Oversight Board, others argue against certifying appeal of PREPA lien

Bonds

Three parties filed arguments urging Puerto Rico Electric Power Authority bankruptcy Judge Laura Taylor Swain to not certify a bondholder appeal of her ruling that the bondholders do not have perfected liens on PREPA’s revenues.

The Puerto Rico Oversight Board, the Fiscal Agency and Financial Advisory Authority, and fuel line lenders filed separate objections Monday evening to the bondholders’ request for certification, arguing it would further complicate PREPA’s plan of adjustment.

The parties and the bondholders are primarily arguing whether the part of the Puerto Rico Oversight, Management, and Economic Stability Act that covers interlocutory appeals suggests an appeal is allowed.

The part says the appeals court shall hear appeals of interlocutory orders if “(i) the order or decree involves a question of law as to which there is no controlling decision of the court of appeals for the circuit or of the Supreme Court of the United States, or involves a matter of public importance; (ii) the order or decree involves a question of law requiring the resolution of conflicting decisions; or (iii) an immediate appeal from the order or decree may materially advance the progress of the case or proceeding in which the appeal is taken…”

The board, FAFAA, and fuel line lenders each said the PROMESA conditions do not apply in this case.

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The board said the bondholders are not seeking an appeal of an issue of “unsettled law.” Nearly all the appeal issues are based on “contract interpretation.” Since there is plenty of precedent on this topic in the First Circuit Court of Appeals and at the Supreme Court, the appeal is “not merited.”

The board says while defendants have said an appeal will limit the time the plan will be in “limbo,” currently time will have been spent approving the plan of adjustment’s customer charges with the Puerto Rico Energy Bureau and accommodating appeals after Swain approves the plan. Rather than allowing an appeal of the lien decision now, a better approach to get answers on it is to postpone the appeal.

“There is almost no likelihood the appeal can be briefed, argued, and decided before the [currently scheduled plan of adjustment] confirmation hearing,” the board said. If the judge were to not stay the PREPA bankruptcy it would be very difficult for the attorneys in the case to simultaneously work on the lien issue appeal and the main case’s unsecured net revenue claim estimate.

If Swain certifies the immediate appeal, the board said it would want to continue with the process of estimating the unsecured net revenues and the rest of the PREPA case, have Swain amend the lien challenge opinion before certification to clarify her position on the Reserve Maintenance Fund, and have her clarify that the board is entitled to cross-appeal the Swain’s lien decision to the First Circuit.

The fuel line lenders said Swain’s ruling against the bondholders’ lien, “primarily involved the application of well-established principles of contractual interpretation to a nearly 50-year-old contract.”

To satisfy the third condition for an interlocutory appeal, to “advance the progress of the case,” legal precedent says the movant must show the appeal would hasten the start time of a trial or shorten the trial, fuel line lenders said, and this isn’t the case.

“There is no real dispute regarding the applicable principles of contractual interpretation — the [bondholders and bond trustee] just contend that those principles were erroneously applied,” the fuel line lenders said.

FAFAA said the bondholders’ claim that allowing such an appeal to immediately go forward would save time on appeals, “deliberately ignores the high likelihood of multiple post-confirmation appeals on other issues.”

The authority said if Swain certified the appeal, the “plan confirmation proceedings should continue without delay and … all parties should be permitted to cross-appeal.”

The Ad Hoc Group of PREPA Bondholders did not immediately respond to a request for a comment on the board’s, FAFAA’s, and the fuel line lenders’ filings.

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