PREPA bondholders oppose litigation, criticize mediation efforts

Puerto Rico Electric Power Authority bondholders told the bankruptcy court they oppose a move to litigation although they do not agree with the board that mediation is "constructive" and being conducted in good faith.

“Litigation will only distract from the parties’ attempts to reach an agreement," the bondholders said Monday in reply to an Unsecured Creditors Committee Sunday filing. "As the PREPA bondholders noted in their May 27 informative motion, the time for litigation in this case may yet arrive.”

The UCC’s proposed litigation schedule is “fundamentally flawed,” the bondholders said. The UCC would first consider a challenge of bondholders’ lien against rate payments.  “A potential motion to dismiss PREPA’s Title III [bankruptcy] case should be heard prior to any other litigation,” the bondholders said.

They also challenged the UCC's contention "that challenging the bondholders’ liens will be a quick and easy path.” Discovery would be necessary, they said. 

“The determination of what PREPA can and should pay to creditors as a whole is the dispute that should move forward first, as it is the only litigation that can lead to a confirmable Title III plan,” they said.

While the PREPA bondholders said they support advancing the mediation deadline to Aug. 1support advancing the mediation deadline to Aug. 1 from July 1, they indicated displeasure with the mediation experience. “The PREPA bondholders do not join in the Oversight Board’s assertion that the parties are ‘engag[ing] constructively’ and the mediation is proceeding in ‘good faith,’” they told the U.S. District Court for Puerto Rico.

The PREPA bondholders consist of the Ad Hoc Group of PREPA Bondholders, Assured Guaranty Corp., Assured Guaranty Municipal Corp., National Public Finance Guarantee, and Syncora Guarantee. Together they hold or insure more than 60% of the bonds. 

Also on Monday, the Puerto Rico Oversight Board filed a reply to the filings of the UCC, the Sistema de Retiro de Empleados de la Autoridad de Energía Eléctrica (SREAEE), and Unión de Trabajadores de la Industria Eléctrica y Riego (UTIER). The SREAEE represents PREPA’s retirees while UTIER represents its workers. The SREAEE and UTIER filed jointly on Sunday, calling for a partial resumption of litigation.

The board prefers to continue mediation for a month, since litigation now would distract the parties from reaching an agreement “while causing PREPA to incur significant additional costs. Steadily decreasing liquidity remains a significant issue for the utility.”

On Friday, PREPA released financial information showing that its operating bank accounts’ $955.1 million balance on June 17 was down 13% from March 18.

UTIER and SREAEE complained they had not been a party to mediation sessions, butthe board “contests that representation” and said it is committed to negotiating with them.