The Puerto Rico Oversight Board and other parties asked the Puerto Rico Electric Power Authority bankruptcy judge to reject the bondholders' motion to lift the stay on seeking a receiver.
The board told U.S. District Judge Laura Taylor Swain approving the bondholder motion would be a waste of time. Even if the bondholders ultimately managed to appoint a receiver, the board would still control the PREPA fiscal plan and budget and so "stay relief accomplishes nothing."
The board said it has several parties supporting its approach to a plan. To dismiss the bankruptcy case now, as the non-settling bondholders are seeking, would lead to "chaos" and "hardship," the board said.
With preparation underway for a plan of adjustment that would pay the full value of the bondholders' collateral,
"Whether the non-settling bondholders hold a perfected lien against future net revenues is undecided," wrote Martin Bienenstock, board's lead bankruptcy attorney and a partner at Proskauer Rose LLP.
The bondholders' attempt to explore an accounting claim, "serves no purpose," Bienenstock said. The court can't examine the past since the only "remedy is in future net revenue."
Bienenstock said the board agreed with the approach to the bankruptcy found in Swain's filing earlier this week where she called for an exploration of what monies constitute net revenues, whether bondholders have an administrative expense claim from PREPA's use of net revenues since the 2017 bankruptcy filing, and the extent to which these claims must be paid from money other than existing or future net revenues.
Swain told the parties to propose a schedule to litigate these issues by 4 p.m., Atlantic Standard Time, March 14.
The Unsecured Creditors Committee told Swain it supports her approach to the issues to be litigated and generally supported the board's position on the bondholders' request to lift the stay.
The court should determine the amount of net revenues and see if it can confirm a plan on that basis, the board said.
Puerto Rico's Fiscal Agency and Financial Advisory Authority, which argues on behalf of Gov. Jenniffer González Colón in the bankruptcy, asked Swain to deny the bondholder motion. FAFAA said it wanted the bankruptcy to focus on negotiation rather than litigation.
The bondholders are pursuing a "scorched earth litigation plan," FAFAA said.
The fuel line lenders were uncommitted, saying they "reserve all rights" concerning the bondholders' lift stay motion.
Swain has given the non-settling bondholders until 4 p.m., AST, March 11 to respond to the filings, and set a hearing on their request for the morning of March 19.
"I think Swain will decide to have the parties brief her on the issues she raised in her order on Monday," an attorney in the case said. "After she rules, then the board will file its plan of adjustment and disclosure and then [there will be the] hearing. She will approve it and then there will be appeals. Uncertain what First Circuit [Court of Appeals] will do."
"Objecting PREPA bondholders have the weight of First Circuit rulings that
"The Title III [bankruptcy] court is unlikely to allow the objecting bondholders to litigate for dismissal of the case or appointment of a receiver," Long said. "Hopefully the court will run an adversary case to identify exactly what the net revenues are prior to beginning confirmation hearings."
