Bonds

Puerto Rico Oversight Board defends PREPA disclosure statement

The Puerto Rico Oversight Board defended its proposed Puerto Rico Electric Power Authority disclosure statement in a filing following bondholder attacks.

Earlier this month the Ad Hoc Group of PREPA Bondholders and bond insurer Syncora Guarantee separately filed criticisms of the disclosure statement the board submitted in December along with a proposed plan of adjustment

A week ago the board submitted an amended plan of adjustment and disclosure statement to the U.S. District Court for Puerto Rico, where the bankruptcy is being held

The board said the “vast majority” of the Ad Hoc Group and Syncora’s objection deals with confirmation of the plan. “As the jurisprudence makes clear, confirmation objections are premature at the disclosure statement hearing except for objections showing a plan provision renders the plan patently unconfirmable under any set of facts.” The board said there were no such plan provisions.

The bondholders argued the proposed plan is “unconfirmable” because it does not provide for the possibility the bondholders will win all their legal arguments, which could create a situation where their collateral’s value is greater than the value of the new bonds.

Further, Judge Laura Taylor Swain ordered the plan to address all possible outcomes of ongoing litigation, they said. But the board responded, Swain did not order the board to submit a plan that “could be confirmed under every hypothetical scenario, but rather one that is confirmable in a range of ‘realistic’ litigation outcomes.”

While the bondholders object to the amended plan’s classification scheme, it is “fair and appropriate,” the board said. Since there are already three accepting classes (fuel line lenders, Vitol, and National Public Finance Guarantee), the board said, there can be no “gerrymandering concerns.”

The board denied the bondholders’ charge it has acted in bad faith in mediation and said it would demonstrate at confirmation the plan meets the good faith requirement.

The board said its settlement offer to uninsured bondholders, sent out in late January, was not an “impermissible solicitation” under the bankruptcy code, as the bondholders claim.

Since bondholders were not bound by their choice, the board said, “There can be no improper solicitation of a vote to accept or reject if the selection of classification does not include a commitment to vote [a particular way].”

The board said it has made “dozens” of edits to the original disclosure statement based on objectors’ arguments and requested Swain grant the disclosure statement motion and confirmation discovery procedures motion.

Syncora and the Ad Hoc Group of PREPA bondholders declined to comment on the board’s filing.

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