PREPA gets Vitol as impaired class to push through debt plan

By The Star Staff

Puerto Rico Electric Power Authority’s fuel line lenders have filed an urgent request seeking information related to PREPA’s court settlement with Vitol, upon learning that the Financial Oversight and Management Board plans to file PREPA’s debt adjustment plan next month for which the firm is the only impaired accepting class.

The fuel line lenders in a recent motion said they learned for the first time on November 2 of the Oversight Board’s plans. Vitol settled the case for about $45 million and will be put in its own class to try to push through the debt adjustment plan.

“At Wednesday’s omnibus hearing, the Oversight Board revealed that it believes it has an impaired accepting “class”: a single, small (by the standards of this case) general unsecured creditor, Vitol. Counsel for the Oversight Board stated that Vitol has agreed to accept 50% of the ultimate recovery percentage for the general unsecured claims class, Vitol will be placed in its own class which will receive such separate treatment, and Vitol will vote in favor of the plan, creating an impaired accepting class. The Board’s proposed path to achieving a fundamental requirement for confirmation raises concerns for the Fuel Line Lenders,” they said.

Given the importance of the Board’s responsibility to file a plan on December 1 with a realistic prospect of confirmation, the Fuel Line Lenders believe that information about the actual terms of the agreement between the Board and Vitol, including the circumstances under which Vitol’s commitment to vote in favor of the plan arose, must be made available promptly. If such disclosure were to await confirmation litigation, PREPA’s emergence from bankruptcy could be set back by month, they said.

The Fuel Line Lenders said they believe that it is a matter of urgency for parties in interest to be able to obtain the requested information because the Title III Bankruptcy Court has set a firm deadline of December 1, 2022 for the Oversight Board to file a debt adjustment plan to restructure PREPA’s $9 billion debt.

“As discussed in detail in the Rule 2004 Motion, a review of the pleadings relating to the Vitol litigation combined with the timing and context for the Oversight Board’s revelation raises significant questions about the terms of any settlement between the Oversight Board and Vitol and discussions between the two parties relating thereto,” the Fuel Line lenders said.

Judge Laura Taylor Swain did not approve the motion immediately. She said in an order that any opposition or response to the Fuel Line Lenders’ Rule 2004 Motion shall be due by November 10 while any reply in support of the Rule 2004 Motion shall be due by November 14.

Vitol and PREPA reached a settlement in September after their dispute reached the U.S. First Circuit Court of Appeals as reported by the STAR.

This litigation began in 2009, when PREPA filed the first of two lawsuits against Vitol in Commonwealth Court in San Juan, with a second case filed in 2012.

The dispute was against VIC, an energy supply company based in Houston, Texas and its former parent company, VSA.

PREPA claimed that its fuel-supply contracts with VIC were void because VSA – a legally independent company that was VIC’s parent from late 2006 until late 2007 – was convicted in November 2007 of a crime in New York state court. VSA’s conviction had nothing to do with PREPA or Puerto Rico, but rather concerned the United Nations Oil-forFood Program in Iraq. PREPA claimed that VSA’s conviction caused VIC to violate a since-repealed Puerto Rico statute called Law 458, which barred public corporations from entering into contracts with companies that had been convicted of certain offenses.

In the lawsuits, PREPA claimed that six fuel-oil supply contracts with VIC, in effect between 2005 and 2009 and awarded through competitive bids, had to be declared void, retroactively, based on alleged violations of Puerto Rico’s public-contracting law and alleged misrepresentations.

PREPA sought to recover $3.89 billion from Vitol in the litigation, representing the full value of payments that PREPA made under the contracts.

The case was eventually transferred to federal court.

Last year, Judge Laura Taylor Swain, who is presiding over PREPA’s bankruptcy process, dismissed PREPA’s claims to void six fuel-oil supply contracts and recover $3.89 billion. The court also ruled that Vitol was entitled to recover $28.4 million, plus interest, on a counterclaim it had filed.

The court noted that Vitol “fully performed its delivery obligations under the contracts.”The $28.4 million that PREPA was required to pay was for fuel supplies and other services.