PREPA bondholders call proposed plan ‘unconfirmable’

Bonds

Puerto Rico Electric Power Authority bondholders objected to the Oversight Board’s proposed plan of adjustment and asked that the discovery process begin immediately.

“There is no conceivable benefit to interested parties or the court from forcing all parties to sit on their hands for more than two months before plan-related discovery begins, only then to have to sprint to try to pack everything into only a few short weeks,” the Ad Hoc Group said.

The group also raised concerns about the information the board will provide creditors in an objection filed Wednesday in the U.S. District Court for Puerto Rico. They were responding to a board “urgent motion” and a board-proposed plan of adjustment, both filed Friday.

Syncora Guarantee Attorney Susheel Kirpalani said the board’s proposed disclosure statement fails to provide data to support the cap on creditor recoveries.

In the objection the group said the board “submitted a patently unconfirmable placeholder plan” and a proposed disclosure statement that “fails to provide information that is either accurate or sufficient.”

The plan says PREPA can afford to pay $5.4 billion in creditor recoveries even though on Nov. 8 the board concluded it could cover $7.8 billion, the group argued.

Though bankruptcy Judge Laura Taylor Swain directed the board to submit a plan accounting for all possible outcomes, it has submitted one that accounts only for possible outcomes on two litigated bondholder issues, the group said, and doesn’t take into account the possibility the court determining PREPA can pay bondholders more than the plan suggests.

If the court finds the bond trustee’s claims are not subordinated to those of the fuel line lenders, the plan “is patently unconfirmable,” the group said.

The group also wants information why recoveries are set at $5.4 billion rather than $7.8 billion.

The board proposed discovery statement provides insufficient information on the possibility of recovering $2.4 billion in accounts receivables from Puerto Rico government bodies and how this might affect creditor payouts.

Syncora Guarantee made no objections to the board’s proposed scheduling order but protested the board’s “flouting” the court’s order for the proposed plan, its “premature unlawful solicitation of creditors,” and effort to limit discovery.

The plan cannot sustain a challenge to “the single-most-important issue” in the bankruptcy, “how much revenue PREPA can fairly and equitably generate,” Syncora said. The board’s disclosure statement does not address this or provide data to support the cap on creditor recoveries.

The board’s effort to separate bondholders into different classes based on whether they vote to accept its proposed offer is “irreconcilable with the [U.S.] bankruptcy code and controlling First Circuit law,” Syncora stated through its lead attorney Susheel Kirpalani and others.

Unsecured Creditors Committee on Wednesday said it was OK with the board’s proposed schedule if the court by Dec. 30 required the board to update its proposed disclosure statement with a load forecast, liquidation analysis, illustrative cash flow for the bonds, and information about the late-announced deal with National Public Finance Guarantee. The committee also wants all postings on the web-based depository.

“The Oversight Board disagrees with the bondholders’ affordability analysis and their characterization of the POA put fort,” the board told The Bond Buyer. “In order to achieve our common goal to transform Puerto Rico’s electricity system so it can provide reliable electricity to all residents in Puerto Rico, PREPA’s exit from Title III is a key enabler of PREPA’s overall transformation, and the filing of the POA is a step in that direction.”

The board said it “remains open to continuing discussions with creditors.”

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