Swain: PREPA bankruptcy case cannot continue without concrete results.

U.S. District Judge Laura Taylor Swain

By THE STAR STAFF

The Financial Oversight and Management Board told the federal court this week that mediation in the Puerto Rico Electric Power Authority (PREPA) Title III bankruptcy has produced no meaningful progress toward a consensual restructuring agreement for the utility’s $9 billion debt, prompting U.S. District Judge Laura Taylor Swain to warn that the case cannot continue forward without concrete results.

Bondholders continue to insist that PREPA has far more capacity to support debt payments than the oversight board has acknowledged, and that a contingent value instrument (CVI) could help close the gap between the parties’ sharply different views. 

Oversight board attorney Martin Bienenstock said the board’s objection stemmed from the bondholders’ assertion that their claims are secured and must be paid in full upon plan confirmation -- an interpretation the board rejects. He added that confirming any plan requires a liquidation or valuation of the bondholder claim, and that negotiating CVI terms would be difficult. Still, he acknowledged that a CVI “remains possible” and could return to the table.

Swain expressed concern that mediation had produced little forward movement and warned that ongoing litigation -- especially if oversight board members resign -- could leave Puerto Rico without reliable, affordable electricity. 

She called the existing proposed debt adjustment plan “stale,” lacking support, and “unconfirmable.”

With her recent dismissal of the bondholders’ administrative expense claim, Swain said the moment requires serious engagement. The Puerto Rico Oversight, Management and Economic Stability Act (PROMESA), she emphasized, “did not come into being for endless litigation.” She urged the parties to accept that bondholders firmly believe their position on debt capacity, and to use discovery to close the gap.

Goldentree’s attorney Glenn Kurtz said bondholders remain committed to mediation but requested that the court lift the stay to allow their 2022 motion to dismiss to proceed. Swain responded that discovery must follow procedural safeguards and said she would wait for a joint status report due March 30, urging counsel to “think creatively.”

On the renewed motion to dismiss the PREPA case, Bienenstock noted that courts generally do not dismiss restructuring cases when a confirmable plan is available. 

Swain concluded the hearing by verbally denying the bondholders’ motion to dismiss PREPA’s Title III case, but without prejudice, keeping the door open for future consideration.

A situation raised during the omnibus hearing was the possibility that the oversight board’s composition may change depending on the Supreme Court ruling on the Lisa Cook appointments-clause outcome, in which Cook is challenging her dismissal as a member of the Federal Reserve Board of Governors by President Trump. The oversight board maintains, however, that its members were appointed under the Territorial Clause.

Swain also ruled against a petition to eliminate a charge used to pay the pensions of retirees. She dismissed assertions that the charge was illegal and noted that opponents to the charge could not prove that PREPA did not have an interest in using the funds for its operations.