The Puerto Rico Oversight Board and Puerto Rico Electric Power Authority bondholders argued over a $3.7 billion or more administrative expense claim in the PREPA bankruptcy.
The board said in a reply filing on Friday the PREPA bondholders' claim to administrative expenses should be treated subordinate to other claims against Puerto Rico's central government.
Many PREPA bond parties supported the Puerto Rico plan of adjustment and cannot turn against it now the board said. The bond parties are trying to claim central government money they aren't entitled to, the board said.
The bond parties try to use "constitutional avoidance" to overcome the language of the commonwealth plan and the Puerto Rico Oversight, Management, and Economic Stability Act, the board said, but that "only applies when a statute is ambiguous and one interpretation would be unconstitutional," which isn't the case here.
Even without the commonwealth plan of adjustment, a part of the Chapter 11 bankruptcy code would subordinate the bondholders' claim, the board said.
The board said it wasn't objecting to the bondholders' claim but rather seeking to enforce the now three-year old commonwealth plan of adjustment.
The bondholders said the board's position — "that a debtor protected by the automatic stay may, over the objection of its secured creditors, consume those creditors' collateral without providing any form of compensation — has been rejected by every court in which it has been advanced." Instead, the bankruptcy code provides creditors with
The First Circuit Court of Appeals
The bondholders say the board is relying on a bankruptcy code section on subordination on pre-bankruptcy petition claims but their claim is post-petition.
The board said PREPA spent none of the bondholders' collateral because the expenditures were used to maintain itself. The bondholders said that was irrelevant and PREPA still must compensate them for its use of net revenues.
The bondholders said PREPA owes them entire administrative expense claim, which the bond parties estimate as being at least $3.7 billion, in full in cash when it emerges from bankruptcy. If PREPA is unwilling or unable to pay this, it should seek dismissal of the bankruptcy, which would open the door for the bond parties to appoint a receiver. The bond parties said they would prefer to reach a consensual agreement with the board and PREPA.
Puerto Rico's Fiscal Agency and Financial Advisory Authority told the court earlier this month that contrary to the bond parties' presentation
