---
The U.S. Bank National Association, acting as the Trustee for the Puerto Rico Electric Power Authority, has opposed a motion requesting a partial lift of the confirmation stay in PREPA’s bankruptcy proceedings to initiate litigation aimed at reclassifying the debt claim of the PREPA bond trustee against the commonwealth.
Although the court approved the commonwealth’s debt adjustment plan in 2022, payments for general unsecured claims have not been executed due to a pending objection, dated August 31, 2023, in which the U.S. Bank National Association asserts an unsecured claim of $8 billion against the commonwealth. This amount coincides with the debt owed in PREPA bonds.
Claims monitors Carol Flaton and Ramon Ortiz are advocating for the reclassification of this debt, contending that the U.S. Bank National claim should not be treated as a general unsecured claim of the commonwealth, but rather classified as a Section 510(b) Subordinated Claim or a claim for particular damages under the Commonwealth Plan.
The monitors have expressed a desire for “authority to allow the Claims Reconciliation Monitors to seek to address the largest hurdle preventing the Financial Oversight and Management Board from making significant distributions under the Commonwealth (CW) Plan to holders of legitimate CW General Unsecured Claims—the appropriate classification of the Trustee Proof of Claim against the Commonwealth.”
If the PREPA bond trustee’s claim is misclassified, it could considerably reduce the recoveries for holders of valid CW General Unsecured Claims under the commonwealth’s debt adjustment strategy, they noted.
The overall total of CW General Unsecured Claims is around $3.5 billion. While the amount of the Trustee Proof of Claim remains unliquidated, the Financial Oversight and Management Board has allocated $8.4 billion in relation to this claim.
In contrast, the PREPA Bond Trustee recently opposed the petition, asserting that Title III Court Judge Laura Taylor Swain, responsible for overseeing PREPA’s bankruptcy, has suspended all confirmation and bond-related litigation since July 10, 2024, including matters concerning the Oversight Board’s challenge to the PREPA Bond Trustee’s Proof of Claim, which contains several unsecured claims against the commonwealth due to alleged statutory and constitutional violations prior to filing.
“When doing so, the court acknowledged that a comprehensive mediation process for PREPA is essential for swiftly resolving PREPA’s case, and without such mediation, the case would continue in prolonged and contentious litigation, detrimental to all stakeholders, particularly the people of Puerto Rico,” stated the Trustee.
“The litigation stay was established to promote mediation regarding the full spectrum of disputes concerning the claims of the PREPA Bond Trustee and Bondholders against both PREPA and the commonwealth. It should not be partially lifted to allow unbalanced litigation, especially at the behest of parties whose interests are significantly detached from the PREPA Title III proceedings. The proposed litigation regarding classification, which focuses solely on a late objection to the Trustee’s Claim against the Commonwealth, would divert attention from the mediation process,” emphasized the Trustee.
The PREPA Trustee also noted that the Monitors do not possess the authority or standing under the Commonwealth Plan, or any other regulations, to initiate and advance the classification litigation.
