The Puerto Rico Oversight Board said Puerto Rico Electric Power Authority bondholders have no active claim against the Commonwealth of Puerto Rico's central government, in a dispute over about $575 million.
The board said in a filing in the commonwealth's bankruptcy case in the U.S. District Court for Puerto Rico that the PREPA bond trustee's effort to make a claim that bankruptcy's general unsecured claims payout is improper.
Though that bankruptcy's plan of adjustment went into effect in early 2022, the commonwealth hasn't paid the general unsecured claims yet. The court has been evaluating the claims since then.
The board said the bond trustee's claim for PREPA bondholders against the commonwealth's general unsecured claims should be resolved now because in its current unsolved state, it would be an "impediment" to making distributions to other claimants.
A payment in the commonwealth's case would be in addition to any made to PREPA bondholders as part of
The board, through its attorneys, argued the PREPA bondholders claims, if any, were assigned to "section 510(b) subordinated claims" in the plan of adjustment, which was awarded a 0% recovery.
The PREPA bond trustee, U.S. Bank N.A., said several of its claims properly should be assigned to the general unsecured claims treatment of the plan of adjustment, which the board projected would receive a roughly 20.4% recovery. In other words, for every $100 owed to a creditor, they would be paid $20.40.
The bond parties asked in a November 2023 filing for "an unliquidated amount," which means the size of their claim is to be determined later. The board said, if the bondholders were to be granted their claim, they would get a "pro rata share of the $575 million general unsecured claim reserve."
In the board's filing the board cited section 701 of the PREPA bond trust agreement, which said "nothing in the bonds or in this trust agreement shall be deemed to constitute the bonds as debt or obligation of the commonwealth."
The
Section 510(b) of the bankruptcy code also says claims like those of the PREPA bondholders should be subordinated, the board said.
U.S. Bank, in its November 2023 filing, said the commonwealth had breached rights it granted to and a statutory covenant it made with the trustee and bondholders in the bonds' authority act. The commonwealth government breached those promises in various ways.
Due to these breaches, the bondholders have a general unsecured claim against the commonwealth, U.S. Bank said.
The bankruptcy court has given U.S. Bank until Friday evening to respond to the board's arguments.
