Commonwealth of Puerto Rico – Bondholders Urge Appointment of Receiver, Argue PREPA Mismanagement Reaching “Escape Velocity”

October 4, 2018 – National Public Finance Guarantee Corporation, Assured Guaranty Corp., Assured Guaranty Municipal Corp., and Syncora Guarantee Inc. (collectively, the “Movants”), who are holders and/or insurers of bonds issued by the Puerto Rico Electric Power Authority (“PREPA”), filed with the Court a motion to lift the cases’s automatic stay and commence an action in a court of competent jurisdiction against PREPA for the appointment of a receiver [Docket No. 4009]. 

 

The Movants assert, “PREPA remains today, as it has been for decades, a dysfunctional entity. It serves only the political forces that control it, at the expense of everybody else. And PREPA’s perceived invulnerability to reform efforts fuels its worst practices. Since the denial of the Chief Transformation Officer motion filed by the Financial Oversight and Management Board (the ‘FOMB’), the pace of mismanagement and bad decision-making at PREPA has only increased, and it is rapidly approaching escape velocity….Since the Title III petition, PREPA’s problems have grown even worse. PREPA tragically bungled the response to the hurricanes, exacerbating and prolonging a humanitarian crisis…. As history clearly demonstrates, PREPA will not fix these problems of its own accord. 

 

PREPA must be led by a receiver, free from impermissible political influence, with experience and proven expertise managing public utilities in the best interests of all of its constituents. Commonwealth law, public need and safety, and common sense require nothing less. Sound management is especially important now. Under the best of circumstances, it will take PREPA many years to accomplish the proposed transformation and privatization described in the current fiscal plan certified by the FOMB on August 1, 2018 (‘Fiscal Plan’). The people of Puerto Rico cannot afford to wait that long—they need a well-run PREPA today. Nor can anyone reasonably expect PREPA to attract private investment and produce a feasible plan of adjustment in its current state. Failure at any of the critical tasks facing PREPA today could harm all of its stakeholders, including the citizens of Puerto Rico, and prospects for a meaningful transformation and privatization for years to come. And PREPA is on track to fail at all of them…. More fundamentally, a receiver would not interfere with any functions of the FOMB, which is and would remain PREPA’s representative in the Title III case. FOMB retains its rights to file a plan of adjustment, to certify fiscal plans, and to act in its capacity as representative of PREPA in the Title III case. Under the receiver’s stewardship, PREPA would remain subject to this Court’s jurisdiction, just as it is now. But PREPA’s problems begin in the boardroom, not the courtroom, and the FOMB has no reach there. As this Court previously held, under PROMESA, the role of FOMB is separate from PREPA’s management and that would remain if a receiver is appointed. The appointment of the proposed receiver under Commonwealth law will reap benefits not just for creditors, but for all of PREPA’s stakeholders. Cause exists to lift the automatic stay, including for lack of adequate protection.”