Union attorney: ‘PREPA RSA dying, it offers high payment to creditors amid debt’
By The Star Staff
In the opinion of Rolando Emmanuelli, a bankruptcy lawyer who represents the power utility’s workers’ union, the Puerto Rico Electric Power Authority’s (PREPA) restructuring support agreement (RSA) is “dying” because it offers creditors payment of 70 percent of the utility’s $9 billion debt, which is unsustainable.
The government parties filed a Section 9019 motion to restructure the debt on May 10, 2019 on an urgent basis but, after seeking a hearing for a month later, have postponed such hearings 11 times, Emmanuelli said.
“The bondholders for the most part have an unsecured debt and do not deserve that amount,” the attorney said. “However, the Financial Oversight and Management Board has asked the judge 11 times to suspend the hearings and they have not been able to convince the [Puerto Rico] Legislature to enable the RSA.”
The island government was given until Sept. 25 to inform the U.S. District Court about the future of the RSA. PREPA has been in bankruptcy under the federal Puerto Rico Oversight, Management and Economic Stability Act since 2017.
The Unsecured Creditors Committee (UCC) has informed the court that even government officials have said the accord is not viable and told the judge to cancel the Section 9019 motion.
“With so much time having passed since the RSA was filed, I think the judge will put some pressure on the [oversight] board,” Emmanuelli said.
In their status report filed on July 31, the government parties again conceded that there are grave doubts about the PREPA RSA’s viability, but claimed that “additional time is required to understand how and if the situation will impact PREPA and to what extent (if any) they should seek to amend the RSA,” the union attorney said.
“They then sought a two-month extension -- not to propose any concrete steps for the consideration of their 15-month-old 9019 Motion, but, rather, to “[hope] that they can report on developments regarding their evaluation of the RSA and 9019 Motion,” he said.
On Aug. 5, the court entered an order granting the government parties’ request to submit a further status report on Sept. 25. As it had in earlier such orders, the court required that the government parties’ upcoming status report “propos[e] next steps with respect to the 9019 Motion.”
The UCC says that notwithstanding the government’s desire to continue adjourning their 9019 Motion, recent public statements by PREPA leadership have suggested that the parties to the RSA have effectively abandoned the agreement in its current form and intend to renegotiate it next year.
For example, former PREPA Executive Director José Ortiz stated publicly during a high-profile industry conference last month that the RSA “certainly has to be renegotiated,” but that he “do[es]n’t see an RSA being agreed on until next year.”
Moreover, the government and the PREPA bondholders benefit from the pretense that the RSA is still viable, the UCC said.
“The pretense of a settlement is the only way that the oversight board can obtain control over the claims objection process, a right that -- because Congress did not incorporate Section 1106 of the Bankruptcy Code into PROMESA -- they would not otherwise have,” the UCC said. “For their part, the PREPA bondholders benefit from the pretense of a viable RSA because their legal fees get paid while the RSA is in place and an indefinite adjournment is their preferred outcome because recent changes in the legal landscape make clear that it would be suicidal for them to litigate the claim objection.”
Specifically, the committee was referring to a U.S. First Circuit Court’s decision regarding the scope of the Employees Retirement System bondholders’ liens and the U.S. District Court’s recent decision on the preliminary lift stay hearings in the Highways and Transportation Authority case, which the UCC says show it has meritorious objections.
Emmanuelli said that more importantly, the RSA is dead because PREPA’s cash flow has been impacted by the coronavirus pandemic and the oversight board has not been able to determine debt sustainability.
“If you can’t determine debt sustainability, no RSA can be signed because you do not have information [on whether] they can pay overtime,” he said.
He also noted the estimated $115 million in payments that PREPA must start making to LUMA Energy for the operation of the utility’s transmission and distribution system.
The attorney said the parties need to go back to the table and further cut the debt by at least 80 percent.
“The worst thing that can happen is for PREPA to file for bankruptcy,” he said.
Emmanuelli believes the 80 percent cut is viable because the bondholders, for the most part, are unsecured.
He says the RSA should be ended to stop the waste of public funds but noted that for the bondholders, it is a good one. He said the consequence of ending the RSA would be that the litigation can continue.