PREPA bondholder attorney raises concerns about Oversight Board 'invitation'

An attorney for a Puerto Rico Electric Power Authority bondholders group raised concerns Wednesday about an Oversight Board mailing to bondholders asking them to support its plan of adjustment, which would result in them getting a better deal than non-supporting bondholders.

PREPA Ad Hoc Group attorney Eric Brunstad Jr. said at Wednesday’s Puerto Rico omnibus bankruptcy hearing he learned the board sent a mailing seeking bondholder support of its proposed plan of adjustment, which, if approved would give them cash equal to 12.5% of their original par value plus two contingent vehicle instruments. If they do not pledge support, they would only be given cash equal to 3.5% of their original par value.

A PREPA power plant is pictured. Wednesday’s omnibus hearing focused on whether an Oversight Board mailing to PREPA bondholders was appropriate.

Brunstad, a partner at Dechert LLP, said the invitation should not have been sent before the judge approved the disclosure statement for the proposed plan of adjustment.

U.S. District Court Judge Laura Taylor Swain responded that there had been discussions as to whether “invitations” to support the plan were the same thing as “solicitations.”

Oversight Board attorney Martin Bienenstock said this issue had been addressed earlier this year — with the board agreeing to extend the time bondholders can sign onto the deal or withdraw their support, to after Swain’s approval of the disclosure statement. “Either there is no problem in the first place or there is no harm, no foul,” Bienenstock said.

Swain said, “That is my recollection as to where we left the discussion.”

The board mischaracterized bondholders’ motion for a lift of a stay that would allow them to appoint a PREPA receiver, said Thomas Lauria, attorney for PREPA bondholding investment firm GoldenTree Asset Management.

Lauria said it was clear that more than 50% of bondholders oppose the plan and the board was not having discussions with bondholders opposed to the plan.

In response, Bienenstock said the board had not been “misleading” and he plans to talk with Brunstad and had spoken with Lauria.

In a separate matter, an attorney for the HTA Insured Bondholder Group asked Swain to issue an order to help the group get Assured Guaranty to treat their bonds as they were originally issued rather than accelerate them.

In the aftermath of Swain’s approval of the Puerto Rico Highways and Transportation Authority plan of adjustment, Assured “accelerated” the bonds in August, paying off all the bonds with all principal and interest due up to that point.

HTA IBG wants the bonds paid on the original terms with their significant interest rates.

IBG attorney Matthew Madden, a partner at Kramer Levin Naftalis & Frankel, said the HTA plan of adjustment had deferred Swain’s ruling on whether Assured’s acceleration of bonds in the Franklin-Nuveen Trusts was legal. He now wants Swain to rule on the acceleration.

After Swain rules, his group could argue in other venues whether something else gave Assured the right to pay the group early. However, he said the acceleration “had no basis in the bond resolution or bankruptcy law.”

Assured Guaranty attorney Casey Servais said Swain didn’t have jurisdiction on the topic under the Puerto Rico Oversight, Management, and Economic Stability Act.

Swain said she would rule on the dispute as soon as possible.