PREPA judge sets schedule and calls for compromise

U.S. District Court Judge Laura Taylor Swain said at Wednesday’s hearing certain issues ought to be addressed first and others postponed to later.

Bloomberg News

The judge within the Puerto Rico Electric Power Authority bankruptcy set a schedule for litigating disputes but said the authority’s best future would stem from compromise.

U.S. District Judge Laura Taylor Swain laid out the five prongs of her approach firstly of Wednesday’s hearing.

The Puerto Rico Oversight Board should submit an amended plan of adjustment by March 28, Swain said, because the board has already promised. The plan should give parties reference points that can aid within the resolution of critical issues.

The bankruptcy parties should first give attention to coping with the non-settling bondholders’ motion for administrative expenses, Swain said. These skilled expenses for the reason that bankruptcy began could amount to billions of dollars, the bondholders have said. Specializing in this issue will provide light on legal and factual bankruptcy issues, Swain said.

Swain said parties should submit initial briefs on the subject by April 7.

Later parties should meet to debate how “targeted discovery” ought to be done on major categories of revenues and expenses and the assumptions underlying the present PREPA fiscal plan. Subsequently, the parties should submit a joint discovery plan to Swain, she said.

The board ought to be allowed to litigate the difficulty of the PREPA bond trustee’s claim within the Commonwealth of Puerto Rico bankruptcy, Swain said.

Finally, Swain said parties shouldn’t go on with commencing or briefing any motion for relief from the bankruptcy’s automatic stay, objections to the bondholders’ secured lien, or Assured Guaranty’s proposed adversary case regarding the board’s proposal to strip bondholders of their lien in any restructuring. It would not be smart to handle these in the primary wave of litigation, she said.

Swain said she would file a written order formalizing these points shortly, after two hours of arguments had passed.

She also said at the top of the hearing that the authority’s best future could be through successful mediation discussions relatively than in continued litigation. There have to be compromise, Swain said.

Board attorney Martin Bienenstock said the difficulty of the bondholders’ recourse ought to be checked out first. The bond trust agreement says the bondholders can only seek money within the sinking fund and other available money and never PREPA’s equipment. Bondholders can only seek present and future net revenues, he said. The board says there are presently no net revenues and doesn’t expect there to be net revenues for a few years to return, Bienenstock said.

If the board is true that the bondholders have a non-recourse claim, and they can not turn to anything besides net revenues, then there can be no money for the executive claim and there can be no have to go on to research the dimensions of the claim, Bienenstock said.

G. Eric Brunstad, Jr., lawyer for the Ad Hoc Group of PREPA Bondholders, said determining the quantity of net revenues is vital but that it might be done inside the context of determining the executive expense claim.

Brunstad said his group wanted to have a look at past PREPA expenditures. For many years PREPA has reported net revenues however the board now says those audited reports are false, he said.

Swain told Brunstad that she was partially lifting the stay on litigation within the case and so was to some extent acceding to the bondholders’ demands.

Swain asked Bienenstock whether his approach would result in PREPA’s payment of the bondholders’ full claim, which the First Circuit Court of Appeals said was for the bonds full par value.

Bienenstock said PREPA had no net revenues to pay any of its debt. Any payment would have to return from an outdoor party, which the board has suggested could be Puerto Rico’s central government.

Swain also approved the mediators’ hiring of PJT Partners as a financial advisor for the PREPA negotiations.

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