Puerto Rico board calls for dismissal of suit against commonwealth

The Puerto Rico Oversight Board called Friday for dismissal of a Puerto Electric Power Authority bond party suit against Puerto Rico’s central government that had the backing of the PREPA Ad Hoc Group, a separate group of bond parties.

GoldenTree Asset Management and bond insurer Syncora Guarantee filed the suit in U.S. District Court for Puerto Rico in mid-November charging Puerto Rico’s central government, Fiscal Agency and Financial Advisory Authority, FAFAA Executive Director Omar Marrero and Gov. Pedro Pierluisi manipulated PREPA’s fiscal plans and budgets to deprive bondholders of their claim on the authority’s revenues and depress the value of the bonds.

The District Court treated the case as an adversary proceeding within the PREPA bankruptcy and assigned it to U.S. District Court Judge Laura Taylor Swain.

Separately, the PREPA Ad Hoc Group Saturday filed with the First Circuit Court of Appeals notice of an appeal of the PREPA bankruptcy’s approved disclosure statement .

The GoldenTree group said the suit is against the central government, which isn’t the bankruptcy debtor, and thus shouldn’t be stopped by the stay on actions against PREPA.

In its response, the board said the group’s action violates the “automatic stay” in the bankruptcy “by seeking damages and injunctive relief” in an effort “to assert control over PREPA’s revenues for purposes of converting them into collateral and increasing the GoldenTree Parties’ recoveries on their claims against PREPA.”

According to the board, the complaint alleges Puerto Rico’s central government has “de facto control of PREPA, including through defendants’ control of PREPA’s officers and management.”

The board asked Swain to dismiss the suit. A spokesman for GoldenTree didn’t immediately respond to a request for comment.

The PREPA Ad Hoc Group filed support of the suit, saying, it “is not a violation of the automatic stay.” The group said the board, rather than Puerto Rico’s government, has primary control over PREPA and its fiscal plans.

On Saturday the PREPA Ad Hoc Group filed notice in the U.S. District Court of its plan to appeal the board’s November-approved PREPA disclosure statement, and the board filed a motion to dismiss the appeal.

“It is well settled that an order approving a disclosure statement in bankruptcy is not a final, appealable order,” the board told the First Circuit. The bond parties can take issue with the disclosure order if the plan of adjustment is approved, it said.

Puerto Rico attorney John Mudd said it is unlikely the appeal of the disclosure statement willl succeed at this time because the court “does not like piecemeal appeals.”