By The Star Staff
U.S. District Court Judge Laura Taylor Swain, who is overseeing the Puerto Rico Electric Power Authority (PREPA)’s Title III bankruptcy case, has dismissed bondholders’ remaining claims in a lien and recourse challenge against the utility, paving the way for an appeal.
Earlier this year, Swain had ruled that the $8.5 billion in outstanding PREPA bond debt was unsecured, meaning that there is no property to seize, repossess, or foreclose upon. She also ruled that the claim was only worth $2.4 billion. Under PREPA’s currently proposed adjustment plan, bondholders that haven’t already settled their debt with PREPA would receive 3.5% to 12.5% of the unsecured claim amount. PREPA is represented by the Financial Oversight and Management Board (FOMB).
In a 65-page order issued Tuesday, Swain dismissed remaining counterclaims, including that PREPA is in breach of its statutory obligations by failing to raise rates to generate revenue to cover bondholders.
“In addition to arguing that PREPA has a post-petition obligation to comply with statutory debt repayment obligations while in bankruptcy, the bondholders argue that any claims arising from statutory obligations are nondischargeable,” Swain ruled in the case FOMB et al. v US Bank National Association.
She said the court has already determined that the bondholders’ claims do not arise directly from any statute. However, even if they did, the bankruptcy code would operate to render their claim for payment on the bonds a dischargeable claim.
The ruling will now allow bondholders to appeal Swain’s decisions on the security of their debt. The judge had blocked bondholders from appealing before a final ruling Swain also scolded bondholders for misquoting her in the proceedings.
“The court notes that, in their response, the bondholders represent that this court held that the (Financial Oversight and Management Board) qualifies as a ‘trustee in bankruptcy,’ citing to the summary judgment order, and placed the phrase in quotes, despite the fact that the quoted phrase does not appear anywhere in the summary judgment order,” Swain wrote. “The bondholders are warned not to fabricate ‘quotations’ of language that is not present in the court’s orders and to exercise caution when arguing that any court made any holding by implication.”
PREPA has been in bankruptcy since 2017 to restructure some $9 billion in debt.