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The Financial Oversight and Management Board recently stated in a motion that it is committed to fully paying the value of certain bondholders’ allowable secured claims through an amended Title III Plan.
However, there are still some gating issues affecting the case. In that regard, the oversight board believes that mediation and litigation may ultimately enable the Puerto Rico Electric Power Authority (PREPA) to settle its $9 billion debt with creditors as part of a bankruptcy process that has been ongoing for almost 10 years.
Last Wednesday, the federal Title III bankruptcy court extended mediation through April 30 of this year, and the Litigation Stay was extended through March 24. The oversight board does not oppose the termination of the Litigation Stay, which would allow mediation and litigation to proceed simultaneously.
The oversight board indicated in its motion that pursuing a dual-track strategy — engaging in mediation while also moving forward with an amended plan of adjustment — would be beneficial.
“If there’s any plausible prospect of a negotiated settlement, this plausibility will only increase due to litigation, which will lead to a definitive determination of the non-settling bondholders’ allowable claims and facilitate a successful confirmation of an amended restructuring plan for PREPA, as long as it satisfies all of the non-settling bondholders’ allowable claims,” the board stated.
Unfortunately, the mediation team has not succeeded in helping the parties reach a settlement to resolve PREPA’s bankruptcy. In December, the mediation team informed the court that “there does not seem to be a path to a negotiated settlement without a ruling from the First Circuit and a ruling from [U.S. District] Judge [Laura Taylor] Swain on certain gating legal issues,” according to the oversight board.
While the board said it will continue to engage in mediation with all parties and is optimistic about strong participation, it has not been presented with any new information that would change the mediation team’s assessment from November, it said.
The oversight board views the recent decision from the U.S. Court of Appeals for the First Circuit as offering a clear path forward for the case. Specifically, the decision clarifies that the Trust Agreement grants non-settling bondholders an allowable secured claim corresponding to PREPA’s net revenues, but no allowable unsecured deficiency claim, as the bonds are nonrecourse and resemble most special revenue bonds. The First Circuit reinstated the bondholders’ accounting claim regarding the misappropriation of their net revenues, but ruled that it could only be satisfied from future net revenues.
The oversight board reiterated its commitment to paying the full value of the non-settling bondholders’ allowable secured claims, backed by the net revenues that serve as collateral, through an amended Title III Plan.
“If the non-settling bondholders have other allowable claims, we are willing to satisfy them, although we currently believe they do not exist,” the board said.
