Yahoo Finance Puerto Rico Utility’s Debt-Cutting Plan Loses Insurer Support
(Bloomberg) -- Potential changes to Puerto Rico Electric Power Authority’s debt-cutting plan have lost support of National Public Finance Guarantee after an appeals court expanded creditors’ allowable claims.
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Puerto Rico’s financial oversight board, which is managing the utility’s bankruptcy, is seeking to amend a debt-cutting plan in part by reallocating some of National’s recoveries to bondholders, a move the bond insurer rejects, according to a joint status report filed Wednesday to the court.
The board needs to alter its restructuring proposal after the United States Court of Appeals for the First Circuit last month decided that the utility’s bondholders have a lien not just on reserve accounts but on future revenues as well, overturning a lower court’s ruling limiting their lien. The appeals court also determined investors’ allowed claim to be the face value of the utility’s bonds plus interest, about $8.5 billion, which is more than the prior $2.5 billion cap.
National claims the oversight board’s latest revisions fail to incorporate the First Circuit’s rulings and run counter to a 2016 federal law, called Promesa, that Congress created to resolve Puerto Rico’s fiscal crisis and allow it to use bankruptcy to reduce its obligations. Prepa, as the utility is known, has been in bankruptcy for seven years.
The appended plan “will not be confirmable and will only ensure that Prepa continues with its bias toward prolonged and costly litigation,” lawyers for National wrote in the status report.
The status report is the first glimpse of where the board and Prepa’s creditors stand after the First Circuit’s ruling. Prepa is the last major piece of Puerto Rico’s bankruptcy that needs to be finalized. Reducing Prepa’s debt and updating its aging infrastructure will help reduce frequent power outages on the island.
US District Court Judge Laura Taylor Swain is set to hold a status conference on Prepa’s debt plan in light of the First Circuit rulings on July 10.
The board is now amending a plan that sought to cut Prepa’s combined claims of $10 billion down to about $2.5 billion of new debt. To address the First Circuit’s ruling and direct more money to bondholders, the board is seeking to reallocate a portion of funds that would have gone to investors that had signed on to the plan, lawyers for the board wrote in the joint statement.
“Nothing in the First Circuit ruling makes the people better off, and therefore the creditors as a whole are not better off,” lawyers for the board wrote. “The identification of a secured claim requires only that the same pie be redistributed. Some creditors refuse to accept that reality.”
BlackRock Inc. and Nuveen Asset Management LLC continue to support Prepa’s debt plan and the potential amendments, according to the status report.
The oversight board is seeking a July 17 deadline to file an amended debt plan, with a potential hearing to be set after Sept. 13.
Investors that opposed the debt-cutting plan, including GoldenTree Asset Management, Invesco Ltd., and Assured Guaranty Corp., want a longer and more in-depth process, including litigating specific issues. Their timetable would take the bankruptcy process through at least the first half of 2025.
“The fact that the board has lost critical support in favor of the plan only demonstrates why the board’s proposed schedule and the board’s claims that resolicitation is not necessary are not realistic,” lawyers for the non-settling bondholders wrote.
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