PREPA bond parties ask for case delay until appeal ruling

The major Puerto Rico Electric Power Authority bond parties asked the bankruptcy judge to adjourn or stay all bankruptcy proceedings due the potential profound implications of an anticipated First Circuit Court of Appeals decision on their appeal.

U.S. District Court Judge Laura Taylor Swain said the existing confirmation schedule and related deadlines “remain in place pending consideration of the [bond parties’] urgent motion.” She gave the remaining bond parties until Wednesday to respond and set Thursday for replies.

“Swain will not delay the plan [of adjustment] confirmation [hearing scheduled for March 5 to March 19],” Puerto Rico Attorney John Mudd said. “First Circuit will likely soon release its opinion given that the case was expedited. When? No one can tell.”

If the appeals court rules for the PREPA bond parties a new plan of adjustment may be needed, the bond parties said.

If the bondholders win the appeal, he said, “a reversal would require, at the very least, a new plan,” Mudd said. “If the First Circuit decides bondholders have a lien [on a wide swath of PREPA revenues], the board said they could not come up with a workable plan and the bankruptcy petition will probably be dismissed.

Bondholders would require a receiver to increase the rates, which could collide with the [Puerto Rico Energy Bureau] rate-setting scheme,” Mudd continued. This would likely lead to further litigation, he added, and private operators of PREPA facilities “LUMA and Genera could exit their contracts.”  

On the X platform Tuesday, Puerto Rico Clearinghouse Principal Cate Long said given the “strength” of bondholder arguments at the appeals court, their request for a delay makes sense. “Judge Swain will be loathe to postpone & OBoard will argue that they will go to [Supreme Court of the United States] if they lose at the 1st Circuit. For all intents & purposes this plan of adjustment is dead.”

Still, Long told The Bond Buyer she expects an appeals ruling before the March hearing dates.

Former Oversight Board member Justin Peterson said he backs a delay of the confirmation hearing to allow “further examination of the facts. I would consider any rush to judgment which results in different treatment for bondholders as antithetical to objectives of PROMESA and the protection of creditor’s rights.”

The bond parties told Swain, “Due to the substantial degree of overlap between the confirmation proceedings and the issues presently on appeal in the amended lien and recourse appeal, the court should enter a stay [on the bankruptcy proceedings].” The stay wouldn’t be “immoderate or indefinite” in length, they said.

The appeals court ruling “may require significant amendments to the plan or disclosure statement, or even a new plan,” the bond parties said.

The board backed the plan of adjustment, when asked for comment, and didn’t directly respond about the motion.

The bond parties making the request are Assured Guaranty Corp., Assured Guaranty Municipal Corp., PREPA Ad Hoc Group, GoldenTree Asset Management, Syncora Guarantee, and bond trustee U.S. Bank N.A.

Swain on Tuesday told the board to explain what an appeals court reversal of her lien decision would mean for the board’s proposed plan of adjustment.

According to the bond parties, the Puerto Rico Fiscal Agency and Financial Advisory Authority said it was opposed to any delay of the district court’s handling of the case.

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