PREPA bondholders say opposition to ‘unconfirmable’ debt deal will increase
By The Star Staff
An attorney for a portion of the Puerto Rico Electric Power Authority’s (PREPA) bondholders warned on Wednesday that the plan of adjustment may soon be opposed by holders of over half of the utility’s outstanding bonded debt.
Thomas Lauria, a lawyer representing GoldenTree Asset Management, said at a hearing Wednesday that it won’t be surprising if the number of bondholder groups opposing the plan increases to half of the $8.4 billion outstanding debt. Bondholders GoldenTree and Invesco, and bond insurers Syncora and Assured Guaranty, in motions submitted to the court opposed the third debt adjustment plan, which was submitted Aug. 25.
In the motion, Invesco, Syncora and Golden Tree said the debt plan was unconfirmable in that it applies disparate treatment to creditors whose rights are similar, if not identical. They said the plan, which would cut bondholders’ debt by 80% to $2.5 billion, improperly classifies various identical claims separately to gerrymander accepting classes, and thus, violates the Bankruptcy Code.
“The Plan and its associated side-deals are premised entirely on rank vote-buying, which the Bankruptcy Code prohibits,” the bondholders said. “There are manifold other flaws, not least of which is the fact that the Plan is premised on an affordability analysis that one insider who participated in its formulation has openly admitted is an artificial and outcome driven device designed to bludgeon creditors into submission.”
Lauria said the holders of $3.6 billion of the outstanding debt have indicated to GoldenTree that they oppose the deal, Lauria said.
The comments were made at a hearing in which parties discussed the schedule for PREPA’s confirmation plan. U.S. District Judge Laura Taylor Swain directed parties to meet again to come up with a schedule and submit a proposal by Sept. 7.
The confirmation is slated to take place in 2024, possibly in March. Because the third plan of adjustment is different from previous ones, the judge said it would be authorizing discovery.
Attorney Martin Bienenstock, legal counsel for the Financial Oversight and Management Board, rejected claims that the board negotiated only with a small group of bondholders. He said an agreement reached in which some bondholders will lend $1.6 billion in exchange for additional fees came from a bondholders’ proposal and not the board. A lawyer for Assured said the firm was not invited to any negotiations.
“The only true beneficiaries [of the plan] are the advisors to the Oversight Board, whose already bloated fees will swell even further,” the bondholders said. “It is wasteful to incur the expense and delay associated with a full-on confirmation process with respect to a plan of adjustment that so obviously cannot be confirmed for these reasons.”
The debt adjustment plan, which according to the oversight board will result in an average 5% increase in consumer energy rates, offers more of the original value of outstanding bonds to those who agree with the plan than to those who do not agree to the plan. BlackRock Financial Management, Nuveen Asset Management, Franklin Advisers, Whitebox Advisors, and Taconic Capital Advisors agreed to the plan, which would give them 12.5% of original par. In exchange, those firms agreed to support the terms and to not file an appeal of the plan of adjustment if the district court approves it. The firms and people who do not agree to the settlement, including Assured Guaranty, Syncora Guarantee, and GoldenTree Asset Management, would receive new bonds with a par value of 3.5% of the original claim.