Puerto Rico’s government should be allowed to lend money to its Puerto Rico Electric Power Authority, its Oversight Board told the Title III bankruptcy court.
Since the board first filed with the court for a loan of up to $1.3 billion on Jan. 27, parties in both the central government and the PREPA Title III cases have submitted 13 responses, not counting the Oversight Board's Saturday reply.
Objections to the board’s proposed Puerto Rico central government loan have come from the Ad Hoc Group of General Obligation Bondholders, the Ad Hoc Group of PREPA Bondholders, the PREPA bond trustee, several bond insurers, as well as others.
On Feb. 15 Judge Laura Taylor Swain will hold a hearing on the arguments in the case.
According to the board, everyone agrees that PREPA desperately needs a cash infusion to prevent a shutdown in the next few weeks. This would hurt Puerto Rico’s economy, its hurricane recovery work, and government revenues, it argued.
The board said that the government’s proposed loan terms are the best terms being proposed to the authority at this time. While the authority is seeking a Community Disaster Loan from the U.S. Treasury, it now believes that its disbursement will not happen in time to avoid running out of cash.
The board argued that the authority was eligible to accept a loan according to U.S. Bankruptcy Code 364(c) (1) on terms granting loan senior or equal to senior outstanding status.
Contrary to the claims of some parties, the commonwealth doesn’t owe PREPA substantial sums for its electricity, the board argued. Thus the commonwealth simply paying back what it owes would be inadequate to solve the authority’s cash crunch.
While other governmental entities and municipalities owe PREPA $253 million, the board said it will be very difficult to collect any significant part of this.
The board says that the PREPA bondholders have a “security interest” in the authority’s revenue but that this is subordinated to the authority’s current expenses. Both National Public Finance Guarantee and Assured Guaranty argued that a central government loan to the authority would undermine “adequate protection” of the bondholder collateral. The board denies this.
In a bankruptcy, “a secured creditor is entitled to adequate protection for the value of its collateral but is not entitled to adequate protection of contractual rights to performance and related remedies,” the board said the U.S. Supreme Court has found. The bondholders’ collateral is the authority’s “revenues above operating expenses.”
