Bonds

Puerto Rico Electric Power Authority bankruptcy Judge Laura Taylor Swain will hear arguments on whether the proposed plan of adjustment is unconfirmable on unequal treatment grounds.

Parties should be ready to discuss, as argued by PREPA bank trustee U.S. Bank National, whether the board’s plan is “patently unconfirmable” because the bond’s trust agreement precludes “individualized settlement of bond claims and non-pro rata distribution of consideration received in connection with the satisfaction of bond obligations,” Swain said in an order Monday in reference to Tuesday’s disclosure statement hearing.

The hearing will also include a discussion of whether parties’ disclosure objections have been resolved by the Puerto Rico Oversight Board’s disclosure statement revision and, if not, “what specifically remains in dispute.”

The revisions, she said, “sufficiently respond to most, if not all, of the objections contending that the disclosure statement lacks ‘adequate information.'”

Swain, when considering other Puerto Rico bond types, has never asked parties to talk about the confirmability of a plan of adjustment in a disclosure statement hearing, said Puerto Rico attorney John Mudd. She clearly has doubts about the confirmability of the board’s current proposed plan of adjustment, he said.

Splitting PREPA bondholders into settling and non-settling classes that would get different settlements is an issues, said Puerto Rico Clearinghouse Principal Cate Long. “U.S. Bank, as the PREPA indenture trustee, objected to these classifications because the indenture requires that they represent all bondholders and a split would mean that some of the bondholders they represent would have adverse interests to them in the PREPA lien adversary case.”

Additionally, she noted, “the trust indenture also requires that 100% of bondholders assent to changing any terms or conditions of the bonds. Clearly by splitting bondholders into separate classes, it violates the trust indenture.”

The board submitted a third proposed version of the plan of adjustment and a related proposed disclosure statement late Sunday night.

Swain is scheduled to oversee the disclosure statement hearing Tuesday.

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