PREPA judge denies certifying appeal of her lien decision


U.S. District Court Judge Laura Taylor Swain denied Puerto Rico Electric Power Authority bondholders’ request she certify their appeal of her decision they have no lien on the bankrupt authority’s revenues.

While bondholders could continue their appeal, without Swain’s certification it is less likely to be heard by the appeals court, said Puerto Rico Attorney John Mudd.

The bondholders and the Official Committee of Unsecured Creditors asked Swain to certify an “interlocutory,” or mid-case, appeal of her decision.

Once Swain approves a plan of adjustment, which might happen in August or September, bondholders and other parties will have the right to appeal the decision and the rulings that support it. 

The Ad Hoc Group of PREPA Bondholders did not immediately reply to a request for a comment.

In her denial of the bondholders’ request on Wednesday, Swain said none of the three certification conditions found in the Puerto Rico Oversight, Management, and Economic Stability Act prevail.

It did not meet the condition that it would “materially advance the progress of the case,” Swain said. The bondholders’ “net unsecured revenue claim” is set to be determined in the next few weeks, and that would not happen, she said, before the confirmation hearing set for July 17 if the estimation process is stayed for the appeal.

While bondholders contend the appeal and the estimation process could proceed simultaneously, Swain said, the appeal could “cause significant complications in moving the case forward and hinder the court’s ability to provide the parties with further necessary guidance.”

Swain was “skeptical” the First Circuit could rule before the scheduled confirmation hearing.

“Appeals will most efficiently be handled comprehensively — based upon final orders — and simultaneously, rather than piecemeal,” Swain said.

The appeal didn’t satisfy a second condition, since it wasn’t to resolve “conflicting decisions,” Swain said.

The rulings the bondholders seek to “challenge are predominantly the application of settled law to interpretation of the trust agreement,” Swain said.

It didn’t meet the final condition either, which is when there is a legal question for which there is no “controlling decision” by appeals courts or the U.S. Supreme Court or when the question is a matter of “public importance,” she said.

While bondholders have argued Swain’s decision could “call into question the status of liens in municipal revenue bonds across the country,” they have not supported the assertion with examples from other bond trust agreements with similar language, she said.  

Swain said she was not persuaded the certification of the appeal would “address a matter of public importance” referenced by PROMESA.

The bankruptcy “court appears determined to get to confirmation by whatever means necessary and the order denying interlocutory appeal was just another example of the court’s deep antipathy to bondholders,” said Puerto Rico Clearinghouse Principal Cate Long.

Swain’s belief “that if the First Circuit deemed PREPA bonds as secured they could still be subject to an estimation process is even more bizarre than her ruling that PREPA bonds are merely ‘unsecured net revenue’ bonds,” Long said in an email. “In prior municipal bankruptcies secured bonds were paid in full and unclear why under Title III this would be any different.”

The board said, “The Oversight Board welcomes Judge Swain’s decision to deny certification of the bondholders’ request for an interlocutory appeal which avoids the consumption of time and use of resources better applied to the confirmation process for the PREPA Plan of Adjustment.”

Puerto Rico’s Fiscal Agency and Financial Advisory Authority did not immediately respond to a request for a comment.

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