PREPA bondholders say parties failed to respond to lift stay call

Bondholders opposed to the Puerto Rico Oversight Board's proposed Puerto Rico Electric Power Authority debt restructuring told the bankruptcy court parties have failed to respond to their arguments to lift the bankruptcy's litigation stay.

The bondholders want the stay lifted so they could petition a Puerto Rico court to allow them to appoint a receiver.

The board, the fuel line lenders, the Puerto Rico Fiscal Agency and Financial Advisory Authority, and the Claim Reconciliation Monitors failed to address the arguments, the bondholders said. The bondholders told the U.S. District Court for Puerto Rico, which is overseeing the case, the continuation of its orders are impermissible on constitutional and statutory grounds. The original rationales for the orders no longer apply, they added.

An examination of the balance of harms in continuing the stay or ending it also favors relief from the stay, the bondholders said.

The 2022 stay order, in particular, is "impermissibly indefinite," the bondholders said.

They said two parts of the U.S. bankruptcy code incorporated into the Puerto Rico Oversight, Management, and Economic Stability Act, which guides the bankruptcy, and the Bill of Rights' Fifth Amendment provide meaningful remedies for what the bondholders described as the board's "malfeasance."

The board incorrectly argues that bondholders' administrative expense claim is payable only from future net revenues, the bondholders said.

The First Circuit Court of Appeals' ruling last year ruled the bondholders have a lien on net revenues that extends from the bonds' issuance into the future, they said. In this context an administrative expense claim would be a way for the bondholders to recoup legal and professional fees associated with the bankruptcy.

Though the board says the court will confirm a plan of adjustment soon, it says PREPA can pay nothing for its debts and that the money to pay a small portion of the debt, as part of the plan, will come from an unidentified source. The board's effort to confirm a "legally infirm cramdown plan is patently flawed and will add years of litigation," the bondholders said.

In its response to the bondholders' motion to lift the stay the board last week told U.S. District Judge Laura Taylor Swain that approving the bondholder motion would be a waste of time. Even if the bondholders ultimately managed to appoint a receiver, the board would still control the PREPA fiscal plan and budget and so "stay relief accomplishes nothing."

In the bondholders' response, they said the board's understanding of the laws was wrong "on the merits." PROMESA incorporates the bond's trust agreement and local Puerto Rico laws that would allow the bondholders' receiver to operate independently of the board, they claim.

Finally, the bondholders said the First Circuit Court of Appeals explicitly directed the lower court to allow them to do an accounting of PREPA revenues and expenses and so Swain should allow this.

The bondholders that prepared the reply are Assured Guaranty, National Public Finance Guarantee Corp., the PREPA Ad Hoc Group, GoldenTree Asset Management, Syncora Guarantee, Inc.; and U.S. Bank N.A.

The board responded to the filing by saying, among other things, "Given that PREPA and the Oversight Board are requesting permission to confirm the proposed plan of adjustment paying the non-settling bondholders the full value of their collateral, diverting attention to a stay hearing about allowing them to apply to have a receiver take control of their collateral serves no purpose other than delay and is a waste of judicial and litigant resources."