PREPA parties reach agreement on ‘perfection issues’

The Puerto Rico Oversight Board and Puerto Rico Electric Power Authority bondholders reached agreement in principle on one issue as hints emerged that parties were nearing a settlement.

The board and PREPA bond parties on Friday told U.S. District Judge Laura Taylor Swain they had reached “an agreement in principle to resolve the outstanding perfection issues” in the bankruptcy.

These are issues concerning the perfection of the bondholders’ lien on funds in PREPA’s construction fund, capital improvement fund, and reserve maintenance fund at the time of bankruptcy filing in summer 2017. The agreement is subject to negotiation of a stipulation, the parties said.

The board suggested it was making progress toward a settlement when it requested a deadline extension for filing plan proposals until Friday, and that while there are no guarantees, it believes “the prospects of such a settlement are sufficient” to delay “filing an amended, proposed plan … that might have to be amended again shortly thereafter.”  

The board also asked that the deadline for a joint status report, which would include a proposed litigation schedule, be moved to Aug. 9 from Wednesday. 

The court’s mediation team supported both extension requests, according to the board. 

Puerto Rico Clearinghouse Principal Cate Long said, in addition to the statement, the fact the parties did not request further time for discovery indicated a general settlement in the PREPA bankruptcy may have been reached. 

Separately, last week, Swain ruled bondholders could challenge the opinions and projections from the board’s experts.

The board has argued the PREPA bondholders and other bankruptcy parties had no right to challenge these opinions and projections.

The argument was based on the projections’ role in the board’s fiscal plan and the Puerto Rico Oversight, Management and Economic Stability Act barring the bankruptcy court from reviewing fiscal plans.

“The presentation of information that may be inconsistent with information in or underlying a certified fiscal plan … does not necessarily constitute a challenge to the certification of the fiscal plan,” said Swain, who is overseeing the PREPA bankruptcy. 

The amount that PREPA can reasonably “repay is relevant to establishing that the PREPA plan [of adjustment] should (or should not) be confirmed,” she said, noting the board offered “no proper basis for barring parties from tendering evidence concerning such issues.”
 
This ruling “certainly helps bondholders,” Long said, “because McKinsey, the Oversight Board’s advisors, have made public statements that they project electricity consumption to rise three-fold until 2050.”

But “PREPA’s fiscal plan projects a complete collapse” in electric use during that time, Long said. “It will be very easy to knock down the board’s projections and debt sustainability numbers.” McKinsey made the projections for global energy demand in an April 2022 report.