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  • Writer's pictureThe San Juan Daily Star

PREPA bondholders renew request for receiver to control electric utility



U.S. District Judge Laura Taylor Swain

By The Star Staff


GoldenTree Asset Management LP, Syncora Guarantee Inc. and holders and insurers of 40% of the estimated $8.29 billion in outstanding Puerto Rico Electric Power Authority (PREPA) bonds have renewed a petition to seek a receiver to take control of the utility.


The bondholders and monolines submitted the motion last week, seeking a lift of the automatic stay imposed in the bankruptcy process to enforce “their statutory rights” for a mandatory receiver under section 207 of the Puerto Rico Electric Power Authority Act and “such receiver will thereafter take control of PREPA and its property in accordance with the Authority Act.”


A previous request for a receiver was denied by U.S. District Judge Laura Taylor Swain, who is overseeing PREPA’s Title III bankruptcy process, and upheld by the First Circuit Court of Appeals, but the bondholders are using the appeal ruling to file the renewed motion. At the conclusion of its recent opinion, the First Circuit stated, that being said, “it appears the Title III court’s final summary judgment order in the adversary proceeding could open the door to a prompt ruling on a renewed (or entirely new) motion for relief.”


The bondholders said they were filing the renewed petition now, before the court starts confirmation hearings on PREPA’s debt adjustment plan, “before their undisputed property rights are wiped out entirely.”


Since the Title III case began, the Financial Oversight and Management Board for Puerto Rico “has knowingly and intentionally caused PREPA to flagrantly disregard and breach its obligations to the Bondholders by, among other things, misappropriating certain net revenues as defined in the Trust Agreement to pay for things that do not constitute current expenses,” the bondholders said.


They also said PREPA is failing and refusing to properly calculate and deposit net revenues into a sinking fund to further secure the utility’s obligation to repay the bonds.


“PREPA and the oversight board admit that, since the commencement of this Title III case, despite having collected and identified more than $3 billion of net revenues that should have been transferred to the applicable accounts that comprise the Sinking Fund under the unambiguous terms of the Trust Agreement, almost no Net Revenues or other moneys have been deposited by PREPA into the applicable accounts that comprise the Sinking Fund or any of the other funds controlled by the Trustee to repay the bonds,” the bondholders said.


PREPA is required to deposit revenues to the credit of the Sinking Fund, which comprises three separate accounts: the Bond Service Account, the Redemption Account and the Reserve Account.


“Revenues are now gone, never to be replaced. It is hard to imagine a more direct or overt diminution in value,” the bondholders said. “Making matters more dire for the bondholders, this court ruled that the bondholders’ secured claim is limited to the amount on deposit in the applicable accounts that comprise the Sinking Fund, approximately $19 million today, even though PREPA’s manifold breaches of the Trust Agreement were the very reason that billions of dollars had not been deposited therein.”


The court has also estimated the bondholders’ $8.4 billion deficiency claim in the amount of $2.38 billion by making a present value calculation of what it thought would be paid into the Sinking Fund if a receiver were appointed, the very remedy movants now seek to exercise, they said.


As the confirmation hearing approaches, the bondholders said, the oversight board is moving forward with its corrected fourth amended Title III plan of adjustment PREPA that will “provide for the ongoing misappropriation of Net Revenues in perpetuity, pay non-settling Bondholders mere pennies on the dollar, strip away the property rights of the Bondholders to obtain mandatory appointment of a receiver granted them under the Authority Act and the Trust Agreement, and “settle” away the Bondholders’ statutory right to priority payment ahead of creditors whose claims do not constitute current expenses.”

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