PREPA parties disagree on road forward

Parties in the Puerto Rico Electric Power Authority bankruptcy filed very different proposals for procedures to advance the proceedings.

The parties filed Friday in response to the mediation team's two proposals on procedures, filed earlier in the week.

PREPA bankruptcy Judge Laura Taylor Swain will have a hearing in PREPA's bankruptcy on Wednesday.

Bloomberg News

Six parties in five filings generally supported the onset of litigation in the case but disagreed on everything else.

The Oversight Board, Puerto Rico Fiscal Agency and Financial Advisory Authority, the PREPA Bondholders (which includes bond insurers), and the Unsecured Creditors Committee each submitted their own filing. The PREPA retirees' group and the main PREPA union filed a joint filing.

The bondholders said they generally supported the mediators' proposal to simultaneously create and propose a plan very quickly, conduct mediated negotiations, and allow litigation to commence. Of all the parties, they were most negative about litigation, saying that if it were to happen at all, it should be in the context of the board's request for a plan of adjustment.

The board can, if necessary, "propose a 'Toggle Plan' reflecting PREPA's alternative treatments of claims depending on how the court resolves that," the bondholders said.

The bondholders said they didn't object to the mediation team's proposal if the judge required the board to propose the toggle plan soon and confirm the plan within nine months.

The Oversight Board said the gap between it and the bondholders was unbridgeable without starting litigation of legal issues but that "parallel" negotiations would also be good.

Under the Puerto Rico Oversight, Management, and Economic Stability Act, the court should give deference to the board's proposed path, the board said.

The board said it wanted to meet with the unions or retirees so it could work on getting acceptance from at least one impaired bankruptcy class. Currently, most of the bondholders and insurers oppose the board's proposals for a plan.

While the board said it supported some parts of the mediators' proposal, it objected to many others.

PROMESA doesn't give the court the right to require a toggle plan, the Oversight Board said. And a toggle plan would have too many possible outcomes and thus be "impracticable."

The mediators' proposal that the board file a plan of adjustment within 60 days is "possible" but would have problems, the Oversight Board said. Instead, it suggested the court require a plan either within 45 days of a restructuring support agreement being reached with a major creditor or the court's finding on the case's lien challenge.

The board said the court should not at this time consider any lift stay motion, motions for dismissal, or receiver disputes.

The mediators' proposed order saying board members should attend sessions "without delay of scheduling of such session" should be removed, it said. It also said it was opposed to being required to appoint a lead negotiator.

Finally, the board said the mediators' proposed online data room requirement was unnecessary as the board already shares its information.

FAFAA disagreed with mediators' statement that "settlement is within reach" and that process "infirmities" led to insurmountable roadblocks. "The parties have not reached a deal because they have fundamental disagreements about the nature and scope of the bondholders' rights."

FAFAA said it liked the board's proposed schedule for litigation and disliked the mediators' schedule. It said it opposed the mediators' position that the board be required to hire a new financial professional.

Finally, FAFAA said it opposed the mediators' recommendation that the court order parties to share their financial analyses. Much of the material is protected by attorney-client, attorney work, or deliberative process privilege protections, the authority said.

In a joint filing the PREPA retiree group Sistema de Retiro de Empleados de la Autoridad de Energía Eléctrica and PREPA union Unión de Trabajadores de la Industria Eléctrica y Riego said the mediation process had "failed."

Mediation had continued the earlier negotiation's "blind spot" by not including parties other than the board and bondholders, their filing said.

The mediation was just a repetition of earlier negotiations but with the addition of mediation team expenses, and the mediation should end, the retirees and union said.

They said they were opposed to creating a Toggle Plan because it would emphasize the ability to pay the bonds over the nature of the bonds and their relative priority.

The Unsecured Creditors Committee said the mediating team had become a "quasi-party" and maybe more rather than remain neutral, as it should. The UCC said it was wrong for the team to tell the board it had to hire a financial advisor.

The UCC said the first thing that should be done was the litigation of two legal issues. There should be no Toggle Plan. The latter would require "endless" alternative scenarios and would lead to "years of litigation."

The UCC said it must be allowed to participate in negotiations or the committee will be faced with the "argument that there are no funds left for its constituents." The UCC has $3 billion in claims, it said.