PREPA bondholders may challenge board's advisory fees

Puerto Rico Electric Power Authority bondholders told the bankruptcy court they may challenge all Oversight Board's advisory fees.

The group of opposing bondholders, which hold or insure 61% of PREPA's bond principal, asked U.S. District Judge for the Southern District of New York Laura Taylor Swain to be allowed to object to the fees of McKinsey & Co. Puerto Rico Consulting and other board consultants until two weeks after the bankruptcy's litigation stay is lifted, which would normally happen at the bankruptcy's end.

The bond parties "reserve all rights to seek disgorgement of all fees and expenses paid to McKinsey," they wrote in the motion to Swain. They cited an earlier Puerto Rico bankruptcy order that said interim payments to professionals do not bind the court with respect to final consideration for payment and that all fees and expenses were subject to disgorgement (return) until the court gives them final approval.

The bond parties said it had consulted with the attorney for McKinsey and McKinsey consented to the motion's relief but "reserves all rights and waives none."

McKinsey didn't immediately respond to a request for a comment. The board said it would not comment.

The bond parties said they are willing to continue to fight the board for "years" to resolve legal fights that will "reveal the Oversight Board's positions are baseless." It would rather work "constructively" with the board to reach a deal.

"PREPA has incurred over $400 million in professional fees during the nearly eight years this case has been pending," the bondholders told Swain. "And yet, almost nothing constructive or of value to PREPA and its stakeholders has been achieved. A consensual resolution is nowhere in sight, PREPA's electricity generating, transmission and distribution system is less reliable than it was on the [bankruptcy] petition date, PREPA does not have access to the capital markets all utilities require to maintain and upgrade their operations and the people of Puerto Rico continue to suffer."

The bond parties supporting this motion are GoldenTree Asset Management, Assured Guaranty, Syncora Guarantee, National Public Finance Guarantee Corp., and the PREPA Ad Hoc Group.

Swain hadn't responded to the motion as of Friday afternoon.

The board told the press Tuesday, a day before the bondholders' motion, that it was sticking to its offer to the PREPA bondholders, which would give this group opposed to the board's proposals a recovery of about 4% of principal.

In related news, Puerto Rico-based group Espacios Abiertos released a report on the Puerto Rico bankruptcies' expenses saying the board and local government's total expenses for consultants, advisors and lawyers had gone beyond $2 billion by the end of the first quarter of 2024. This far exceeds Congress' original estimate of $370 million for the cost of the Puerto Rico Oversight, Management, and Economic Stability Act, which Congress made before passing the law.

Of the $2.022 billion spent through the end of March 2024, $439 million was spent in the PREPA bankruptcy, Espacios Abierto said.