Judge Laura Taylor Swain, who presides over Title III cases, seemed to have shaken the Oversight Board and the Electric Power Authority (PREPA) yesterday when she indicated that the motion to approve the final Restructuring Support Agreement (RSA) in that public corporation lacks macroeconomic information and legal conclusions that would lead her to decide that it is a reasonable transaction.
To that end and after filing almost a dozen oppositions to the RSA in PREPA, Swain ordered the Board and the Fiscal Agency and Financial Advisory Authority (FAFAA) to report, no later than Friday, what steps have been taken to achieve an understanding between all parties that will facilitate the discussion on the agreement in court.
Similarly, Swain gave the Board and FAFAA until next Monday to file information on facts and law that justifies endorsing the agreement with the Ad Hoc-PREPA group.
Swain’s observation, who at least three occasions stated that she did not understand what the Board intended by approving the RSA in PREPA without an adjustment plan before her consideration, fell like a bucket of cold water on the Board and FAFAA lawyers, to the point that the Judge granted a 10-minute recess so that they could decide how to deal with her observations.
After the recess, the Board’s lawyer Martin Bienenstock admitted that the proposed deadline to submit the required evidence was not feasible, so Swain granted him an additional 24 hours, until next Tuesday.
Swain’s decision, who warned that she will not give way to an agreement that involves changes in PREPA’s rates and could require legislation without being sure that she has authority to do so, came after she responded to a request from the Unsecured Creditors Committee (UCC) for PREPA to disclose the documents that gave way to the agreement that only includes the Ad Hoc-PREPA group and Assured Guaranty.
In a way, Swain's decision was a victory for the Irrigation and Electrical Workers Union (UTIER, Spanish acronym) and for organizations such as the Institute for Competitiveness and Sustainable Economy. Those entities stressed before Swain that PREPA's proposed agreement modifies payment priorities and would negatively affect the island’s economy.
In an attempt to save the issue, Bienenstock told Swain that the Board did not need to go to court to obtain the RSA approval, but said they chose to do so, so that bondholders who signed that agreement would later endorse the adjustment plan for the public corporation and that this will happen without changes in the terms negotiated.
Last month, the Board and the government announced a new agreement to exchange PREPA’s debt at a rate of about 67 cents on the dollar and, after signing the agreement, they asked Swain for her approval. But after the agreement was announced, the UCC asked about the foundations that gave way to the agreement, opening the door for the Judge’s observations.
The adjustment plan in 30 days
These observations on PREPA’s agreement came during the June title III hearing when Bienenstock also revealed that the Board intends to file the central government's adjustment plan in the next 30 days.
According to Bienenstock, the adjustment plan will possibly contain payments to General Obligations bondholders (GOs) that will be covered by sources of repayment such as taxes and income subject to the constitutional “clawback” clause.
Similarly, the lawyer said, the adjustment plan could contain agreements to settle the invalid debt claims made by the Board in the case of the GOs’ and the Public Buildings Authority’s debt.
On the other hand, during the hearing, the Judge approved about ten objections from the Board to invalidate hundreds of payment claims against the government for considering them duplicated and approved new payments to lawyers and advisors participating in Title III cases.