Judge Swain rules in favor of fiscal board in dispute with bondholders over PREPA debt claims

By THE STAR STAFF

U.S. District Court Judge Laura Taylor Swain ruled Wednesday that payment of the $8.4 billion Puerto Rico Electric Power Authority (PREPA) bonded debt is not secured by a 1974 trust agreement, noting that bondholders have an unsecured claim against the utility to be liquidated by “reference to the value of future net revenues.” remainder of the term of the bonds (the Unsecured Net Revenue Claim),” the court ruled.

The ruling was part of an adversary proceeding between U.S. Bank National Association as Trustee, the Ad Hoc Group of PREPA Bondholders, Assured Guaranty Corp. and Assured Guaranty Municipal Corp., National Public Finance Guarantee Corp. and Syncora Guarantee Inc. against the Financial Oversight and Management Board seeking a judgment that the $8.4 billion in PREPA bonds was secured by the utility’s 1974 trust agreement. PREPA has been in bankruptcy since 2017 to restructure its almost $10 billion debt.

In making her judgment, Swain noted that the language in the trust agreement did not support the bondholders’ contention that the bonded debt was fully secured.

“The Court finds the Bondholders’ expansive view of their lien rights inconsistent with the clear and unambiguous terms of the Trust Agreement. … Under the terms of the Trust Agreement, as corroborated by the definition of ‘Opinion of Counsel’ in section 101, PREPA did not pledge payment out of gross revenues or an unlimited ‘all revenues,’ but instead covenanted to pay the Bonds out of the ‘Net Revenues’ of PREPA ‘in the manner and to the extent hereinabove particularly specified’ — in other words, subject to all of the payment provisions and limitations of liability contained within the previous sections of the Trust Agreement,” the judge said.