U.S. District Judge Laura Taylor Swain ordered Puerto Rico Electric Power Authority parties to return to mediation despite the mediators’ determination further talks would be fruitless.
The
Bond parties opposed to the Puerto Rico Oversight Board’s proposed PREPA plan of adjustment believed the First Circuit Court of Appeals’ decision in May in favor of the bondholders’ lien on future net revenues of the system would lead to a resolution in the case, GoldenTree Asset Management Attorney Thomas Lauria told Swain during the Wednesday hearing. GoldenTree is a member of the group opposing the board’s fall 2023 proposed plan of adjustment.
The opposing bond parties put together a
Two constitutional problems exist under the current situation, according to Ad Hoc Group of PREPA Bondholders Attorney Greg Brunstad, Jr., PREPA is taking the bondholders’ collateral without compensation indefinitely and a due process problem arose because if a party is deprived of just compensation, they are due a court hearing, which the bondholders haven’t received.
Should the First Circuit support the bondholders’ position in their latest appeal, Oversight Board Attorney Martin Bienenstock said, Swain would have to determine if the bondholders had a lien on future net revenues or just current ones.
But that would be a huge step backwards for the case, argued Assured Guaranty Attorney Mark Ellenberg. If the First Circuit decides for the bondholders, he said, the future revenues issue would also be settled.
But determining the size of PREPA’s net revenues should be the court’s next step, according to Brunstad.
While Swain has the right to control her docket, “we are nearing a point where Judge Swain is clearly depriving bondholders of their rights by ordering more mediation when allegedly the Oversight Board will not even engage (according to statements made by Assured’s attorney Mark Ellenberg in yesterday’s omnibus hearing),” said Cate Long, Puerto Rico Clearinghouse principal. “It’s likely that Swain prefers to wait for the First Circuit to decide if they will grant the board’s second request for rehearing and is using an order to continue mediation as a way to make time for the circuit to rule.”
PREPA’s bankruptcy, affecting more than $8 billion in bond debt is now more than seven years old, making it the longest running municipal bankruptcy is United States history.
The Puerto Rico Oversight Board and the bond parties opposed to its proposed plan of adjustment argued in the First Circuit Court of Appeals last winter on the validity and nature of the bondholders’ lien on revenues. The First Circuit ruled largely in the bondholders’ favor in May. The board appealed and the court issued another ruling largely in the bondholders’ favor in November.
The board, Puerto Rico Fiscal Agency and Financial Advisory Authority, and Unsecured Creditors Committee
Separately, board staff later Wednesday presented plans to implement budget reform, a multi-year capital program, an Enterprise Resource Planning system and issue new economic and revenue forecasting.
At a public hearing Board Executive Director Robert Mujica said the government budgeting process must be reformed further. Puerto Rico Governor-elect Jenniffer González Colón is onboard with the board’s goals to improve budgeting, he said.
Prior to the board’s founding in 2016 the local government had a long history of approving budgets with less revenues than expenses. In June, the legislature approved several spending measures that would have led to an imbalanced fiscal 2025 budget, but the board overruled it.