PREPA judge sets claim estimation procedures

Rejecting bondholders' position that they are entitled to full recovery, District Court Judge Laura Taylor Swain set procedures for estimating bondholder claims in the Puerto Rico Electric Power Authority bankruptcy case and deadlines shorter than requested.

The parties should engage in a "true estimation process, not a protracted trial to establish a precise computation of the unsecured net revenue claim," Swain said in an order Thursday. Swain said, "payment restrictions and priorities of the [bond] trust agreement" would be used to determine the payout.

"She is giving the board what it wants," said an attorney not involved in the case, who wished to remain anonymous. "It will set the value at whatever it wants and she will rubber stamp it."

"Deep divisions between the parties," remain, including "disagreements on basic principles," that prevent an agreement, Swain said.

Nevertheless, Swain rejected the bondholders' contention that estimation of the unsecured net revenue claim is "unnecessary" because the correct measure "is the face value of the bonds."

On a dispute between the bondholders and the Puerto Rico Oversight Board on the meaning of "term of the bonds," a phrase she had used in her order rejecting the bondholders' lien on revenue, Swain said she didn't mean the bonds' stated maturities nor did she believe the bonds' promises have no expiration.

The law sets "functional time constraints" on debt collection, Swain said. In determining their stance on the term of the bonds, Swain advised "the parties to consider the period of time during which the bondholders would be in a position to realize legal or equitable relief in aid of recovery, taking into consideration any limitations imposed by the terms of the trust agreement as well as applicable non-bankruptcy law."

Puerto Rico Clearinghouse Principal Cate Long said she thought Swain was referring to a Puerto Rico law that allows five years for the collection of personal bankruptcy debts.

Swain set a May 19 deadline for filing responses concerning the bondholders' claims, while bondholders had asked for a June 7 deadline and the board had requested May 25.

"This order sets forth an expedited timeline for the parties to obtain and exchange information ('discovery') material to unsecured claims and will assist the court in streamlining disputed issues come June when the court has scheduled a hearing to address allowance or disallowance of certain claims against PREPA," said Phillip Escoriaza, senior counsel at Feldesman Tucker Leifer Fidell.

Swain also set out a procedure to handle future discovery disputes.