Judge wants more info in PREPA $3.7 billion administrative claim

The judge in the Puerto Rico Electric Power Authority bankruptcy said she might not be able to resolve all the issues in the case as a matter of law and may need more information.

Attorneys argued further about the bondholders' demand for a $3.7 billion administrative expense claim in an omnibus hearing on Wednesday before U.S. District Judge Laura Taylor Swain, who is overseeing the bankruptcy. She didn't indicate which way she was leaning.

Swain ordered the attorneys to agree in the next few weeks on a "rapid schedule" for discovery of relevant facts.

Fiscal Agency and Financial Advisory Authority attorney Peter Friedman said the bondholders don't have a constitutional claim.

"The recourse discussion is a red herring," said attorney Matthew McGill, representing Assured Guaranty (AGO), the largest holder of PREPA bonds. Part of the U.S. bankruptcy code incorporated in the Puerto Rico Oversight, Management and Economic Stability Act requires the payment of administrative expenses during bankruptcy and the code makes no distinction between recourse versus non-recourse bonds, he said.

PREPA Ad Hoc Group attorney G. Eric Brunstad, Jr., said neither the board's nor FAFAA's attorney contested his argument that PREPA didn't need to spend the bondholders' collateral during the bankruptcy. PREPA currently has $1.5 billion in cash, he said.

If PREPA needed money, it could have borrowed more money from the bond parties, Brunstad said. The group opposing the board's proposed deal offered to loan it $2.5 billion for capital expenses.

PREPA has given away electric service worth nearly $1 billion during the bankruptcy, Brunstad said.

"The bankruptcy code is a series of balances and one of them is you can stay enforcement but you have to pay for the use of collateral," said Glenn Kurtz, attorney for bond insurer National Public Finance Guarantee, which insures PREPA bonds.

The board hasn't been able to cite a single legal authority in bankruptcy law that a contractual recourse relates to the administrative expense claim, he said.

Board attorney Martin Bienenstock said the 1974 trust agreement for the bonds specified the bondholders' sole collateral for nonpayment is future net revenues.

The board is already committed to paying those, to the extent they exist, Bienenstock said. So, to explore how much is available for administrative claim is academic.

The board has argued PREPA has no net revenues. Any payment for a bond restructuring should be made by Puerto Rico's central government, the board has said.

In January the U.S. First Circuit Court of Appeals ruled PREPA's net revenues are the bondholders collateral.

The money from the $3.7 billion administrative expense claim would primarily be used to compensate the bondholders for the freeze on bond payments since the start of the PREPA bankruptcy in 2017. It would be in addition to the more than $8 billion in principal the bondholders say they are owed.