Puerto Rico Oversight Board defends PREPA disclosure

The Puerto Rico Oversight Board defended its proposed supplemental disclosure statement and plan of adjustment in a court filing, and asked the judge to dismiss objections claiming the plan was unconfirmable.

The board asked the United States District Court for the District of Puerto Rico to reject the challenges made in mid-October by GoldenTree Asset Management, Assured Guaranty, bond trustee U.S. Bank N.A., the PREPA Ad Hoc Group, the Unsecured Creditors Committee and others to the disclosure statement and plan.

The board said it has legal justification for the way it has classified the impaired parties and objections to classifications, the board said, “are premature.”

Since there are four impaired accepting classes, the board would not need to “gerrymander” voting classes to gain such a class, it said, which makes this argument against the plan and voting categories moot.

The U.S. District Court for Puerto Rico ruled in the Puerto Rico central government bankruptcy that to protect the “viability” of a government entity like PREPA, the board needn’t strictly assign holders of identical claims to identical voting classes, the board told the court.

The District Court will conduct a “factual inquiry” into whether separating holders of the same claim into different classes serves “governmental” purpose, but that inquiry should not be done now, the board said.

“Separate classification of insured and uninsured bond claims has been done repeatedly throughout these Title III cases to accommodate the commutation and custodial trust treatment of insured claims,” the board said.

The District Court declared classifications based on whether bonds are insured and whether bondholders are retail investors to be legitimate reasons for separate claim classifications, the board said.

While the bond parties have complained about “unfair discrimination” in offers, federal courts in Chapter 9 municipal bankruptcies have been “flexible” in determining discrimination.

When looking at the superior treatment given to National Public Finance Guarantee’s bonds, the court should consider that this deal was reached before certain key rulings made in the case, the board said.

While the bond parties said the proposed disclosure statement doesn’t provide information to potential voters about the possible impact on recoveries if bond parties’ appeals on the lien and recourse issue are successful, the board said this is information is found in a disclosure statement chart.

The board said the PREPA Ad Hoc Group and GoldenTree’s arguments about unfair discrimination are “apples to oranges comparisons because they ignore the settling bondholders are forfeiting their appeal rights while the Ad Hoc Group and GoldenTree are not.”

GoldenTree declined a Bond Buyer request for comment on the board’s filing.