Creditors object to proposed PREPA disclosure statement

Puerto Rico Electric Power Authority creditors filed objections in the U.S. District Court for Puerto Rico to the Puerto Rico Oversight Board’s proposed disclosure agreement, asserting it is unconfirmable and fails to provide key information.

A board spokesman said, “We will respond [to the objections] in detail in court.”

The Ad Hoc Group of PREPA Bondholders said in its objection Friday the current plan of adjustment is “unconfirmable” and thus the disclosure statement cannot go forward.

Should the court rule “bondholders have a security interest in PREPA’s revenues that is worth more than what the bond proposes to pay bondholders,” even the board acknowledges the plan is not confirmable, the group said.

Other issues that prevent confirmation, they said, include: the board did not propose it in good faith; it offers bondholders billions less than what the board publicly disclosed PREPA was able to afford so the plan cannot satisfy the requirement that it is in bondholders’ best interests; it depends on deals with junior creditors that violates priority of payment rules; and it fails to meet other confirmation “safeguards.”

The Ad Hoc Group points to proposed payouts of 84% to fuel line lenders and no more than 55% to bondholders, whose claims are superior.

The Ad Hoc Group noted the board has failed to disclose terms of a settlement with bond insurer National Public Finance Guarantee weeks after it was announced.

The board failed to provide information about its analysis or to support its assertion that PREPA can only pay bondholders around $4 billion, after offering $8 billion to bondholders in the 2019 restructuring support agreement, $7.8 billion to all creditors in the fall of 2022, and the current proposal of $5.4 billion to all creditors. The authority owes creditors nearly $15 billion, the group said.

Assured Guaranty complained the proposed disclosure provides inadequate information about its interest rate swaps. The bond insurer joined in the Ad Hoc Group’s objections.

U.S. Bank N.A., the bond trustee, said the proposed disclosure had incomplete and unclear information on the proposed series B bonds and contingent vehicle instrument; said the new master trust agreement should be made available prior to the disclosure statement hearing; andsaid treatment of the insured bonds is not sufficiently clear.

Responding to the settlement agreement sent to uninsured bondholders last week, the trustee said it objected to the proposed plan of adjustment because the effort to allocate the trustee’s claim to individual bondholders violates the trust agreement.

“Individual uninsured bondholders have no ability to settle any part of the PREPA bond trustee’s claim and lien rights, which the PREPA bond trustee is litigating on behalf of all bondholders, consistent with the trust agreement’s governance and collective action provisions,” U.S. Bank said.

Syncora Guarantee made many of the same points as the Ad Hoc Group.

Regarding last week’s offer to non-settling bondholders, it said the plan treats them as two separate voting classes. “The only basis for the separate classification is the bondholders’ election whether to support the plan,” Syncora said.

“Up until the moment the bondholder votes, there are no distinguishing characteristics between and among the bondholders as their legal entitlements are exactly the same. If classification rises and falls with whether or not a creditor supports a plan, then a debtor would always be able to buy off a settling creditor for purposes of artificially creating an impaired accepting class.”

This would be “gerrymandering” and would disenfranchise bondholders who decline to accede to the board’s coercion, Syncora said.

The Unsecured Creditors Committee said the disclosure provided inadequate information about many topics. It also said the disclosure cannot be confirmed because the plan is unconfirmable. The committee also objected to the confirmation procedures and the solicitation procedures.