Bondholders point to governor's words as reason for larger PREPA repayment

BY SourceMedia | MUNICIPAL | 11/28/23 02:47 PM EST By Robert Slavin

Puerto Rico's economic future is strong, Gov. Pedro Pierluisi said in a televised interview that bondholders said means the Puerto Rico Electric Power Authority can afford to pay them more.

On Monday morning, PREPA bondholder GoldenTree Asset Management and PREPA bond insurer Syncora Guarantee presented Pierluisi's statements to U.S. District Judge Laura Taylor Swain, who is overseeing the PREPA bankruptcy.

At the Nov. 14 disclosure statement hearing, board attorney Martin Bienenstock said the board believed current period of growth was primarily due to temporary federal hurricane and COVID-19 relief. However, it was a "sugar high," he said, and the board expected little long-term economic growth.

In a televised interview on Nov. 15, Pierluisi was asked about Bienenstock's statement and Pierluisi said, bondholders believe "Puerto Rico is experiencing an unprecedented economic boom, so any amount can be paid," while Bienenstock is saying "No, that's not the case."

"We have experienced growth. For three years in a row," Pierluisi said. The Puerto Rico Planning Board expects growth for the next decade, partly "fueled by federal funds and the ongoing reconstruction," Pierluisi said. "But there's more to it than that."

"It's important to understand the role that this attorney is playing," Pierluisi said. "This lawyer is striving for us to have the largest reduction, the largest possible reduction in the size of the Electric Power Authority debt."

Asked to comment on Pierluisi's statement, an Oversight Board spokeswoman said, "Temporary federal money is promoting irrational exuberance. The Oversight Board will respond in court, if necessary."

Puerto Rico's Fiscal Agency and Financial Advisory Authority did not provide a comment. Pierluisi's spokeswoman declined to comment.

Puerto Rico Attorney John Mudd said what Pierluisi said "contradicts what the board said but I doubt it will make a difference for the confirmation of the plan [of adjustment]."

On the other hand, Puerto Rico Clearinghouse Principal Cate Long said she thought "Gov. Pierluisi's comments definitely helps bondholders."

The Oversight Board attempted to have Swain exclude any information that challenged the fiscal plan and its debt sustainability analysis, but she refused.

In other PREPA bankruptcy news, the Oversight Board asked Swain to dismiss an adversary proceeding bond parties submitted earlier this month. In a filing this weekend, the board seemed to suggest it believed the adversary violated the bankruptcy's automatic stay against certain sorts of actions.

On Monday, Swain set a schedule to consider the motion for dismissal and, separately, handed the adversary and a second PREPA adversary also submitted this month to Magistrate Judith Dein for "pre-trial management."

In general the bond market is volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect is usually more pronounced for longer-term securities.) Fixed income securities also carry inflation risk and credit and default risks for both issuers and counterparties. Unlike individual bonds, most bond funds do not have a maturity date, so avoiding losses caused by price volatility by holding them until maturity is not possible.

Lower-quality debt securities generally offer higher yields, but also involve greater risk of default or price changes due to potential changes in the credit quality of the issuer. Any fixed income security sold or redeemed prior to maturity may be subject to loss.

Before investing, consider the funds' investment objectives, risks, charges, and expenses. Contact Fidelity for a prospectus or, if available, a summary prospectus containing this information. Read it carefully.

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