Puerto Rico board says challenges to PREPA projections are irrelevant

The Puerto Rico Oversight Board said challenges to its Puerto Rico Electric Power Authority projections are “irrelevant.”

The board filed its argument Tuesday evening in response to a PREPA bondholders filing a week earlier defending their right to have U.S. District Court Judge Laura Taylor Swain consider their attacks on the assumptions of the fiscal plan.whether the board is offering a fair deal.

The board is asking Swain to dismiss all the bondholders’ expert reports based on its interpretation of the Puerto Rico Oversight, Management, and Economic Stability Act.

At heart of the argument is Section 314(b) of PROMESA that lays out the conditions the judge is supposed to follow in confirming a plan of adjustment that reduces payments to creditors. One condition is the plan must be “consistent with the applicable fiscal plan certified by the Oversight Board under Title II [of PROMESA].” 

The board said bondholder expert reports and testimony “intend to challenge fiscal plans” and are “irrelevant to the [plan of adjustment] confirmation proceedings because PROMESA section 314(b)(7) requires that the plan of adjustment be consistent with the certified fiscal plan, and that plan sets the debt sustainability.”

The bondholder parties pointed to a different confirmation condition in section 314(b), stating the court should consider whether the board-proposed plan of adjustment is “feasible and in the best interests of creditors, which shall require the court consider whether available remedies under the non-bankruptcy laws and constitution of the territory would result in a greater recovery for the creditors than is provided by such plan.”

The board, led by Attorney Martin Bienenstock, said bondholders are trying to use this PROMESA provision to “override the fiscal plan,” while other sections of PROMESA give the board “sole discretion” in setting the fiscal plans’ terms.

“What does the debt sustainability analysis in the certified fiscal plan do, if it does not apply in Title III [bankruptcy]? Nothing,” the board said.

In mid-June filing, the bondholder groups pointed to section 314(b)(6) to say PROMESA “requires the court — not the Oversight Board — to determine if PREPA is paying creditors all that it can afford to pay.”

The bondholder groups said in past decisions Swain has “recognized that challenges to specific matters contained within a fiscal plan are not barred where, as here, such challenges do not seek decertification of that plan,” and stressed their view that “a plan of adjustment must satisfy all confirmation requirements.”

The board asked Swain to exclude all the bondholders’ expert reports and testimony from consideration in the plan of adjustment hearing, currently scheduled to start July 17.

The bondholders asked her to deny the board’s request.

Cate Long, principal at Puerto Rico Clearinghouse, called the board’s position “absurd,” for suggesting the court should rubber stamp any debt plan it proposes. “House Natural Resources Chairman [Rob] Bishop was explicit that the court has authority to examine the underlying premises of the fiscal plan and plan of adjustment and deny confirmation if they are not in the best interest of creditors.”

Bishop, a Republican from Utah, was one of two co-sponsors of PROMESA. In a 2018 amicus curiae to an adversary proceeding in the Puerto Rico central government bankruptcy in the U.S. Court of Appeals for the First Circuit, he said, Section 314(b)(6)’s statement the plan be “in the best interests of creditors” in light of available local law recoveries, “ensure[s] that the Title III process protects creditors’ rights and definitely precludes the confirmation of a plan that would result in an adverse result for creditors and hinder Puerto Rico’s return to the capital markets.” 

Puerto Rico Attorney John Mudd said, Swain “has said she can examine board certifications in determining whether to approve a plan of adjustment.” However, the case “boils down to the question of whether Judge Swain will approve a plan of adjustment that does not have the approval of a substantial number of creditors.”
 
The bondholder groups filing the response were the Ad Hoc Group of PREPA Bondholders, Assured Guaranty, Assured Guaranty Municipal Corp., Syncora Guarantee, and bond trustee U.S. Bank N.A.