PREPA parties still far apart, National retracts support

Parties in the Puerto Rico Electric Power Authority bankruptcy showed themselves to be further apart than ever before, with the Oversight Board offering little beyond the current plan's 4% recovery for non-settling bond parties and some bond parties suggesting they should get 100% of what they say is at least an $8.5 billion claim and one group that had reached agreement retracted its support.

The board said its new proposed plan offered three classes of money to the non-settling bondholders: "extra consideration" money, $168 million, and "if needed" loan proceeds to pay the new secured claim.

The board didn't specify the amount of the "extra consideration," which had been promised to bondholders that already settled.

The board indicated some of the money promised to settling bondholders will now instead be offered to the non-settling bondholders.

National Public Finance Guarantee, the first bond party to reach agreement with the board, on Wednesday retracted that support, saying the board's schedule was unrealistic. The board's statements since the First Circuit Court of Appeals ruled bondholders have a perfected lien on PREPA's net revenues do not adhere to the decision, the Puerto Rico Oversight, Management and Economic Stability Act or to bankruptcy law, it said.

On Monday, Board Executive Director Robert Mujica Jr. said the bond parties had become more assertive since the First Circuit's decision, with a substantial number now seeking full recovery.

U.S. District Court Judge Laura Taylor Swain scheduled a status conference for July 10.

The board, non-settling bondholders, Puerto Rico Fiscal Agency and Financial Advisory Authority, Official Committee of Unsecured Creditors, PREPA's main union and pensioners' group, National, the bond trustee, the fuel line lenders, and the Majority Member PREPA Ad Hoc Group submitted statements Wednesday on how the First Circuit decision affects the case.

The First Circuit ruled the PREPA bondholders had a perfected lien on the authority's net revenues as well as money in the authority's sinking and subordinate funds. They defined net revenues as any revenues "remaining after deducting reasonable and necessary operating expenses."

The board said the confirmation hearing should be reopened "for the limited purpose of determining the amount of the non-settling bondholders' allowed secured claim." The board suggested the hearing should be held in the weeks following Sept. 13.

The First Circuit court's ruling hasn't increased the pie size for creditors, the board said. While the board was open to increasing electric rates, there should not be relitigation of what electric rates should be, it said.

While bondholders claim PREPA collected billions of net revenues during the bankruptcy, which began in summer 2017, the reality is the utility has barely broken even during the period, the board said.

The board said it would list PREPA cash reserves soon but would only include a net revenue amount if it exceeded the two-month reserve for current expenses.

FAFAA and the fuel line lenders said they supported the board's positions.

The non-settling bondholders said special revenue provisions of the bankruptcy code enacted in 1988 suggest that special revenue bonds, like the PREPA bonds under dispute, should "ride-through" bankruptcies unimpaired and not be "stripped-down," as the board is insisting.

The board's proposed plan amendments conflict with the First Circuit ruling and bankruptcy law, the non-settling bondholders said. The board's proposed timeline for confirmation is patently insufficient, the non-settling bondholders said.

These bondholders want an accounting of a $3 billion PREPA "administrative expense" claim and a revisit of the bond parties' request to lift the bankruptcy's stay and allow them to petition for a receiver, given the seven-years in which the board failed to submit a confirmable plan of adjustment.

The non-settling bond parties said a completely new plan of adjustment and disclosure statement is needed.

The board's current proposed plan is illegal because other creditors would get the non-consenting bondholders' net revenues, they said. A proposed plan must treat all bondholders the same.  

The bond trustee, U.S. Trust N.A., said the current proposed plan is now "dead," despite the board's efforts to keep it going with slight modifications. It said it supported the non-consenting bondholders' position.

The group of investment funds, including BlackRock, called the Majority Member PREPA Ad Hoc Group, said that subject to its review, it supports the board's "proposal."

PREPA's union and pensioners said the court should first address the nature of current expenses (which the First Circuit said are outside of net revenues and should be paid first). They said it includes payment for labor and pensions.

The Official Committee of Unsecured Creditors said the First Circuit's decision was consistent with the committee's current treatment in the board's proposed plan.