U.S. District Judge Laura Taylor Swain ordered yesterday the parties involved in the Puerto Rico Electric Power Authority´s (PREPA) debt restructuring process to be ready to discuss whether the proposed Plan of Adjustment (PREPA-POA) is “patently unconfirmable”, as the US Bank National Association alleged in its capacity as PREPA Bond Trustee.

At the same time, in addition to referring several legal issues related to PREPA to Judge Judith G. Dein, the judge presiding over the Puerto Rico government’s bankruptcy case ordered the parties to determine whether the amendments to the PREPA-POA made by the Oversight Board address the objections brought by different bondholders’ groups. If not, Swain asked the parties to identify the specific issues in the disclosure statement in dispute.

The judge’s decision came yesterday, just hours before the Board, bondholders, municipal insurers, PREPA’s Retirement System, and the Electrical and Irrigation Workers Union (Utier), as well as fuel line lenders, seek to convince Swain that it is necessary to continue – or on the contrary, to stop – the process to restructure over $10 billion through a cram-down. This, due to the lack of a comprehensive agreement that would put an end to the largest municipal bankruptcy process ever seen in the U.S.

The judge’s decision came at a time when the PREPA Retirement System (SRAEE, Spanish acronym) brought to the court the possibility of introducing, as part of the PREPA-POA, an additional surcharge on top of the so-called “hybrid charge” to pay the pensions of this public corporation.

Inclined to approve

Swain issued these orders while suggesting that she might approve the disclosure statement for POA-PREPA.

The disclosure statement is a document that explains the Board’s reasons for proposing to cut PREPA’s debt by half. Such a document must provide sufficient information so that those affected by the cut proposed, whether bondholders, insurers, employees, contractors, or retirees, can vote for or against the proposed debt restructuring.

If the judge approved the disclosure statement, the process of confirming a payment plan for PREPA would formally begin.

As part of that process, the Board would share the disclosure statement with all PREPA’s creditors to be considered as a reference when voting for or against the PREPA-POA.

While the PREPA-POA includes at least one special charge that would have to be added to the electricity bill for at least 35 years, it is up to certain PREPA creditors – not the customers – to decide whether the proposed payment plan is reasonable.

To confirm the PREPA-POA, Swain would hold another hearing – scheduled for next July – to determine whether the PREPA-POA is, in fact, reasonable and should be implemented.

Swain’s orders came shortly after the Board filed a new version of the PREPA-POA yesterday, the second review since the original version was filed last December 16.

A thorn in the confirmation process

“The Court is generally of the preliminary view that the Oversight Board’s revisions and proposed revisions to date sufficiently respond to most, if not all, of the objections contending that the Disclosure Statement lacks ‘adequate information,’” Swain’s order reads.

But in the same statement, Swain said that “issues that may be material to confirmation have been identified and should be addressed in connection with the confirmation proceedings”.

Before the confirmation hearing, the Board will have to convince Swain in a hearing to be held virtually that they did their best to file a POA that had the support of most bondholders.

According to the Board, thanks to the efforts of former Judge Shelley C. Chapman and two other judges on the mediation team, the Board reached an agreement with PREPA’s fuel line lenders and another agreement with municipal insurer National Public Finance Guarantee.

The fuel line lenders will receive 84 cents on the dollar in exchange for settling their claim of about $700 million.

Meanwhile, National would receive 71.65 percent of its claim of approximately $836 million.

A third agreement was reached with supplier Vitol Inc, an unsecured creditor that agreed to receive half of the $41 million PREPA owns them.

But these agreements do not even represent a quarter of the claims that the Board seeks to cut by half. And the Board’s attempt to get others to sign on to an earlier agreement did not have much success either.

And this, since in the new version of the PREPA-POA, only the holders of about $70 million in PREPA bonds accepted the agreement, subject to the result of the litigation to invalidate PREPA’s debt.

The possibility of another charge

The lack of sufficient support for the PREPA-POA is one of the many arguments presented by the Ad Hoc-PREPA groups and municipal insurers Assured Guaranty and Syncora Guarantee), who claim that the public corporation has the resources to pay them.

Meanwhile, PREPA workers and retirees have raised another flag: the possibility of a separate charge for the payment of pensions.

According to SRAEE, the Board proposes to eliminate the public utility´s pension plan, but it does not clearly establish whether, in the future, the payment of this obligation will come from another special charge in the electricity bill, nor under what conditions retirees will receive their pensions.

In addition to the hybrid charge that households, businesses, and industries would pay to pay bondholders, the PREPA-POA explains that to pay PREPA´s pensions, starting in 2024, the bill would have to be increased by at least two cents per kilowatt hour (Kwh). This charge, which would also have to be collected for at least two decades, would later be reduced if PREPA’s pension plan is eliminated, according to the Board’s proposal.

Fuente: El Nuevo Día

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