By The Star Staff
The Financial Oversight and Management Board for Puerto Rico is responding to statements made by National Public Finance Guarantee Corp.’s counsel, Corey Brady, during a conference held by the Puerto Rico Energy Bureau (PREB) on Jan. 10 as part of the rate review process.
At the conference, National, one of the insurers of PREPA’s legacy revenue bonds, stated that the amount of restructured debt and the rates required to fund it, as provided in the Puerto Rico Electric Power Authority’s (PREPA) current Plan of Adjustment, are based on outdated information. National, which was interpreting a federal appeals court ruling, also claimed that the PREB should not underestimate PREPA’s future indebtedness when setting the revenue requirement for debt.
In a recent letter to the PREB, the oversight board said it disagrees with National’s interpretation of the U.S. Court of Appeals for the First Circuit’s ruling. While the ruling acknowledged that the bondholders may have a perfected security interest in “Net Revenues” as defined in the Trust Agreement governing the bonds, this security interest is limited to the difference between the money PREPA receives from rates set by the PREB and PREPA’s current expenses, the oversight board contended.
Furthermore, the oversight board said, the First Circuit acknowledged that the bondholders cannot currently have a perfected lien in revenues PREPA has not yet earned. The value of the bondholders’ allowable secured claim will be determined by the Title III bankruptcy court in connection with the confirmation of an amended Plan of Adjustment.
In summary, the oversight board argued, the First Circuit’s ruling does not support National’s interpretation, and the allowable portion of the bondholders’ claim may be less than the outstanding principal and may not include unpaid interest. The board estimates that the amount of the non-settling bondholders’ allowable secured claim is “quite moderate and will be paid in accordance with the law,” “[w]hether the amount of the non-settling bondholders’ allowable secured claim is limited to Net Revenues in existence or the present value of future Net Revenues …”
“Additionally, the First Circuit held the bondholders do not hold any unsecured deficiency claim against PREPA or its other assets,” the oversight board said in a recent letter to the PREB. “Their claims are therefore limited to the value of the Net Revenues securing their claim, to be determined by the Title III Court in connection with confirmation of an amended Plan of Adjustment.”
The 2023 Fiscal Plan provides a debt sustainability analysis that concludes the most debt PREPA could sustain under the data set forth in the 2023 Fiscal Plan and otherwise available to the oversight board at the time is $2.5 billion. That amount was later increased to about $2.6 billion based on new data regarding income and power consumption of a median income, unsubsidized household customer of PREPA.
The oversight board anticipates certifying an updated fiscal plan for PREPA in the coming weeks.
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