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A group of Puerto Rico Electric Power Authority (PREPA) bondholders want U.S. District Judge Laura Taylor Swain to lift the litigation stay, arguing that the energy utility refuses to accept their latest settlement offer in the bankruptcy process that began in July 2017.
Assured Guaranty Inc., the PREPA Ad Hoc Group, National Public Finance Guarantee Corp., GoldenTree Asset Management LP, Syncora Guarantee Inc., and U.S. Bank National Association as trustee under the Trust Agreement moved on Monday to terminate the litigation stay in PREPA’s Title III bankruptcy case and used statements made by La Fortaleza Chief of Staff Francisco Domenech and by Gov. Jenniffer González Colón in support of their claims.
They argued that the Financial Oversight and Management Board for Puerto Rico, which represents PREPA in its $9 billion bankruptcy, eliminated any reasonable basis for maintaining a stay.
On Tuesday, the organization QUEREMOS LUZ denounced the oversight board because, it said, “at the expense of the Puerto Rican people, it intends to give billions of dollars to the private operators (of the electrical grid, LUMA Energy and Genera PR) and to PREPA bondholders, an action that will produce, among others, the doubling of the Basic Electricity Rate as of July 2025.”
The bondholders in their motion said they have proposed a settlement that would allow PREPA to maintain rates at a level that was deemed reasonable and affordable by the oversight board, provide 50 years of runway with replacement bonds that would have virtually no risk of default, and provide billions of dollars in financing to improve the grid.
“Had the Board engaged, PREPA could have emerged from Title III expeditiously,” the bondholders said. “Importantly, PREPA can easily afford the settlement. Indeed, there is real-life evidence of affordability because the Bondholders offered the new capital pari passu — meaning PREPA could pay the bond recoveries and service another $2.5 billion in debt. But the Board would not engage.”
The oversight board, the bondholders said, “then decided that instead of breaking the impasse through good-faith negotiations, it would instead make resolution — indeed, reorganization — effectively impossible by unilaterally ginning up a new fiscal plan that eliminates all debt capacity.”
“In other words, the Board did not just move the goalposts yet again in this case, but this time the Board eliminated them altogether,” the bondholders said.
The bondholders contended that even the commonwealth government recognizes that the oversight board is acting in bad faith, given that Domenech, the executive director of the Fiscal Agency and Financial Advisory Authority (AAFAF by its initials in Spanish), on behalf of the new administration, stated that the board’s actions are “unacceptable,” and that the fiscal plan is based on projections that are neither “real nor reasonable.”
The governor has likewise chastised the oversight board, calling its actions “unprofessional” and stating that her administration is “going to put up a fight” in response to the board’s certification of its new fiscal plan “because it’s wrong, because it costs the people, because it’s not the right thing to do, because it is not serious, because it is not a good faith negotiation and because it is not a good faith evaluation,” the bondholders said.
Like Domenech, González Colón described the new forecasts incorporated in the fiscal plan as “not factual,” the bondholders noted.
“It is now abundantly clear that the Board simply will not engage on a consensual plan absent adjudication of certain key issues,” the bondholders said. “Litigation should proceed on an updated motion for relief from the automatic stay or for adequate protection, a motion for an administrative expense claim, the Bondholders’ accounting counterclaim, and a motion to dismiss this Title III case.”
“PREPA has been consuming the Bondholders’ collateral without their consent and without sufficient provisions for adequate protection since the commencement of this case in July 2017 =– almost eight years,” they added. “And the Board has now indicated that it intends to have PREPA consume the collateral indefinitely. But two separate stay orders have prevented the Bondholders from vindicating their rights under PROMESA [the Puerto Rico Oversight, Management and Economic Stability Act] and the U.S. Constitution.”
Meanwhile, the oversight board’s executive director, Robert Mujica, said on Tuesday that the governor had not yet submitted any specific changes to the PREPA fiscal plan.
“The fiscal plan was in process for more than a year. Understand that this is not something that the board has come to a conclusion on in a short time,” Mujica said at a press conference associated with the board’s first public meeting, in which the governor participated. “More than a year, more than 50 meetings, including meetings with PREPA, which has all those numbers. The fiscal plans also go through an enormous amount of scrutiny. These are not the final fiscal plans. People will review them. People will challenge them. People will examine the numbers. We hope to continue having conversations with the governor to understand where they are …”
“And there will be scrutiny on the fiscal plan, and we will review what the governor’s thoughts are,” he added. “They have not presented us with specific changes to the plan.”
