The unsecured creditors, union, and retiree group for the Puerto Rico Electric Power Authority, frustrated by a lack of progress, want to argue their case before Bankruptcy Judge Laura Taylor Swain, while continuing mediation.
The mediators, the Oversight Board, and other parties oppose the move, made in filings Sunday with the U.S. District Court for Puerto Rico by the Unsecured Creditors Committee, the Sistema de Retiro de Empleados de la Autoridad de Energía Eléctrica (SREAEE), and Unión de Trabajadores de la Industria Eléctrica y Riego (UTIER).
For five years “a single strategy has been pursued: to attempt to formulate a plan of adjustment by negotiating exclusively with the PREPA bondholders, while staying indefinitely the committee’s objection to the PREPA bond claims,” wrote UCC attorney Luc Despins and his team of attorneys. “After five years, the results are in: the strategy has gone nowhere.”
The UCC, he said, seeks litigation on two issues: “whether the PREPA bondholders’ security interest is limited to funds actually deposited into specified accounts held by the PREPA bond trustees (in the amount of approximately $8 million as of PREPA’s [bankruptcy] petition date); and (2) whether the PREPA bonds are non-recourse obligations such that the PREPA bondholders have no claim against, and are not entitled to distributions from, PREPA for any difference between the face amount of the bonds and the funds on deposit in the specified accounts.”
Since the board filed a motion to approve a PREPA debt deal in May 2019, there have been at least 20 adjournments and extensions, Despins said. “These ad seriatim extensions (each for seemingly short periods of time) need to come to an end.”
While the Oversight Board says there have been “numerous” mediation sessions in the last few months, the UCC has not been included in these sessions, Despins said.
The issues before the court would focus on legal and contractual interpretation issues, not require fact discovery, he said, and thus move quickly.
“The committee is not suggesting at this time that mediation be put on hold in favor of litigation,” Despins said. The committee wants any further extensions of the July 1 mediation deadline to include “allowing litigation on the threshold issues to commence now, including by requiring the Oversight Board to propose a litigation schedule by the current July 1, 2022, deadline.”
UTIER and SREAEE made similar arguments and said they weren’t invited to participate in mediation sessions.
“For this court to continue extending the schedule without resolving the pending litigation would repeat the mistakes of the defunct Restructuring Support Agreement,” the groups said through their lawyers. “Should the mediation process continue, it should include all the mediation parties and be parallel to the litigation that has been adjourned.”
Mediators could not be reached for comment by press time.
The Oversight Board, Puerto Rico Fiscal Agency and Financial Advisory Authority, Ad Hoc PREPA Bondholders Group, National Public Finance Guarantee, Assured Guaranty, and the fuel line lenders told the court Friday they support a simple extension of the mediation to Aug. 1 from July 1. The mediation deadline has already been pushed back twice.
About $8 billion of PREPA bonds and roughly $1 billion more of non-bond debt are outstanding. The PREPA bondholder group and the bond insurers control substantially more than half of the PREPA bond par outstanding.
PREPA has been in a bankruptcy process guided by Title III of PROMESA since mid-2017. Talks about restructuring the bonds go back to mid-2015.
In a separate matter related to PREPA, Gov. Pedro Pierluisi released a statement Saturday complaining about the House of Representatives’ rejection of his proposed temporary reduction of electrical rates. The rates have risen because the authority’s fuel costs have gone up, he noted.
Pierluisi had recommended transferring money from the State Insurance Fund Corp. to the authority temporarily to cover expenses that would be lost by the price reduction.