The judge in the Puerto Rico Electric Power Authority bankruptcy set a schedule for litigating disputes but said the authority's best future would stem from compromise.
U.S. District Judge Laura Taylor Swain laid out the five prongs of her approach at the start of Wednesday's hearing.
The Puerto Rico Oversight Board should submit an amended plan of adjustment by March 28, Swain said, as the board has already promised. The plan should give parties reference points that will aid in the resolution of critical issues.
The bankruptcy parties should first focus on dealing with the non-settling bondholders' motion for administrative expenses, Swain said. These professional expenses since the bankruptcy started could amount to billions of dollars, the bondholders have said. Focusing on this issue will provide light on legal and factual bankruptcy issues, Swain said.
Swain said parties should submit initial briefs on the topic by April 7.
Later parties should meet to discuss how "targeted discovery" should be done on major categories of revenues and expenses and the assumptions underlying the current PREPA fiscal plan. Subsequently, the parties should submit a joint discovery plan to Swain, she said.
The board should be allowed to litigate the issue of the PREPA bond trustee's claim in the Commonwealth of Puerto Rico bankruptcy, Swain said.
Finally, Swain said parties shouldn't go on with commencing or briefing any motion for
Swain said she would file a written order formalizing these points shortly, after two hours of arguments had passed.
She also said at the end of the hearing that the authority's best future would be through successful mediation discussions rather than in continued litigation. There must be compromise, Swain said.
Board attorney Martin Bienenstock said the issue of the bondholders' recourse should be looked at first. The bond trust agreement says the bondholders can only seek money in the sinking fund and other available money and not PREPA's equipment. Bondholders can only seek present and future net revenues, he said. The board says there are presently no net revenues and doesn't expect there to be net revenues for many years to come, Bienenstock said.
If the board is right that the bondholders have a non-recourse claim, and they can't turn to anything besides net revenues, then there will be no money for the administrative claim and there will be no need to go on to investigate the size of the claim, Bienenstock said.
G. Eric Brunstad, Jr., lawyer for the Ad Hoc Group of PREPA Bondholders, said determining
Brunstad said his group wanted to look at past PREPA expenditures. For decades PREPA has reported net revenues but the board now says those audited reports are false, he said.
Swain told Brunstad that she was partially lifting the stay on litigation in the case and so was to some degree acceding to the bondholders' demands.
Swain asked Bienenstock whether his approach would lead to PREPA's payment of the bondholders' full claim, which the First Circuit Court of Appeals said was for the bonds full par value.
Bienenstock said PREPA had no net revenues to pay any of its debt. Any payment would have to come from an outside party, which the board has suggested would be Puerto Rico's central government.
Swain also approved the mediators' hiring of PJT Partners as a financial advisor for the PREPA negotiations.
