Continued PREPA pause displeases bondholders

Bond parties opposed to the proposed Puerto Rico Electric Power Authority debt deal support continuing the pause in the bankruptcy even though it, in some ways, harms them, an attorney representing them told the bankruptcy judge at a hearing Wednesday

PREPA Ad Hoc Group attorney G. Eric Brunstad, Jr., told U.S. District Judge Laura Taylor Swain the delay was prejudicial to the bondholders' interests since the utility continues to spend the bondholders' collateral without adequate protection to them. 

Nevertheless, he said, his group supports the litigation pause until President Donald Trump names six members to the board to replace those he dismissed in August. 

Swain said she plans to let the pause in the bankruptcy's administrative expense litigation continue until the October omnibus hearing. She said discovery on the topic should continue.

"A stay is particularly appropriate until there is a statutory quorum of at least four members to the board, because the current single-member board has limited powers and lacks the authority to resolve the case or to certify a fiscal plan," the opposing bond parties told Swain in a court filing at the end of August. 

Once the new members are appointed to the board, it can be determined if additional litigation is necessary and, if so, on what schedule, the bond parties told Swain in late August.

The court will determine how to adjust the roughly $9 billion in PREPA debt outstanding when the bankruptcy was filed in summer 2017.

In a related development, the hearing examiner in the Puerto Rico Energy Bureau rate case on Wednesday extended the discovery period for LUMA Energy to Sept. 19 from Sept. 11. LUMA Energy, the petitioner in the case, is the private contractor handling PREPA's electricity transmission and distribution.

LUMA filed a petition with the Puerto Rico Energy Bureau for an electric rate revision and budgets for fiscal years 2026 to 2028 in July.

Bondholders argued the proposed budgets and associated rates failed to cover paying the utility's debt and prioritized spending for capital expenditures over paying off debt in violation of the PREPA bonds' trust agreement. 

"Given that the amount and timing of repayment of that debt has not yet been determined in the PROMESA Title III proceeding, there was no other way for LUMA to account for it," LUMA said.

Nothing has been said about plans to nominate replacement members to the Oversight Board. The speaker of the House, House minority leader, Senate president and Senate minority leader get to nominate board members, with the president selecting members from among the nominations, according to the Puerto Rico Oversight, Management and Economic Stability Act. The president also chooses one without review. 

The board has six vacant seats and only one active member, John Nixon. 

Earlier this month the El Nuevo Día news website reported three liberal members of the U.S. House said they will seek a U.S. House Natural Resources Committee hearing to question nominees.

Congressional leadership staff and the White House press office didn't respond to questions about their plans for filling the board.