PREPA bond parties try again for a receiver

Bond parties in the Puerto Rico Electric Power Authority bankruptcy are appealing a ruling that has barred a receiver from being appointed in the case.

Syncora Guarantee and GoldenTree Asset Management Monday filed an appeal notice of a ruling of U.S. District Judge Laura Taylor Swain that rejected their request for a removal of a stay order that prevents appointment of a receiver for PREPA.

The notice "was a delaying tactic" in an attempt to force the court to allow an appeal on the lien challenge, according to Puerto Rico Clearinghouse Principal Cate Long.

When bondholders first appealed in an effort to get a receiver, she said, the Circuit Court said Swain could lift the stay after determining "adequate protection" of bondholders' collateral. This appeal references that ruling.

"Judge Swain does not want any appeals on her rulings on PREPA until there is a deal with most bondholders," said Puerto Rico Attorney John Mudd. "GoldenTree filed its motion so it had a better chance of getting the First Circuit to hear it. It is not a clear case for the Circuit so it may or may not entertain the appeal."

Assured Guaranty also did not join with a group of investment funds that reached a settlement this summer with the Puerto Rico Oversight Board. Assured has indicated its intention to appeal the plan if Swain approves it.

On Tuesday Syncora, GoldenTree and Invesco Advisers told Swain, "The tumor in the prior plan of adjustment of gerrymandering classification to provide disparate treatment to creditors whose rights are similar, if not identical, has now spread to a full-on malignancy."

They continued, "The plan and its associated side-deals are premised entirely on rank vote-buying, which the Bankruptcy Code prohibits."

Further, they alleged, the Oversight Board "presented a plan that utterly disregards applicable black letter law and that has deepened bondholder dissension, ensuring a hotly contested confirmation process that in the end will fail."

Separately, board lawyers and representatives said things that revealed the plan of adjustment terms announced to the press on Friday were simplifications, uncomprehensive, and, at times, inaccurate.

If the deal is ultimately approved a group including BlackRock Financial Management, Nuveen Asset Management, and three other investment firms would invest $1.63 billion in new Series B PREPA bonds. This money would be used to pay off all of PREPA's liabilities immediately except for that of the fuel line lenders. The fuel line lenders would be given Series A PREPA bonds and a comparatively small amount of cash.

In addition to the cash payment, settling and non-settling bondholders would be awarded two contingent vehicle instruments that might pay out over the course of many years. Outside of the BlackRock group, none of them would receive new bonds.

The series B bonds would be split into two groups: B-1 bonds and B-2 bonds. There would be $278.7 million of B-1 bonds and $1.35 billion of B-2 bonds. The B-1 bonds would have a maturity of 17 years but an expected repayment of 13 years. The B-2 bonds would have a maturity and expected repayment of 35 years. The B-1 bonds would carry a 6% interest rate and the B-2 bonds would carry a 7.125% rate.

B-1 bonds would have priority of payment over B-2 bonds.

The B-1 bonds would not be subject to prior redemption and the B-2s would be callable at 20 years or beyond at 105% of principal amount, stepping down 1 percentage point each year for five years.

The Series A bonds would have $650 million in principal issued. This would have a 15-year maturity, but an expected repayment of nine years. The expected weighted average life would be less than five years. They would have a 6% interest starting Dec. 1, 2022.

The plan also specifies that no default could be declared on the new bonds even if the bond payments were not made as long as the legacy charge is collected and is deposited in accordance with the plan's payment waterfall.