Puerto Rico board seeks dismissal of PREPA bondholders’ remaining arguments

The Puerto Rico Oversight Board asked District Court Judge Laura Taylor to dismiss Puerto Rico Electric Power Authority bondholders’ remaining legal arguments, which would ease the path to approval of its current proposed plan of adjustment.

The arguments, if accepted, would mean a bigger payout for bondholders.

Swain addressed two of the bondholders’ arguments in March, but in an October filing they made five more arguments.

Expecting the court to dismiss these counterclaims, Puerto Rico Clearinghouse Principal Cate Long said, they “are mostly footholds to argue at the appellate level.” 

The Puerto Rico Oversight Board wants the bankruptcy judge to dismiss five remaining PREPA bondholder arguments.

Bloomberg News

“I imagine the court is very hopeful the Oversight Board and bondholders reach a negotiated settlement so this won’t be appealed,” Long said.

One of the bondholders’ counterclaims — accusing PREPA of breaching its covenants to adjust rates so revenues are sufficient to pay bondholders — the board said was addressed in Swain’s March summary judgment, which didn’t include a right to adjust rates.

The bondholders also seek a declaration that the authority is in “breach of trust” with respect to funds pledged to pay the bonds, charging PREPA misapplied revenues and bondholders are entitled to monetary damages. The board again said the summary judgment resolved this issue.

Another counterclaim seeks a declaration PREPA is liable under the Puerto Rico doctrine of dolo (a Spanish term meaning fraud) in contract performance, which apply when a debtor consciously does not fulfill contracted acts.

The board said this claim fails because under the trust agreement New York law governs the trustee’s rights.

The bondholders also want recission of the trust agreement. The board said the bondholders’ argument that since they misread the contract it should be annulled doesn’t make legal sense and their right to make this claim expired in 1980.

The final argument seeks a declaration that if the board prevails, bondholders’ property would have been taken without just compensation in violation of the constitutions of Puerto Rico and the United States.

In response, the board argued Swain said the bondholders have ownership of the money in PREPA’s sinking fund and a few other funds, so they can’t claim there’s been a taking on anything else.

The Ad Hoc Group of PREPA Bondholders did not respond to a request for a comment for this story.

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