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The U.S. Court of Appeals for the First Circuit in Boston has turned down requests from multiple stakeholders in the Puerto Rico Electric Power Authority’s (PREPA) Title III bankruptcy proceedings for a reevaluation of a ruling concerning bondholders’ security interest in anticipated net revenues.
The ruling, delivered last week, dismissed appeals from the Financial Oversight and Management Board for Puerto Rico, the unsecured creditors committee (UCC), and the Puerto Rico Fiscal Agency and Financial Advisory Authority for a reassessment of a decision affirming that bondholders had established their security interest in PREPA’s future net revenues.
In June 2024, the appeals court concluded that bondholders possessed a secured claim totaling $8.3 billion, reversing an earlier district court decision that determined they only had an unsecured claim of $2.4 billion. This ruling complicated PREPA’s federal bankruptcy case, leading presiding Judge Laura Taylor Swain to implement a litigation pause to promote an amicable settlement.
The oversight board contested the ruling, contending that the security interest was not properly established. The perfection of the security interest is crucial because unperfected liens may be dismissed. Although the First Circuit modified its reasoning regarding the establishment of the security interest in a later ruling, it still concluded that the interest had been legitimately perfected.
The court’s rejection of the rehearing requests represents another twist in the protracted conflict surrounding the security interest in PREPA’s future net revenues.
This determination may hinder the oversight board’s efforts to negotiate a settlement of the utility’s estimated $9 billion debt with bondholders.
