Opposing PREPA parties continue court fight for repayment

Bonds

Bondholders and other parties involved in the Puerto Rico Electric Power Authority bankruptcy returned to court Friday in an effort to move the needle on their opposing cases seeking better repayment terms.

Bond parties defended their adversary complaint against Puerto Rico’s central government’s actions regarding PREPA since the central government emerged from bankruptcy in March 2022, with GoldenTree Asset Management and Syncora Guarantee filing an objection to a Puerto Rico Oversight Board motion to void that complaint.

Unsecured Creditors and PREPA retirees and employees also Friday asked the PREPA bankruptcy judge to declare their claims to have priority over those of the bondholders. 

Bond parties say their suit against Puerto Rico’s central government isn’t barred by the PREPA bankruptcy’s stay on certain actions.

The bondholders’ original motion, which the board asked the court to void, is part of an adversary proceeding within the PREPA bankruptcy, with Puerto Rico’s central government, governor, Puerto Rico Fiscal Agency and Financial Advisory Authority, and the FAFAA director as defendants.

The bond parties argue the defendants have taken their property and caused damages by, first, proposing PREPA fiscal plans based on inaccurate projections of how much debt PREPA can afford to repay to minimize bondholder recoveries and, second, using proposed fiscal plans and budgets to compel PREPA to credit net revenues away from the authority’s sinking fund, which bondholders have a lien on.

They want damages and injunctive relief. The bond parties argue with these actions the central government breached the PREPA authority act.

Earlier in the adversary proceedings, the board argued before U.S. District Judge Laura Taylor Swain the PREPA bankruptcy’s stay bars the bond parties’ action.

The bond parties replied that the board was trying to expand the PREPA stay beyond its limits. “The law is clear that the automatic stay does not extend to actions against non-debtors, except in limited circumstances that do not apply to the complaint,” they said.

The unsecured creditors, PREPA employees and retirees, meanwhile, asked the judge for a declaratory judgment that would confirm PREPA’s current expenses have payment priority over bonds, a principle they said is in the PREPA trust agreement. They also asked the judge to declare what was owed to the unsecured creditors, employees, and retirees as “current expenses.”

The plaintiffs in this action — the Unsecured Creditors Committee, a PREPA union, a group of PREPA retirees, and two other unsecured creditors — said “various settlements” in the board’s proposed plan of adjustment would not provide for payments in “full of all” current expenses.

Both the GoldenTree and UCC/UTIER complaints will be held until the plan of adjustment confirmation hearing, according to Puerto Rico Clearinghouse Principal Cate Long. i.

“GoldenTree’s motion appears to have been filed to create more grounds for appeal and the court is likely to look upon it as interfering with its case management,” she said. “The UCC current expense adversary would upset the entire plan of confirmation if decided in their favor and the court likely also sees it as a distraction.”

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