By The Star Staff
U.S. District Judge Laura Taylor Swain has authorized a partial lift of the stay of the Puerto Rico Electric Power Authority’s (PREPA) confirmation and bond-related litigation, to allow a legal contest involving the classification of the PREPA Bond Trustee’s proof of claim against the Commonwealth of Puerto Rico, whose debt adjustment plan was confirmed in 2022.
Carol Flaton and Ramón Ortiz, who are claims reconciliation monitors, noted that no distributions have been made to holders of commonwealth general unsecured claims because of the unresolved objection, dated Aug. 31, 2023 in which the U.S. Bank National Association is asserting an $8 billion unsecured claim against the commonwealth.
The claims reconciliation monitors said that while they are aware of a July 31 court ruling against lifting the mediation stay to allow the Financial Oversight and Management Board objection to go forward due to overlap with PREPA bond-related issues, they are also worried about the significant passage of time and the lack of any distribution to general unsecured creditors for the seven years since the commencement of the commonwealth’s Title III case.
“Moreover, the Claims Reconciliation Monitors believe that the U.S. Bank Claim is not a (commonwealth) General Unsecured Claim and that, instead, it should be classified as a Section 510(b) Subordinated Claim under the Commonwealth Plan,” the monitors said.
Section 510 (b) states that a claim arising from the rescission of a purchase or sale of a security of the debtor or of an affiliate of the debtor, and that is related to damages arising from the purchase or sale of such a security, will be subordinated to all claims or interests that are senior to or equal the claim or interest represented by such security, except that if such security is common stock.
The claims reconciliation monitors proposed filing a lift stay motion by Sept. 25. Responses must be filed by Oct. 10. The briefing on the lift stay motion will address the claims reconciliation monitor’s standing to seek to lift the PREPA litigation stay and to seek to classify the Trustee’s claim as a Section 510(b) Subordinated Claim.
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