Oversight Board, PREPA bondholders argue about discovery

The Puerto Rico Oversight Board and Puerto Rico Electric Power Authority bondholders' latest argument relates to how extensive discovery needs to be for the bondholders' more than $5.7 billion administrative expense claim.

The bondholders say PREPA has had billions of dollars of net revenues subject to such a claim since the board put the authority into bankruptcy in summer 2017.

The board is trying to disavow business records reporting net revenues and this means discovery is necessary, the bondholders said in an early January filing with the U.S. District Court for Puerto Rico, which is hearing the bankruptcy. Bondholders assert the board is refusing to respond to discovery requests concerning PREPA's calculations of net revenues.

The bondholders use public versions of reports through at least early 2022 and private ones held by PREPA to determine net revenues through at least May 2025.

The bondholders want to see how the reports were made before the bankruptcy as a point of reference. They said the board refused to sign a stipulation that the reports were made the same way in both periods.

The board said the court repeatedly said it wants to focus on the post-bankruptcy petition period.

The bondholders also claim they are entitled to discovery concerning what post-bankruptcy petition expenses were eligible for federal funding.

The board said, "Through a discovery motion, the bondholders attempt to, in effect, amend the administrative expense claim by arguing, for the first time, that they have a purported 'second ground' for an administrative expense claim which justifies certain of their broad discovery requests."

The bondholders, they said, are claiming federal disaster relief for PREPA is part of their collateral, and this is an "improper" attempt to amend their administrative expense claim.

The board reminded U.S. District Judge Laura Taylor Swain she said she is seeking "limited" discovery for the administrative expense claim. Yet bondholders have set out a "sweeping vision of discovery," the board said.

The board said it declined to provide backup to offering documents, board work product concerning net revenue levels, funds sources for every project since fiscal year 2017 and eligibility for federal funding for every post-petition project because these bondholder requests "are not targeted, they are not limited, and they do not address key issues."

The board asked Swain to deny the bondholders' motion in its entirety.

The bond parties behind the early January filing are Assured Guaranty (AGO), GoldenTree Asset Management, National Public Finance Guarantee Corp., Syncora Guarantee, the PREPA Ad Hoc Group, the Majority Member Ad Hoc Group, and the bond trustee U.S. Bank N.A.