PREPA bond trustee says plan breaches trust agreement

The Puerto Rico Electric Power Authority bond trustee said the Oversight Board’s proposed plan of adjustment breaches the bonds’ trust agreement.

“There is a fundamental clash between the duties of bondholders to each other in the trust agreement and the three bondholder [plan support agreements (PSAs)] in the plan,” said bond trustee U.S. Bank N.A. attorney Clark Whitmore on the second day of PREPA’s plan of adjustment confirmation hearing.

“The board’s efforts to divide the bondholders with creative PSAs where the subgroups compete for a diminishing pot is clear,” Whitmore said Tuesday. “It is also clear that the resulting PSAs dramatically violate the all-for-one and one-for-all provisions of the trust agreement, undermining their approval and the plan constructed on them.”

The trust agreement, Whitmore said, requires any proceedings to be for the benefit of all bondholders. It bars bondholders from harming the agreement’s security for others, and requires bondholders to equally share any available money.

The bondholder plan support agreements reached violate the trustee agreement in several ways, Whitmore said: they claim to settle part of the bondholders’ lien and recourse claim when the trust agreement bars them from doing this as a subgroup; they seek distribution of money to themselves that is payable on the trustee’s master proof of claim; they seek more than their pro-rata share of distributions; they seek to divert hundreds of millions of dollars from the pot dedicated to bondholder recoveries to use for special fees, opportunities, and reimbursements; and by promising to use the committing bond parties’ trustee direction powers and their power to enforce the PSA’s no-action provisions, they seek to try to get needed support to get the bond trustee to stand down and abandon other bondholders.

“The narrative that this is sanitized by offering all these deals to everyone is simply untrue,” Whitmore said. An Oversight Board offer to bondholders in February 2023 was “completely meaningless” since the new bonds would include no ability to enforce any of the PREPA covenants. It was offering essentially a voluntary obligation from PREPA.

Attorneys representing PREPA’s main union, retired workers association, and a commercial group also spoke against the proposed plan.

PREPA provides poor electric service and it cannot afford to both pay debt service and upgrade service, said Zoé Negrón-Comas, attorney for Union de Trabajadores de la Industria Eléctrica y Riego, PREPA’s main union.

PREPA’s retirement system is independent of PREPA, said Rafael Ortiz-Mendoza, attorney for Sistema de Retiro de los Empleados de la Autoridad de Energía Eléctrica. Only the pension board can change it, not the Oversight Board. The pension board is a creditor and not a debtor, he said. Yet the Oversight Board falsely claims the right to restructure pension benefits, Ortiz-Mendoza said.

Attorney Fernando Agrait, representing some commercial sector parties, said the board had failed to study the impact of the plan’s rate increases on commercial properties. Agrait represented PV Properties, Windmar, and Instituto de Competividad y Sostenibilidad Economica de Puerto Rico.