Judge rejects PREPA receivership, citing Oversight Board's power
Puerto Rico Title III bankruptcy judge Laura Taylor Swain rejected lifting the Puerto Rico Electric Power Authority’s debt litigation stay to allow its creditors to seek a receivership.
In her ruling Thursday she said section 306 of the Puerto Rico Oversight, Management, and Economic Stability Act gave her jurisdiction over all property of the debtor. Section 305 of PROMESA also made her powers subservient in important respects to those of the Oversight Board, Swain said.
Bond holders, who filed the motion to lift the stay in July after PREPA had its first monetary default, said they would appeal the ruling.
“We believe Judge Swain ruled on issues of law that materially misinterpret PROMESA and its fundamental constitutional protections of creditors," they said in a statement released by Amy Caton, of Kramer Levin, attorney for the Ad Hoc Group of PREPA Bondholders. "We continue to believe that the appointment of a non-political receiver for PREPA, who can implement much-needed reforms and seek appropriate rate adjustments before the Puerto Rico Energy Commission, is in the best interests of PREPA ratepayers and bondholders alike. We remain confident in the merits of our motion and we will be appealing.”
The Ad Hoc Group represents investment funds holding PREPA bonds, Assured Guaranty Corp., Assured Guaranty Municipal Corp., National Public Finance Guarantee, and Syncora Guarantee. The Puerto Rico Oversight Board and PREPA have opposed the litigants’ motion.
In her opinion and order denying the motion for relief from the stay on debt-related litigation, Swain said she had to address two factors: whether the court had the power to lift the stay and the impact of the stay on the parties. She spent most of her explanation on the first issue.
She said that section 305 of PROMESA prohibited the court from interfering in the debtor’s governmental powers, property or revenue, or the debtor’s use of income-producing property without the approval of the board or unless the debtor’s Title III plan of adjustment provided for the interference. Since neither of the latter two conditions applies, Swain said that the litigants request to require the appointment of a PREPA receiver was “facially inconsistent” with section 305.
According to Swain, PROMESA section 301(c)(7) puts the Oversight Board in a “trustee” position similar to the position that receiver might have if there was one. She said Congress chose not to include something like section 1104 of the Bankruptcy Code, which allows the appointment of a trustee in a Chapter 11 bankruptcy case, in PROMESA.
As for the issue of balance of harms, Swains said this also “weighs heavily against the grant of stay.” She said that the appointment of a receiver would be “inconsistent with PROMESA’s requirement that a confirmed plan of adjustment be consistent with the debtor’s certified fiscal plan.”