Bondholders' contribution to the Puerto Rico Electric Power Authority following its bankruptcy filing piqued the interest of judges during oral arguments Tuesday.
The judges sitting in the First Circuit Court of Appeals in Boston didn't suggest their sympathies as they heard arguments on bondholders' $3.7 billion administrative expense claim against PREPA.
Eric Brunstad, attorney for the PREPA Ad Hoc Group of bondholders, argued the Puerto Rico District Court's ruling — that there was no administrative claim — was wrong. The lien on the authority's net revenues — that the First Circuit ruled the bondholders have — means something, he said. Lien rights are property rights, he said, and the authority has been
The district court has ruled three times — and twice overruled by the circuit court — that the bondholders' collateral can be consumed during bankruptcy, said Glenn Kurtz, attorney for Goldentree Asset Management.
Case law does not allow a debtor to consume collateral during bankruptcy without creditor consent, Kurtz said.
When asked, Kurtz told the judges bondholders provided cash collateral after the bankruptcy petition, pointing to two decisions that recognize the use of liened revenue as a contribution by the debtor.
Miguel Estrada, attorney for Assured Guaranty, said case law shows if a creditor is forced to engage in credit there is a post-petition transaction.
Bondholders are improperly trying to treat their claim collateral as if they were leases, which has never been done, Bienenstock said.
The bondholders have provided nothing to PREPA post-petition and therefore are not entitled to an administrative expense claim, he said.
Attorney for the Unsecured Creditors Committee Luc Despins said the bondholders have failed to follow proper procedures to raise adequate protection issues.
Estrada objected, saying the bondholders have repeatedly asked for their administrative expenses but the District Court has rejected these requests or put a stay on filing litigation.
