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  • Writer's pictureThe San Juan Daily Star

Top fiscal board officials, consultants to depose as part of bankruptcy proceedings

Financial Oversight and Management Board Chairman David Skeel

By The Star Staff

Although Puerto Rico Electric Power Authority (PREPA) bondholders are appealing a ruling that concluded their $8.4 billion bonded debt is an unsecured claim, they also announced the scheduling of six depositions in the utility’s Title III bankruptcy proceedings.

In a notice, the bondholders announced they would depose Financial Oversight and Management Board (FOMB) Chairman David Skeel on May 3 and the board’s executive director, Robert Mujica, on May 17.

They will also question oversight board consultants William Zarakas, from Brattle Group, on May 4; Ojas Shah, from McKinsey & Co., on May 11; David Brownstein, an official from Citi, on May 16; as well as Fernando Batlle, from Ankura, a financial advisor to PREPA.

The bondholders, meanwhile, announced an expedited appeal of last month’s ruling that found their bonded debt to be unsecured as part of their battle against confirmation of the utility’s debt adjustment plan, which would restructure some $10 billion of debt.

On March 22, U.S. District Court Judge Laura Taylor Swain ruled in the FOMB et al. v US Bank National Association et al., adversary proceeding that the PREPA bondholders had an unsecured claim that would be liquidated based on the value of future net revenues.

The ruling says the bondholders are only entitled to small amounts held in a few specific funds.

Bondholders argued that an expedited appellate review of Swain’s ruling would ensure that parties do not work on an unconfirmable debt adjustment plan.

“If the appeal begins now, then the court of appeals might rule in time to constructively inform the confirmation process one way or the other, or at least to minimize the time any confirmed plan remains in limbo after confirmation,” bondholders argued. “If it starts only months from now, then uncertainty will linger and delay PREPA’s reorganization in the meantime.”

The bondholders also argued that Swain’s ruling presents a novel legal question involving the interpretation of the 1974 trust agreement that regulates the bonded debt and the scope of the security interests.

“An order should be certified when it decides a novel or unsettled question of law or involves a matter of public importance,” bondholders argued. “These are unsettled and important legal issues, which have clear implications for municipal revenue bonds across the country using similar indentures and security structures.”

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