Unsecured creditors object extension to PREPA’s mediation for debt deal
By The Star Staff
The Official Committee of Unsecured Creditors on Tuesday objected to a Financial Oversight and Management Board (FOMB) request seeking an extension of talks towards a new debt adjustment plan for the bankrupt Puerto Rico Electric Power Authority (PREPA).
The FOMB recently requested an extension to September 16 from September 9 of the mediation process with the ability to seek a further extension to September 30. It was the fourth time the mediators sought an extension. PREPA has been in bankruptcy since 2017 to restructure some $9 billion in debt.
The limited objection filed by the unsecured creditors group in the Title III Bankruptcy Court as it also wants the court to allow litigation of certain issues, including the unsecured creditors’ allegation that their claim is superior to that of PREPA bondholders.
“At no time during the last five years, and this includes the last four months of mediation, did the Committee receive a proposal from the Oversight Board regarding the plan treatment of PREPA’s general unsecured creditors—and this continues to be the case, notwithstanding the Oversight Board’s assertion that it is formulating and presenting proposals to other Mediation Parties to resolve other significant issues,” the unsecured creditors said.
The FOMB has engaged with the Committee only with respect to the structure of proposals to be made to PREPA bondholders, and not the treatment of PREPA’s general unsecured creditors, the group said.
“The Committee is also dismayed that it had to learn about the September 13, 2022 in-person mediation session through the Mediation Team’s Extension Request—a mediation session to which it was ostensibly not invited,” the group said.
While the PREPA bondholders may be the largest group of claimholders, their claims are inferior to those of PREPA’s general unsecured creditors because the PREPA bonds are non-recourse bonds secured only by very limited funds in specified accounts or about $8 million in PREPA funds, the unsecured creditors said.
“Thus, in effect, the Oversight Board is allocating PREPA’s precious limited resources first to a group of inferior creditors, thereby risking that insufficient, or potentially no resources, remain to satisfy the superior claims of other PREPA creditors,” the group said.
The Committee proposed litigation proceed on whether the PREPA bondholders’ security interest is limited to funds deposited into specified accounts held by the PREPA bond trustee in the amount of approximately $8 million; and whether the PREPA bonds are non-recourse obligations that the PREPA bondholders have no claim against.