Judge rejects PREPA bondholder discrimination suit

Bonds

The U.S. District Court for Puerto Rico ended a Puerto Rico Electric Power Authority bondholder discrimination adversary proceeding, asking parties to raise the issues they have during the plan of adjustment confirmation hearing planned to in early March.

District Court Judge Laura Taylor Swain stayed the proceeding while saying plaintiffs GoldenTree and Syncora Guarantee should raise their concerns in the adjustment hearing on March 4. Adversary proceedings are like lawsuits within bankruptcies.

In the adversary proceeding filed in November within the PREPA bankruptcy, GoldenTree and Syncora sued the Oversight Board and PREPA, alleging they illegally tried to buy creditor votes in a discriminatory plan of adjustment. They also asked that the offers be declared “bad-faith procurement” and the votes for the plan committed in this way be disqualified.

U.S. District Court Judge Laura Taylor Swain said the suit’s issues could be addressed in the March plan of adjustment confirmation hearing.

Bloomberg News

GoldenTree and Syncora complained that some bond party members of a group including BlackRock Financial Management would recover well over 40% of their asserted claims while non-consenting bondholders would only be given a 3.5% recovery.

Their filing said the existing deal violates bankruptcy law because PREPA and the board “are obligated to treat similarly situated creditors alike.”

While Swain has ended this adversary proceeding, there are several other bondholders’ challenges to the board’s proposed plan of adjustment still alive.

In the district court there is the bankruptcy itself, an adversary where bond parties are asking Swain to lift the stay on seeking a receiver for the authority and an adversary in which GoldenTree and Syncora sued Puerto Rico’s central government for failing to support PREPA.

In the U.S. Court of Appeals for the First Circuit, bond parties have appealed Swain’s ruling against their lien on PREPA revenue and her estimation of their claim size.

In late December, a panel of judges for the First Circuit dismissed a PREPA bondholder suit asking it to overturn the bankruptcy’s approved disclosure statement, saying legal precedent indicated they didn’t have jurisdiction of disclosure statements while the bankruptcy was still pending.

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