INDEX

The oversight board as part of the case wanted a determination from the court seeking a disallowance of the bonded debt to the extent that it purports to be secured by any PREPA property aside from certain moneys currently deposited in a so-called Sinking Fund, which is a fund created by the trust agreement, and a limited number of certain other funds explicitly made subject to liens by the terms of the trust agreement. The bondholders, in turn, contended that they have a claim for the face amount of the bonds that is secured by all of PREPA’s current and future revenues, to which they can look for payment in perpetuity.

A reaction from the oversight board could not be obtained as of press time.

The court heard oral arguments with respect to the crossmotions at a Feb. 1 omnibus hearing. In brief, the oversight board and the bondholders have cross-moved for summary judgment with respect to the allowance or disallowance of $8.4 billion.

The court held that the trust agreement granted the bondholders security interests only in monies actually deposited in the Sinking Fund, Self-insurance Fund, Capital Improvement Fund, Reserve Maintenance Fund, and Construction Fund, as defined in the trust agreement.

Swain also ruled that the bondholders have perfected their liens in the Sinking Fund, Self-insurance Fund and Reserve Maintenance Fund, over which the trustee had established control. However, the judge said the bondholders have no security interest in the covenants and remedies provided for by the trust agreement.

“But based on PREPA’s payment and equitable relief covenants in the Trust Agreement, the bondholders have an unsecured claim to be liquidated by reference to the value of future Net Revenues that would, under the waterfall provisions of the Trust Agreement and applicable non-bankruptcy law, have become collateral upon being deposited in the specified funds and payable to the bondholders over the

Swain directed the parties to meet and confer and file a joint report no later than seven days stating their positions on the nature, scope, and scheduling of further proceedings that they may believe are necessary in connection with the further resolution of the adversary proceeding. The joint report will identify what discovery issues, if any, remain to be resolved in light of the opinion and order

She also directed them to commence working with the mediation team immediately in good faith efforts to consensually resolve the outstanding disputes concerning the proposed Plan of Adjustment.

Gov. Pedro Pierluisi Urrutia said Swain’s decision validates his remarks that the past debt agreement with PREPA bondholders was not reasonable for Puerto Rico and that it was the right thing to withdraw it.

“In addition, it also validates that what is ordered to be paid through the new adjustment plan approved by the court must be reasonable for PREPA and its customers,” the governor said. “We will continue fighting for PREPA to come out of bankruptcy and looking after our people so that they can have reliable and affordable electricity service.”