Puerto Rico’s Prepa plan draws objection from bond trustee

By Sarah Lizee

Olympia, Wash., Jan. 29 – The plan for Puerto Rico’s electric power authority (Prepa) has drawn an objection from bond trustee U.S. Bank NA, according to documents filed Sunday with the U.S. District Court for the District of Puerto Rico.

The trustee said the plan’s reduced $2.53 billion pool from which creditor recoveries must be paid is a “negotiation tactic” employed by the financial oversight board that doesn’t meet Title III standards.

U.S. Bank also said the financial oversight board’s approach to allocating the pool has been “fundamentally unfair and inequitable,” resulting in an “unconfirmable plan” in the context of a cramdown.

“Instead of structuring the plan properly based upon the nature and priority of the creditors’ pre-bankruptcy claims as contemplated by Title III, the oversight board has instead proposed classifications and plan treatments that flow from a compilation of PSAs reflecting only the willingness of certain creditor subgroups to enter into ‘settlements’ in which they lock in favorable plan treatment in exchange for their agreement to give up their Title III rights and to vote for and support confirmation,” U.S. Bank said in the objection.

The bond trustee said the resulting plan unfairly favors settling creditors and provides them with recoveries bearing “little or no” equitable relationship to each other or to the underlying pre-bankruptcy claims being treated in the plan.

U.S. Bank also said the plan fails to properly account for the rights of the trustee and non-settling bondholders relating to the pending appeal of the amended lien and recourse challenge.

“Having secured favorable initial rulings on the scope of the liens securing the bonds and the estimated allowed amount of the Prepa bond trustee’s unsecured net revenue claim, the oversight board now apparently intends to race toward confirmation without allowing the appeal of those rulings to run its course – and it does so even though an appellate victory by the Prepa bond trustee and non-settling bondholders on the lien issue would change the legal landscape dramatically and render the plan unconfirmable, as the oversight board itself has acknowledged,” U.S. Bank said.

The plan confirmation hearing is scheduled for March 4.

The Commonwealth of Puerto Rico announced its Title III petition filing in the U.S. District Court for the District of Puerto Rico on May 3, 2017. The case number is 17-03283.

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