PREPA hearings resume today amid dispute over recoveries
By The Star Staff
The Puerto Rico Electric Power Authority’s (PREPA) bankruptcy hearings resume today amid the Financial Oversight and Management Board accusing creditors Golden Tree and Assured, which oppose the utility’s debt adjustment plan, of trying to disrupt the process.
Today’s hearing seeks to evaluate the adequacy of the disclosure statement for the debt adjustment plan to restructure PREPA’s $9 billion debt.
Golden Tree and bond insurer Syncora, meanwhile, filed over the weekend an adversary proceeding seeking to annul the alleged “premium recoveries” given to certain creditors that are not entitled to such recoveries because they constitute bad-faith procurement. Golden Tree and Syncora also seek to annul the vote of any creditor that has entered into an agreement to settle their debt with PREPA.
The bondholders said the oversight board had embarked on a mission to illegally buy the votes of certain preferred creditors on PREPA’s proposed debt adjustment plan by offering premium recoveries. The scheme began with the Fuel Line Lenders with an agreement to provide such creditors with at least an 84% recovery, plus post-petition interest and reimbursement of certain fees, in exchange for supporting the plan, the creditors said.
Next, they said, the oversight board promised National Public Finance Guarantee Corp. a recovery on National’s Bond Claims of over 71%, plus certain fees, a 20% recovery on post-petition claims and additional fees and costs to support a plan, and rewarded a group of five bondholders who are former members of the Ad Hoc Bondholder Group, led by BlackRock Financial Management Inc., with premium recoveries not available to others through out-of-market fees and above-market interest for providing financing in exchange for plan support.
Golden Tree and Assured took issue in a separate motion with the exit financing to “buy” the BlackRock Group’s votes for the debt adjustment plan and were ready to provide less exit financing.
The motion, according to the oversight board, was “filed in an effort to disrupt [today’s] disclosure statement hearing.”
“Examining the Motion, GoldenTree and Assured’s expression of Alternative Exit Financing, and the context surrounding it proves this point,” the board said.
The oversight board said the purported offer for alternative exit financing is no offer at all because it does not create a binding obligation or liability.
“Second, the context surrounding the proposal of Alternative Exit Financing dispels any suggestion it is genuine” the oversight board said. “The proposal provides for discussion and settlement and seeks protection of Federal Rule of Evidence 408 and other similar rules protecting use or disclosure of information exchanged in the context of settlement discussions.”
Third, the oversight board said GoldenTree and Assured are not seeking to settle or compromise any live or anticipated dispute, including their objections to the disclosure statement and confirmation of the plan.
“Again, their financing concept is a sham. Any purported ‘savings’ to PREPA would be illusory because GoldenTree and Assured would argue such additional capacity, and more, must be passed on to bondholders,” the board said. “Moreover, if the Plan’s implementation is dependent on backstop financing from parties that oppose the Plan, such backstop parties could attempt to leverage their position to delay implementation of the Plan following confirmation, contrary to PREPA’s interests.”
U.S. District Judge Laura Taylor Swain, meanwhile, said that in light of the volume of objections to the disclosure statement and the subsequent modifications to the proposed plan, supplemental disclosure statement, and other relevant materials to address certain objections, the oversight board must include in its opening presentation concerning the disclosure statement a review of the objections that it believes have been resolved.