Bondholders, insurers seek PREPA receiver

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Bond investment funds and three bond insurers filed papers Tuesday seeking the appointment of a receiver for the Puerto Rico Electric Power Authority.

The investment funds, Assured Guaranty Corp., Assured Guaranty Municipal Corp., National Public Finance Guarantee, and Syncora Guarantee also asked United States District Court Judge Laura Taylor Swain to lift the stay on debt-related proceedings against PREPA.

Swain is overseeing a Title III bankruptcy case concerning PREPA. In late June after three years of negotiation of a consensual deal for PREPA, the Puerto Rico Oversight Board voted 4 to 3 to reject the proposed deal. The board subsequently sent the authority into the Title III process, which the Puerto Rico Oversight, Management, and Economic Stability Act authorized.

In a receivership, bondholders can appoint the leadership of a utility, usually with court approval. Traditionally, holders of revenue bonds put utilities into receivership before they enter into bankruptcy, said Chapman Strategic Advisors managing director Jim Spiotto.

“It’s an uphill battle once you’re in bankruptcy,” Spiotto said. The judge will have to be convinced to end the Title III case and give it to a receiver. In some ways the Puerto Rico Oversight Board is a receiver for PREPA, he said.

The receiver would increase electrical rates and oversee certain aspects of PREPA’s operations.

“As PREPA’s single largest creditor, we worked tirelessly for several years with the stakeholders on a comprehensive restructuring that the Oversight Board forced off the table in violation of PROMESA,” said NPFG chief executive officer Bill Fallon. “Given PREPA’s lengthy history of mismanagement and cronyism and the inherent conflicts of interest ignored by the governor and the Oversight Board, an independent receiver will provide much-needed protection for PREPA, the citizens of Puerto Rico and creditors.”

The bondholders in the legal actions are funds and accounts managed by Angelo, Gordon & Co.; BlueMountain Capital; Franklin Advisers; Knighthead Capital Management; Marathon Asset Management; and Oppenheimer Funds.

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PROMESA Puerto Rico Electric Power Authority Puerto Rico