PREPA bondholders seek to exclude Puerto Rico government's arguments

Bond parties who oppose the proposed Puerto Rico Electric Power Authority plan of adjustment are trying to bar a key document from Puerto Rico's Fiscal Agency and Financial Advisory Authority, which could greatly undermine FAFAA's influence in the bankruptcy's final phase.

Non-consenting bondholders said FAFAA didn't file a pre-plan of adjustment hearing findings of fact and conclusions of law (FFCL) and therefore had nothing to "update," making the filing unauthorized. The FAFAA submissions should be "stricken," they said.

The bond parties' action took place Friday in court filings as part of what may end up being final evidentiary arguments in the bankruptcy.

Ultimately, U.S. District Court Judge Laura Taylor Swain will create her own FFCL, which will serve as the main document justifying her approval or rejection of the proposed plan of adjustment.

"Objecting bondholders have done a good job poking holes in the Oversight Board's fiscal plan and proposed debt service capacity but Judge Swain showed in the lien estimation hearing that she wants the debt cut to the bone," said Puerto Rico Clearinghouse Principal Cate Long.

Still, the issues more likely to be appealed, she said, will deal with "whether objecting bondholders proved that National, the BlackRock group and fuel lenders were offered superior terms which were never offered to them," which would violate the Puerto Rico Oversight, Management, and Economic Stability Act and make the plan not confirmable.

PROMESA prescribes bonds with identical rights be treated equally, Long said.

Swain directed parties to limit objections to the "accuracy, propriety, or pertinence of evidentiary citations."

In the bondholders' objection to the Puerto Rico Oversight Board's FFCL, they say there is "substantial evidence" that the plan's voting classes were "configured to gerrymander an impaired accepting class," because some creditors with similar rights received "enhanced recoveries" and then received separate classification.

The nonconsenting bondholders also challenged the fees being paid to a consenting bondholder group, including BlackRock, as "unusually high."

The bondholders further claim they weren't offered the 71.6% recovery offered to National Public Finance Guarantee.

Assured Guaranty, GoldenTree Asset Management, Syncora Guarantee, and bond trustee U.S. Bank, N.A. filed the non-consenting bondholders' objections.

In its objections, the Unsecured Creditors Committee said the non-consenting bondholders' claim the unsecured creditors are getting a "baseline recovery" of 43% is incorrect.

This claim is based on an expert whose testimony the court has since excluded, they said, and the baseline recovery for the unsecured creditors is actually 9.85%.