PREPA parties discuss path forward

Determining the size of the Puerto Rico Electric Power Authority bondholders' secured claim and consideration of a contingent vehicle instrument may be in the PREPA bankruptcy's near future.

The ideas came up as parties in the bankruptcy discussed how to advance the bankruptcy Wednesday, as it approaches its ninth anniversary.

At a Puerto Rico bankruptcy omnibus hearing, Puerto Rico Oversight Board attorney Martin Bienenstock said the court should focus on determining the size of the bondholders' secured claim. He said mediation should continue and if the court resolves disputed issues it would improve the likelihood of mediation's success. 

Bienenstock also told U.S. District Court Judge Laura Taylor Swain there has been no progress in recent mediation talks. 

Swain asked Bienenstock why the board's proposal didn't include a contingent vehicle instrument to bridge the gap between no recovery for the bondholders and an $8.5 billion proposal. The board has offered to award bondholders an amount equal to about 4% of the $8.5 billion that was due when the bankruptcy started, July 2017.

Bienenstock said the bondholders will have the right to be paid in full for their secured claim, so it would be hard to develop a plan of adjustment that would include a CVI. If the sides agree to a settlement, it would be easier to include a CVI, he said. 

Swain said she wasn't trying to structure a "cramdown" — when a judge imposes a plan of adjustment despite the opposition of the majority of parties — with a CVI. 

Swain on Monday denied bondholders' motion for a $3.7 billion administrative expense claim. 

At Wednesday's hearing Swain said she expects bondholders would appeal her ruling and voiced concern an appeal would greatly delay the bankruptcy's progress. 

Some Oversight Board members are set to leave the board in September 2027, she noted, and if that happens before PREPA's plan of adjustment is confirmed, it could force a case restart.

The board's plan has little support, Swain said, making it difficult to bring it to confirmation 

Swain, as she has done repeatedly in the PREPA bankruptcy, encouraged the board and bondholders to reach an agreement. "I need progress for a consensual plan in the near future," she said. 

GoldenTree Asset Management attorney Glen Kurtz said the bondholders want a consensual resolution with a decent recovery. Kurtz asked Swain to consider lifting her stay on the bondholders seeking a receiver. 

Swain said she would not do so immediately. She asked the parties to jointly propose a path and schedule to move the case forward. She said if bondholders couldn't agree with the board on a path forward, they could separately resubmit a request for a lift of the stay.