By The Star Staff
A subset of Puerto Rico Electric Power Authority (PREPA) bondholders filed an urgent motion over the weekend to extend the schedule of confirmation hearings of the debt adjustment plan in order to evaluate the impact of the recent settlement with the unsecured creditors.
Assured Guaranty Corp., Assured Guaranty Municipal Corp., GoldenTree Asset Management LP, Syncora Guarantee Inc., the PREPA Ad Hoc Group, and U.S. Bank National Association as the PREPA Bond Trustee filed an urgent motion for the extension of the schedule to approve the Fifth Modified Third Amended Title III Plan of Adjustment for PREPA, arguing that the recent settlement of the unsecured creditors’ debt will result in changes to the debt plan.
On Saturday, U.S. District Judge Laura Taylor Swain ordered the parties to file responses to the petition by today. The Financial Oversight and Management Board for Puerto Rico’s response must include a timetable for filing a modified PREPA Plan and the settlement agreement if the PREPA Plan and terms of the settlement agreement with the Official Committee of Unsecured Creditors have not been filed before that time.
The oversight board and the Official Committee of Unsecured Creditors filed a joint informative motion on Dec. 18 disclosing an agreement in principle on the treatment of general unsecured claims (GUCs).
Under the settlement, unsecured creditors will receive a fixed payment of $335 million, the proceeds from avoidance actions, and up to another $200 million if the court reduces bondholder claims, among other considerations.
The oversight board offered assurances that the changes would not result in the reduction of the treatment of any creditors as provided in the plan.
However, the subset of bondholders notes that the GUC settlement requires that the board file a new plan of adjustment as “soon as practicable,” and raises the need for corresponding additional fact discovery. Therefore, the bondholders contend, the existing confirmation schedule is no longer viable.
“From what has been disclosed in the GUC Settlement, it appears that the GUCs are receiving a windfall relative to PREPA’s other creditors, including both the PREPA Bondholders and certain settling creditors,” the subset of bondholders said.
The unsecured creditors are receiving a much larger cash payment, potential upside recoveries received from litigation outcomes and excess distributions for the settling creditors, and the potential for a larger recovery to the extent that the GUCs are determined to hold alleged priority claims. Moreover, the subset of bondholders said, the GUC settlement adds new released parties under the plan, without clarifying the scope of those releases.
“In terms of facts, the potential impacts on other creditors, including those who have previously settled, have to be developed and understood,” the subset of bondholders notes. “Indeed, the settlement could result in unsecured creditors receiving 100 cents on their pre-petition allowed claims. The plan provides no similar scenario for bondholders.”
The petition was made as PREPA stakeholder experts filed additional opening reports, as well as some unredacted versions, in preparation for the scheduled March 2024 confirmation hearing on the plan of adjustment.
The oversight board, for instance, last week disclosed five rebuttal witnesses, one of whom, Glenn R. George of Bates White Economic Consulting, was also an opening witness. The other rebuttal witnesses are Jurgen Weiss of the Brattle Group, Andrew Wolfe, a retired Rice University professor, EV Edison President David M. Daly and Scott Baxter, managing director of Green River Energy Advisors.
Separately, Swain approved additional professional compensation for O’Neill & Borges and McKinsey & Company for work completed in 2021 and 2022, according to a Dec. 21 order.
The fee examiner on Dec. 20 recommended that O’Neill & Borges, which serves as counsel to the oversight board, receive $864,853 and McKinsey & Company, which serves as a consultant to the board on the Puerto Rico Highways and Transportation Authority bankruptcy, receive an additional $381,935.