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  • Writer's pictureThe San Juan Daily Star

Status hearing today on PREPA bankruptcy case

Martin J. Bienenstock, lawyer for the Financial Oversight and Management Board

By The Star Staff

The federal Title III court overseeing the Puerto Rico Electric Power Authority’s (PREPA) bankruptcy will hold a status hearing today to listen to arguments on the fate of the utility’s debt adjustment plan following the United States Court of Appeals for the First Circuit decision that bondholders have an $8.5 billion secured claim, rather than a $2.4 billion claim, as the lower court had ruled.

Several groups, such as PREPA pension retirees, are expected to hold protests against the plan due to the impact over pensions.

The oversight board has asked U.S. District Judge Laura Taylor Swain to reopen the proceedings only to value the bondholders’ secured claim, which, the First Circuit ruled, can be paid from the system’s net revenue. The board argued that no new vote on the plan is necessary because bondholders’ claims that it has misappropriated money during bankruptcy are moot and that the supplemental confirmation hearing could be heard in September, which could mean an end to PREPA’s seven-year-long bankruptcy.

The bondholders want to dismiss the Title III case. They also are litigating what they say might be as much as $6 billion in net revenue that PREPA has misappropriated since the beginning of the bankruptcy proceedings. Bondholders also want to challenge the law governing the Title III cases as an unconstitutional non-uniform bankruptcy law.

Both parties are disputing whether their claim needs to be estimated. The oversight board argues that it does and that the confirmation proceeding should be opened to determine what that amount is. Once that’s done, the board argues that as long as bondholders receive the full amount of their secured claim, they can’t object to how other money is spent in the bankruptcy.

Bondholders said they planned to argue that no such estimation is necessary – the amount they will be paid is the amount of net revenue the utility ultimately generates. They also say they can challenge other deals the oversight board has made -- with fuel line lenders, unsecured creditors, or settling bondholders -- if those creditors are being paid with net revenues.

The court will hear arguments from the following plan proponents: the oversight board’s lawyer Martin J. Bienenstock, Fuel Line Lenders’ lawyer Emil A. Kleinhaus; the majority member PREPA Ad Hoc Group’s lawyer Andrew N. Rosenberg, and the Unsecured Creditors Committee’s counsel Luc A. Despins.

Speaking on behalf of the Puerto Rico government will be the Fiscal Agency and Financial Advisory Authority’s (AAFAF by its initials in Spanish) counsel Elizabeth L. McKeen.

Speaking against the debt adjustment plan are monoliner Assured’s counsel Mark C. Ellenberg, Golden Tree’s counsels Glenn M. Kurtz and Thomas E. Lauria, the PREPA bond trustee’s counsel Clark T. Whitmore, Robert S. Berezin on behalf of National, and the Ad Hoc Bondholder Group.

Separately, PREPA’s governing board approved a settlement between the power utility and contractor Cobra Acquisitions at a special meeting on Monday.

PREPA Executive Director Josué Colón Ortiz said the agreement, reached by the Financial Oversight and Management Board and AAFAF on behalf of PREPA with Cobra, will be submitted to the Title III court for review and approval by Judge Swain before it can be executed.

Details of the settlement, including the amount to be paid, were not disclosed during the meeting. The debt is the result of two contracts for work Cobra performed on the power grid in the aftermath of hurricanes Irma and Maria, Colón Ortiz said.

Cobra alleged in May that it was still owed $406 million for the work.

PREPA has argued that it does not owe most of that money, and that delays to Cobra’s payments have been squarely the fault of its management, after its president was indicted and later pled guilty to bribing a government official to get the contract.

Colón Ortiz said PREPA customers won’t see any additional charges as a result of the agreement.

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