Title III judge won’t dismiss PREPA bankruptcy case; sticks with mediation
By The Star Staff
After several hours of arguments, U.S. District Court Judge Laura Taylor Swain announced Wednesday that she will not dismiss the bankruptcy case of the Puerto Rico Electric Power Authority (PREPA), and that she will push for mediation with enhanced intervention by affected parties, but that she will allow litigation of certain gating disputes.
Despite the Financial Oversight and Management Board’s opposition to a mediators’ request for a “toggle” debt adjustment plan, arguing that it was impractical, Swain, who is overseeing Puerto Rico’s Title III bankruptcy cases, said she wanted to see a debt adjustment plan by December, which should be ready for confirmation by June 2023.
The oversight board on Sept. 17 announced it had walked out of the mediation talks to restructure PREPA’s $9 billion debt due to “substantial disagreements with the mediation parties.”
The oversight board then asked the Title III bankruptcy court to restart litigation of several disputes with the bondholders. The litigation will focus mainly on whether the bondholders’ security interest securing their bond claims is limited to about $8.8 million that PREPA has in accounts the bond trustee created per a 1974 trust agreement governing the issuance of the bonds.
The oversight board also asked the court to rule on current expense complaints on the papers without a hearing. On July 9, 2019, the administrative agent and certain fuel line lenders sued PREPA, the oversight board, the Puerto Rico Fiscal Agency and Financial Advisory Authority, and U.S. Bank National Association, alleging amounts owed to them constituted “Current Expenses” that had to be paid before any recovery to PREPA’s bondholders. PREPA’s retirement system also alleged that amounts owed to it are current expenses that must be paid before payments are made to PREPA’s bondholders.
The bondholders then asked the court to dismiss the bankruptcy case, which began in 2017, and to appoint a receiver for PREPA.
Following a request from Swain, the mediators presented a schedule to continue negotiations during the litigation proposed by the oversight board and the creation of a new debt adjustment plan.
The mediators had said they believe the mediation will benefit if the court requires the oversight board to file in 60 days a proposed plan of adjustment, or “toggle plan,” and related disclosure statement that contemplates alternative plan treatment depending on the outcome of the primary lien and claim disputes.
They also said it would enhance the mediation if the litigation takes place as part of the oversight board’s request for confirmation of the debt plan and a confirmation hearing consistent with an expedited litigation schedule. The hearing should take place no later than June 2023.
Certain groups noted that they have not been participating in the mediation, including the Unsecured Creditors Committee, PREPA retirement system and the main union of PREPA workers, the Electrical Industry and Irrigation Workers Union.
Jessica Méndez Colberg, who represented retirees and the union, challenged the adequacy of having parallel processes such as mediation and litigation, because, she said, it would impact negotiation talks.
The oversight board’s lawyer, Marin Bienenstock, said the creation of a debt adjustment plan should not be put under a fixed schedule as it needs flexibility.