By The Star Staff
The U.S. Bank National Association, which is the Trustee of the Puerto Rico Electric Power Authority, opposed a request seeking a partial lift to the confirmation stay of the PREPA’s case to pursue litigation to reclassify the PREPA’s bond trustee debt claim against the commonwealth.
While the court confirmed in 2022 the commonwealth debt adjustment plan for the bankruptcy case, the commonwealth general unsecured claims have not been paid because of the unresolved objection, dated August 31, 202,3 in which the U.S. Bank National Association is asserting an $8 billion unsecured claim against the commonwealth. The $8 billion is also the amount owed in PREPA bonds.
The claims’ monitors, Carol Flaton and Ramon Ortiz, want to reclassify the debt, arguing that they believe the U.S. Bank National claim is not a commonwealth General Unsecured Claim and that, instead, it should be classified as a Section 510(b) Subordinated Claim or claim for certain damages, under the Commonwealth Plan, they said.
The monitors said they seek “authority to permit the Claims Reconciliation Monitors to attempt to resolve the single largest obstacle preventing the Financial Oversight and Management Board from making material distributions under the Commonwealth (CW) Plan to holders of valid CW General Unsecured Claims—the proper classification of the Trustee Proof of Claim against the Commonwealth.”
Failure to correctly classify the PREPA bond trustee’s claim could substantially dilute the recoveries of holders of valid CW General Unsecured Claims under the commonwealth debt adjustment plan, they said.
The total amount of CW General Unsecured Claims is approximately $3.5 billion. While the Trustee Proof of Claim is unliquidated in amount, the Financial Oversight and Management Board has reserved $8.4 billion on account of this claim.
The PREPA Bond Trustee, however, on Friday came out against the petition, stating that Title III Court Judge Laura Taylor Swain, the judge overseeing PREPA’s bankruptcy case, has stayed all PREPA confirmation and bond-related litigation since July 10, 2024, including proceedings relating to the Oversight Board’s objection to the PREPA Bond Trustee’s Proof of Claim, which includes various unsecured claims against the commonwealth on behalf of the bondholders based upon alleged prepetition statutory and constitutional violations by the commonwealth.
“When it did so, the court recognized that comprehensive PREPA meditation is critical to resolving PREPA’s case expediently, and that absent such mediation, PREPA’s case would remain in bitter, protracted litigation, to the detriment of all stakeholders involved, including and especially the people of Puerto Rico,” the Trustee said.
“The litigation stay was imposed to facilitate mediation of the entire range of disputes related to the PREPA Bond Trustee’s and Bondholders’ claims against both PREPA and the commonwealth. It should not be lifted in part to permit one-sided litigation, let alone at the request of individuals whose interests are far removed from the PREPA Title III proceeding. The proposed classification litigation, focused solely on an untimely objection to the Trustee Commonwealth proof of claim, would distract from the mediation,” the Trustee said.
The PREPA Trustee also said the Monitors do not have the authority or standing under the Commonwealth Plan or otherwise to commence and prosecute the classification litigation.
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