Government warns of potential unilateral actions by Prepa bondholders

Commonwealth government officials acknowledged in court papers that Puerto Rico Electric Power Authority (Prepa) bondholders as soon as March 31 could take unilateral actions against the utility that could “disrupt the provision of essential public services.”

Potential actions include attempting to accelerate Prepa debt payments, suing to increase electricity rates or having a receiver appointed to take over management of the troubled government utility, Puerto Rico Solicitor General Margarita Mercado-Echegaray said in a motion filed late Thursday with the 1st Circuit Court of Appeals in Boston.

The motion asked the federal appeals court to expedite its review of Puerto Rico’s appeal of U.S. District Court Judge Francisco Bebosa’s decision that voided the the Puerto Rico Public Corporation Debt Enforcement & Recovery Act (Recovery Act) for violating the Supremacy Clause of the U.S. Constitution.

The law was enacted last year to enable financially troubled public corporations to restructure their debts and operations through a bankruptcy-like process in local court because Puerto Rico municipal entities are specifically barred from using Chapter 9 of the U.S. Bankruptcy Code.

In arguing for the expedited review, Puerto Rico pointed to Prepa as “among the most adversely affected by the current fiscal crisis.” The utility entered a forbearance agreement with creditors Aug. 14 to provide breathing room for a negotiated restructuring. That accord ends March 31.

“Prepa is actively seeking to negotiate extensions of those agreements with its creditors, but those efforts may have been hampered by the district court’s decision invalidating the act,” the motion stated.

The commonwealth said plaintiffs’ attorneys had no objections to an expedited review that would have Puerto Rico filing its appeal next month and oral hearings on the case in May.

The commonwealth also argued that the appeal of the two decision in two lawsuits challenging the law, one by Oppenheimer Funds and another by Blue Mountain Capital Management LLC, be consolidated in a single case.

In arguing for an expedited review, the solicitor general cited a “pressing concern to the public and the litigants.”

“The decision invalidated not merely legislation duly enacted by the sovereign government of Puerto Rico, but emergency legislation critical to the commonwealth’s ability to manage its financial affairs and promote the well-being of its citizens and the public corporations they serve,” the motion stated.

“It is imperative to the commonwealth and its citizens, as well as to its public corporations and their creditors, that the validity of the Recovery Act be adjudged as expeditiously as possible. The acute fiscal crisis that gave rise to the Recovery Act is still very much a reality and is just as pressing now as ever,” it added.

By : JOHN MARINO

Government warns of potential unilateral actions by Prepa bondholders

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