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  • Writer's pictureThe San Juan Daily Star

While not fully convinced, Judge Swain orders arguments supporting reopening PREPA’s bankruptcy case

U.S. District Judge Laura Taylor Swain

By The Star Staff

Assured Guaranty Corporation; the U.S. Bank National Association, in its capacity as PREPA Bond Trustee; the PREPA Ad Hoc Group; GoldenTree Asset Management LP; and Syncora Guarantee, Inc. have asked U.S. District Judge Laura Taylor Swain to reopen the record of the Puerto Rico Electric Power Authority’s (PREPA) bankruptcy case to allow new evidence showing the utility can afford to pay more to creditors as part of its debt adjustment plan.

While Swain, who is overseeing PREPA’s Title III bankruptcy process, appeared not to be convinced by the arguments presented in the request, she still called for responsive papers by May 10 and replies by May 14.

“The Court agrees that the question of whether Revised Load Forecast information should be made part of the record is related to the Court’s task of determining whether the proposed plan of adjustment meets the ‘fair and equitable’ requirement,” the judge said in her response Wednesday.

Confirmation hearings in the case ended earlier this year and Swain is now in the process of determining whether or not to confirm PREPA’s debt adjustment plan. In its ultimate determination of creditors’ reasonable expectations, she said the court will consider issues such as the debtor’s need for sufficient funds for continuation of operations, practical limitations on the debtor’s ability to increase rates, the Puerto Rico Oversight, Management and Economic Stability Act’s (PROMESA) integration of Title II and Title III responsibilities and authority of the Financial Oversight and Management Board, the proposed plan’s provisions, if any, for the application of unanticipated revenues and maintenance of service quality through unanticipated shortfalls, and PROMESA’s overall framework for debt adjustment through Title III proceedings.

In a motion this week, the creditors headed by Assured Guaranty Corp. noted that one of the most hotly contested issues at the recently completed confirmation hearing concerned whether PREPA, through the plan, is paying creditors all that it can afford to pay. They said the oversight board has repeatedly argued, and its witnesses testified, that PREPA is paying all it can afford and that the oversight board has always sought to maximize creditor recoveries.

The creditors said LUMA Energy, the private operator of PREPA’s transmission and distribution system, issued new information showing the utility can afford to pay more of its debt.

“Significant new developments belie these claims,” the creditors said. “Not long after the hearing concluded, LUMA issued updated projections of PREPA’s electricity demand that further demonstrate that PREPA can afford to pay substantially more to creditors. Yet when the PREPA Bondholders asked the Oversight Board to adjust the plan to account for this critical new information, the Oversight Board not only refused to do so, but it would not even consent to the PREPA Bondholders’ request to supplement the hearing record to reflect the updated projections.”

During the hearing, the PREPA bondholders adduced evidence that the electricity load forecasts used by the oversight board were severely understated as compared to more recent forecasts.

After the hearings, LUMA updated its October 2023 projections. “LUMA’s latest projections show a significant increase in demand beyond the October projections -- which themselves were materially higher than the outdated projections that the Oversight Board used from PREPA’s 2023 Fiscal Plan,” the bondholders said. “Inputting LUMA’s new load forecasts into the Oversight Board’s Legacy Charge model, without any other changes or adjustments, increases distributable value available to creditors to at least $4.1 billion, or over $1.5 billion higher than the approximately $2.6 billion in recoveries contemplated under the Plan.”

Those calculations are based on PREPA’s forecasted net load, applying various reductions advocated by the Puerto Rico Fiscal Agency and Financial Advisory Authority at trial due to PREPA’s own use and other technical and non-technical losses, including transmission losses. The oversight board previously cut distributable value drastically when LUMA issued lower forecasts in connection with the 2023 Fiscal Plan, the bondholders said.

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