A federal court has dismissed a claim brought by bondholders of the Puerto Rico Electric Power Authority (AEE) seeking priority payment of at least $3.7 billion within the bankruptcy process under PROMESA, a decision the Fiscal Oversight Board (FSB) described as a key step toward advancing the restructuring.
Judge Laura Taylor Swain concluded that the claim “does not lie in law” and that none of the legal theories presented by the bondholders justify granting administrative priority, effectively resolving one of the most significant disputes in the AEE case. The ruling is a setback for creditors hoping to recoup losses from the financially distressed utility.
The determination directly impacts a central argument made by bondholders: the assertion that the public corporation generated billions of dollars in net revenue following the bankruptcy filing that should have been allocated to debt repayment.
In January, groups of bondholders requested the court to open discovery, alleging that the FSB was concealing information regarding more than $3.7 billion in net revenue reflected in monthly operating reports (MORs).
Though, the court resolved the case without addressing this factual dispute, determining that even if such revenue existed, it does not meet the legal requirements to be treated as administrative expenses with payment priority.
related discovery requests – including a petition to compel document production – were deemed moot and rendered ineffective in subsequent orders.
Prb 17-04780 6063 – Opinion and Order Denying [5599] Motion Allowance of Adminis by Metro Puerto Rico
Boost for Restructuring Plan
The FSB stated that the ruling removes a significant hurdle to confirming its plan of adjustment, which aims to reduce the AEE’s debt and conclude the restructuring process. “This eliminates a major obstacle to reducing AEE’s debt and ending the Title III process,” the agency said in a written statement.
The proposed plan contemplates payments of up to $2.6 billion to address claims from all creditors, including bondholders.
Debt Value Dispute
Bondholders contend that the AEE’s total debt exceeds $11 billion, including approximately $8.5 billion accrued before the bankruptcy filing. The ongoing dispute highlights the complexities of valuing assets and liabilities in Puerto Rico’s debt restructuring.
However, the Board maintains that the only collateral for those bonds – the so-called net revenues – is limited or nonexistent due to the deterioration of the electric system and high operating costs.
The First Circuit Court of Appeals determined in 2024 that net revenues constitute collateral for bondholders, although it did not establish a recovery value.
