PREPA bondholders ask court to quickly appoint receiver

A Puerto Rico Electric Power Authority bondholder and bond insurer asked an appeals court to quickly approve the appointment of a receiver of their choosing with the hope that they can take over the authority and get a better deal than the Oversight Board’s plan of adjustment.

GoldenTree Asset Management and bond insurer Syncora Guarantee filed a brief Monday asking the First Circuit Court of Appeals to lift the PREPA bankruptcy’s stay on a bondholder appointment of a receiver.

The parties believe they can protect their interests by taking over PREPA through appointing a receiver. When the Oversight Board put the authority into bankruptcy in summer 2017, a stay was enacted preventing bondholders from seeking this action.

The parties asked for an expedited schedule to consider their complaint, with their reply brief, the last step before an oral hearing, due on Sept. 25. By comparison, the responding party, the Puerto Rico Oversight Board, on Tuesday told the court it wanted that brief due on Oct. 31.

The bondholders have made three prior failed attempts to lift the stay and appoint a receiver, the most recent in a motion that called for the court to dismiss the bankruptcy altogether and offered lifting the stay as a possible backup approach.

In the brief filed Monday with the First Circuit, the bondholders say circumstances have changed because of the District Court’s March ruling limiting their lien to about $16 million in fund in PREPA, despite the principal totaling $8.4 billion on the petition date, and a June District Court ruling that the bondholders had a “claim” on only $2.4 billion.

The District Court dismissed the motion to lift the stay on Aug. 24, a day after the bond parties filed the motion.

The parties want the appeals court to declare the stay lifted 30 days after the bondholders’ lift stay motion, following U.S. bankruptcy law. Failing that, they asked the appeals court to direct the district court to hold a lift stay hearing within 30 days of that Aug. 24 motion.

The “question now is whether the circuit will entertain the appeal before the [district court’s] decision on the plan of adjustment,” said Puerto Rico Attorney John Mudd. “Usually circuit courts rather wait for the final decision in order to see all issues. The court will likely decide soon whether to entertain the appeal.”

Puerto Rico Clearinghouse Principal Cate Long said, “If the PREPA plan of adjustment was confirmed without the lien appeal being heard, bondholders who oppose the plan would have to post a bond to halt the plan going effective. By raising these issues at the circuit court now, bondholders will likely have grounds to continue the appeal of the [district court’s] lien decision after confirmation (if not heard now) without posting a bond.”