and bondholders, and provide them assurances that PREPA can be compelled to perform its obligations.”
Count VII fails as well, the bondholders said, because the Trustee’s right to payment is not restricted to the moneys currently credited to PREPA’s Sinking Fund ($8 million) and Self-insurance Fund.
“The Trust Agreement is clear that the Trustee has a right to payment from revenues that later become available to pay amounts due on the bonds, including from the exercise of its contractual and statutory remedies to enforce PREPA’s obligations,” they said. “The Oversight Board, joined by the Official Committee of Unsecured Creditors of All Title III Debtors, turns cartwheels arguing that those remedies are enforceable and valuable only outside Title III, but that inside Title III, they have been wiped out and replaced with a claim of zero dollars. That audacious theory is as patently unlawful as it sounds.”
The bondholders said the oversight board’s motion should also be denied on the independent ground that it altogether fails to address the Trustee’s and PREPA bondholders’ affirmative defenses. Those defenses — including that the oversight board’s claims violate the Takings Clauses of the U.S. and Puerto Rico Constitutions and are barred by equitable estoppel and other doctrines — are substantial, meritorious, and must be resolved conclusively before summary judgment could be granted to the oversight board, they said.