Appeals court signals interest in revisiting PREPA lien decision

The First Circuit Court of Appeals signaled an interest in revisiting its decision that Puerto Rico Electric Power Authority bond holders have a lien on net revenues.

The three judges who ruled on the lien in mid-June said Monday they wanted written responses from all parties on the petitions for rehearing or rehearing en banc.

The Puerto Rico Oversight Board, Fiscal Agency and Financial Advisory Authority, and the Unsecured Creditors Committee filed requests in June for these rehearings.

“Most of the time the en banc petition is rejected but sometimes they request briefings,” said Puerto Rico attorney John Mudd. “I believe at least one judge is willing to revisit the issue.”

The three-judge panel gave PREPA bankruptcy parties until Aug. 2 to file responses to the petitions and gave the petitioners until Aug. 9 to file replies.

If the court rehears the case and rules the bondholders don’t have a lien on net revenues, it would leave PREPA bondholders with just a lien on tens of millions of dollars in deposit at PREPA at time of bankruptcy.

In another PREPA development, Cobra Acquisitions announced a $188.4 million settlement with the board and PREPA on its $359.1 million claim for its work restoring Puerto Rico’s power grid in the aftermath of Hurricane Maria in September 2017.

According to the written statement, the board and PREPA’s board approved the settlement, which still needs approval from the U.S. District Court for Puerto Rico, which is overseeing the bankruptcy.

Under the agreement Cobra is to be paid in three installments: $150 million 10 days following the bankruptcy court’s approval of the settlement but no earlier than September; $20 million following the authority’s plan of adjustment going into effect; and $18.4 million after certain deadlines for appealing the sum’s release are passed.

In June, the board filed a statement with the U.S. District Court for Puerto Rico, which is overseeing the bankruptcy, saying Cobra had already been paid $1 billion for its services, which was 90% of its legitimate charges, excluding interest, and Cobra’s contract stated payment was contingent on the Federal Emergency Management Agency providing a grant to PREPA.

In September 2019, Cobra’s then President Donald Ellison was charged with offering a bribe to a FEMA official for restoration work. In December 2022 Ellison pled guilty to one charge and was sentenced to prison.

According to the board, FEMA rejected some of Cobra’s charges and its claim that it should be reimbursed for municipal taxes. The board also said Cobra overstates the interest owed.

In other Puerto Rico bankruptcy news, on Monday the Oversight Board announced that it elected Arthur Gonzaléz its new chair, while Luis Ubiñas has taken the place of David Skeel, the former chair, on the board.

The board remains one member short of its seven spots.