By The Star Staff
The Official Committee of Unsecured Creditors has come out against an urgent motion of the Financial Oversight and Management Board that would extend the mediation termination date in the negotiation toward a new debt adjustment plan for the Puerto Rico Electric Power Authority (PREPA).
Last week, the oversight board requested an extension until August of the mediation with creditors toward a new debt deal that would restructure PREPA’s $9 billion debt. A previous deal negotiated in 2019 was canceled. The judge then gave the parties time to negotiate a new debt deal.
The committee said PREPA’s Title III case has now been pending for almost five years.
“During that time, a single strategy has been pursued: to attempt to formulate a plan of adjustment by negotiating exclusively with the PREPA bondholders, while staying indefinitely the Committee’s objection to the PREPA bond claims — an objection which seeks to narrowly define the nature and scope of the PREPA bondholders’ legal entitlements and thereby drastically simplify the issues in this Title III case,” the committee said.
After five years, the results are in: that strategy has gone nowhere, the committee noted.
“It is time to shift course,” the committee said. “The only way to finally make meaningful progress toward the conclusion of this case is for litigation to commence on the key legal issues underlying the scope of the PREPA bondholders’ claims and security interest.”
Specifically, as discussed in the committee’s limited objection to the oversight board’s prior extension request, the committee proposes that litigation proceed on the following two discrete legal issues: The first is whether the PREPA bondholders’ security interest is limited to funds actually deposited into specified accounts held by the PREPA bond trustee (in the amount of some $8 million as of PREPA’s petition date); and the second on whether the PREPA bonds are non-recourse obligations such that the PREPA bondholders have no claim against, and are not entitled to distributions from, PREPA for any difference between the face amount of the bonds and the funds on deposit in the specified accounts.
The committee said the issues can be litigated on an expedited timetable — “especially when compared to the two-and-a-half year delay resulting from the now-terminated RSA.”
“Accordingly, the Committee objects to an additional one-month extension of mediation without also allowing for the proposed litigation to commence,” it said.
“To be clear, the Committee is not requesting that mediation be terminated. The Committee continues to support a mediation process that brings all parties to the negotiating table to attempt to reach a global settlement on an expedited timetable,” the committee said. “But there is no reason why the parties cannot litigate while settlement discussions continue. In fact, litigation will likely help motivate the parties to make progress in settlement discussions.”