Relevant Document:
Motion to Terminate
Citing “grave doubts” about its viability, the official committee of unsecured creditors today filed a motion to terminate the Puerto Rico Power Authority’s motion to approve the settlements embodied in the debtor’s restructuring support agreement. The UCC argues that the government parties have conceded in a July 31 status report that “additional time is required” to understand “how and if” the changed economic landscape will affect PREPA and to what extent the RSA may need to be amended. The motion states that unless the government parties “unequivocally represent” no later than Sept. 16 that they are prepared to move “immediately forward” with the
Rule 9019 motion, the Title III court should dismiss the 15-month-old settlement approval motion for lack of subject matter jurisdiction. Alternatively, the motion asks the court, as an exercise of its discretion, to permit the UCC to pursue its Oct. 30, 2019,
objection to the PREPA bondholders’ claims under section 502 of the Bankruptcy Code.
A hearing on the motion is scheduled for Sept. 16 at 9:30 a.m. ET, with objections due Sept. 1 at 4 p.m. ET.
The UCC contends that PREPA’s leadership “could not be clearer” that the parties to the RSA have “effectively abandoned” the agreement in its current form and intend to renegotiate it next year. The motion cites several examples of public statements by PREPA officials and the PROMESA oversight board members indicating that these parties are “no longer committed to the RSA or the 9019 motion.” “[A]ny assertions to the contrary are not credible,” the motion argues. Further, the motion notes that even prior to the Covid-19 pandemic, the government parties requested as many as 11 adjournments of the hearing on the motion.
According to the UCC, the government parties are no longer seeking approval of any settlement with the PREPA bondholders, and therefore the Title III court should dismiss the Rule 9019 motion for lack of subject matter jurisdiction arising under the doctrines of mootness and ripeness. The motion asserts that the court would be rendering an advisory opinion on the Rule 9019 motion - in contravention of article III - by allowing the motion to remain pending notwithstanding that the basis for the relief requested “no longer exists.” Whatever settlement may be ultimately negotiated, the motion says, it will not be based on the settlement embodied in the RSA and that form the basis of the 9019 motion. The UCC adds that it reserves its rights to seek discovery to establish that the RSA is effectively moot.
Turning to the question of ripeness, which involves any inquiry into the “extent to which resolution of a challenge depends on facts that may not yet be sufficiently developed,” the UCC argues that the government parties’ own statements do not show that there is a definitive time frame for consideration of the Rule 9019 motion. The motion points out that the government parties “offer nothing more than mere ‘hope’” that in two months, “they may have more information to share with the Court.” Accordingly, the motion is not ripe because it is grounded in contingent events that may or may not occur at all, the UCC stresses.
However, even if the court were to find it still has jurisdiction, the UCC argues that it should exercise its discretion to terminate the Rule 9019 motion without prejudice to filing a new motion should a new agreement exist. The motion states that as long as the motion remains pending, the UCC’s claim objection will have been
de facto denied without a hearing on the merits.
The UCC states that the court previously denied its claim objection, opting to withhold its consideration of the merits until the Rule 9019 motion is resolved. The court’s rationale for this determination, according to the motion, was that there is an action and live motion to approve a settlement with the bondholders. Because this no longer exists, there is no basis to prevent the UCC from pursuing its viable claim objections, the motion says.
Moreover, the UCC charges that “the pretense of a settlement is the only way that the Oversight Board can obtain control over the claims objection process.” The motion explains that the oversight board would not otherwise hold this right because Congress did not incorporate section 1106 of the Bankruptcy Code into PROMESA.
Additionally, the PREPA bondholders also benefit from the “pretense” that the 9019 motion remains viable because their legal fees are paid so long as the RSA is in place, the motion says. The motion adds that an “indefinite adjournment” is the bondholders’ “preferred outcome” because “changes in the legal landscape” - namely, the First Circuit’s ruling in
Andalusian regarding the scope of the ERS bondholders’ liens and the Title III court’s
ruling with respect to the Puerto Rico Highways and Transportation Authority preliminary lift stay motion - “make clear that it would be suicidal for them to litigate the Claim Objection.” Specifically, the motion says that these determinations evidence that the UCC has been prevented by the government parties from pursuing “meritorious objections,” because “those decisions confirm that the PREPA bondholders do not even have a colorable claim to secured status beyond
de minimis amounts held in a particular fund.”
According to the motion, the Rule 9019 motion can only be justified to the extent that it is a “reasonable settlement of potentially secured bonds,” and since the bondholders’ position “has been repeatedly and decisively rejected,” the government parties should not be permitted to continue impeding the UCC’s ability to pursue its claim objection.