PREPA bondholders seek mediated solution to utility’s bankruptcy
Retired federal judge Barbara Houser
By The Star Staff
The Ad Hoc Group of Puerto Rico Electric Power Authority (PREPA) Bondholders asked the federal bankruptcy court late last week to appoint a mediator to advance a non-legislated solution to the utility’s bankruptcy and to order the Financial Oversight and Management Board to file a debt adjustment plan by April 15.
The Ad Hoc Group in a filing Friday asked U.S. District Court Judge Laura Taylor Swain, who is overseeing Puerto Rico’s bankruptcy cases, to appoint retired Judge Barbara Houser, who led a team of mediators in the commonwealth’s case, to broker an agreement on an alternative path forward on the restructuring support agreement (RSA) if legislation cannot be achieved and, once that objective is achieved, a comprehensive resolution of issues and claims in PREPA’s Title III bankruptcy case through a plan of adjustment with other creditors.
Swain in a ruling, also on Friday, established an expedited schedule to discuss the Ad Hoc Group’s request, asking that replies from the parties be filed by this Friday, Feb. 25.
The island Legislature over the past two years has been reluctant to pass legislation that would enable PREPA’s debt adjustment plan because the restructuring of the utility’s $9 billion debt includes the imposition of a transition charge that could result in higher utility rates. The oversight board has been discussing since at least 2020 using its preemption powers and current law to confirm a debt adjustment plan without legislative approval.
The Ad Hoc Group said it has asked the oversight board to work with them regarding a Plan B alternative to the legislation required under the RSA so that the oversight board could proceed to file a plan of adjustment but has not received any response. The group notes that the unexpected departure of the oversight board’s executive director, Natalie Jaresko, in six weeks makes the matter more pressing.
“The parties have the opportunity to press forward with a short mediation on the RSA non-legislated solution, which can be incorporated into a Title III plan that can be expeditiously filed with the Court,” the group said. “The Oversight Board then can turn to negotiations with other PREPA creditor constituencies, following the model of sequential negotiations that resulted in a confirmed Commonwealth Title III plan, and finally bring this Title III case to conclusion.”
The Ad Hoc Group notes that PREPA’s restructuring has been ongoing for nearly eight years, and now is the time to conclude the saga. Since 2014, PREPA’s bondholders have agreed to forbear from exercising remedies granted to them under commonwealth law and their trust agreement with PREPA, provided a loan to keep PREPA from defaulting on its debts, facilitated the privatization of PREPA’s transmission and distribution system, and negotiated restructuring agreements with three different Puerto Rico administrations. In 2018, an agreement to restructure more than $8 billion of PREPA’s bond debt entered into by the oversight board, PREPA, the Puerto Rico Fiscal Agency and Financial Advisory Authority and the vast majority of PREPA’s bondholders was filed in court.
As the parties proceeded toward court approval of the RSA, with a PREPA Title III plan expected to follow, those efforts were stalled in February 2020 – first by opposition from the Puerto Rico Legislature to passing legislation necessary under the RSA, then by the global pandemic, and finally by the oversight board’s specific requests that the PREPA bondholders be patient and wait until the LUMA Energy transaction was consummated, and then for confirmation of the commonwealth plan of adjustment, the Ad Hoc Group said.
The group also requested the imposition of deadlines for the oversight board to file and prosecute a plan of adjustment for PREPA. By no later than April 15 of this year, they said, the oversight board must file a plan of adjustment for PREPA that the oversight board intends to prosecute toward confirmation, with an accompanying disclosure statement. A vote on the plan should occur in September and the plan’s consummation should occur by no later than Nov. 30, the group said.