New PREPA bondholder group identifies itself

A group of Puerto Rico Electric Power Authority bondholders opposed to the Oversight Board’s proposed plan of adjustment identified its members Wednesday.

The new faction, called the PREPA Ad Hoc Group, holds $2.1 billion in uninsured PREPA bonds and hundreds of millions of dollars more in insured bonds. $8.5 billion of PREPA bonds were outstanding when it was put into bankruptcy.

The group’s members are Alliance Bernstein ($170 million of uninsured bonds), Aristeia Capital ($89 million of uninsured), Capital Research and Management Co. ($69 million uninsured), Columbia Management Investment Advisors ($66 million uninsured), Ellington Management Group ($34 million), Goldman Sachs Asset Management ($249 million uninsured), Invesco Advisors ($437 million), MacKay Shields ($556 million), Massachusetts Financial Services Co. ($207 million), Russell Invest Co. ($22 million), SIG Structured Products ($72 million), T. Rowe Price ($127 million), and Tower Bay Asset ($18 million). Several of the funds also own insured PREPA bonds. 

In late August, the Oversight Board signed an agreement with five members of the Ad Hoc Group of PREPA Bondholders, which agreed to support the board’s proposed plan of adjustment. These five members then formed a group called the Majority Member Ad Hoc Group.

They directed their law firm Kramer Levin to withdraw from the bankruptcy and hired Paul, Weiss, Rifkind, Wharton & Garrison as their law firm.

In early September some of the 13 funds in the PREPA Ad Hoc Group hired law firm Dechert LLP and Puerto Rico law firm Monserrate Simonet & Gierbolini.

Puerto Rico Clearinghouse Principal Cate Long said, “The reconstituted Ad Hoc PREPA Bondholder Group constitutes a who’s who of the municipal bond market. These are very sophisticated investors who understand that the deal the Oversight Board cut with Blackrock and Nuveen is unconfirmable because it gives them a much larger recovery.”

But, she noted, Blackrock and Nuveen expect to sell the new bonds they will receive in their deal, “but the mutual funds in the Ad Hoc Group are unlikely to buy them if they get screwed,” Long said. “Also note the Dechert attorney who represents them has substantial Supreme Court expertise.”

Along with the new group, Assured Guaranty, Syncora Guarantee, and GoldenTree Asset Management are also fighting the board’s proposed plan of adjustment.

Invesco was in the old and is in the new oppositional ad hoc group. GoldenTree was in the old group and is now operating independently.

Separately, Puerto Rico Resident Commissioner Jenniffer González Cólon, who last week announced her candidacy for Puerto Rico’s governor in the 2024 election, proposed Puerto Rico’s central government pay off PREPA’s restructured debt.

González Cólon, Puerto Rico’s non-voting member in the U.S. House of Representatives, acknowledged her proposal would require the board’s approval or the U.S. government to pass a law.

Commenting on her proposal, Puerto Rico Attorney John Mudd said, “It is not viable since the plan [of adjustment] will be approved before she is elected, and the board would not agree.”

Long said the current deal “obstructs” González Cólon’s proposal since it specifies the debt be paid off another way, by other parties and with other terms.

González Cólon will challenge New Progressive Party colleague Gov. Pedro Pierluisi in a primary.

In other news, Puerto Rico Oversight Board Member Antonio Medina resigned his position effective Oct. 1.

There are now five members of what is supposed to be a seven-member board, with these appointments elapsing by January. 

As things stand, President Joe Biden has the right to independently choose a replacement for former Puerto Rico Oversight Board Member Justin Peterson. The speaker of the House of Representatives is supposed to nominate a replacement for Medina and Biden would approve or reject the nomination. Medina was the only Puerto Rico resident on the board. According to the Puerto Rico Oversight, Management, and Economic Stability Act, at least one member must be a Puerto Rico resident.

“It is with great pride that I am leaving the Oversight Board at a time of recovery and stability,” Medina said. “I will be returning to my private practice and focus my time on my family and personal projects.” 

The board said Medina brought financial and economic expertise to his role and advocated for spending for the University of Puerto Rico and for reducing the legacy charge supporting PREPA bond repayment.