Welcome to your weekly Title III update for November 12, 2018. Since I have already provided an update on some of the developments last Monday and Tuesday, I will concentrate on what occurred from Wednesday onwards.
On November 7, 2018, Judge Swain held the November Omnibus Hearing. The first order of business was the Board report by Mr. Bienestock. He explained that the Court wanted an update on the McKinsey issue (whether it holds or had held PR bonds while working for the Board) and explained that Proskauer represented this company so the Board hired an outside counsel. This counsel reported from NY that he was beginning his investigation and hoped to have a public report in a couple of months and that he had no substance to report. He then said that he hoped to have a report by the end of the year. So, either at the end of the year or two months from now we will have a report on this issue. Hopefully.
PREPA is doing well and does not need to borrow to cover its expenses. Mr. Bienestock made a distinction from operating expenses to the need to make further repairs. He also reported that PREPA was examining the answers to the request for proposals for the distribution of electricity. Later next year, those companies deemed eligible will be able to bid for a P3. He also mentioned that as to the generation, there was a need for companies to know how much of the debt they would have to carry, how much they would have to pay for the right to generate and the mix of the fuels. I would add that they need to know if they have to accept the union contracts.
Bienestock also said that on that same day there was mediation with the PREPA ad hoc group of uninsured bondholders and one of the monolines was going to join. He hoped to continue discussions with other monolines. This adds to my theory that the monolines request for a receiver was an attempt to get better treatment in the RSA. On the other hand, PREPA bondholders have a real need to have responsible management and the government has shown time and again it is incapable of providing it.
The Board was very confusing when discussing when other Plans of Adjustment would be filed. Mr. Bienestock said that it was possible that another one could be filed in the summer (ERS?) but was not emphatic. He also mentioned the possibility of other Title III cases being filed, mentioning PRASA and the UPR, but making clear that the latter was more likely to be a Title VI. My view is that these two may go into Title III next year due to two issues: Union contracts and pensions. It is very doubtful that the PR Legislature would change these contracts or even would have the power to do so. Moreover, under in Bayron Toro v. Serra, 119 D.P.R. 605 (1987), the PR Supreme Court has stated that those pensioners who are receiving pension payments have a constitutional right to it. It behooves my mind that the Board can force said changes outside Title III. If it insists in those changes, Title III is the only recourse.
Mr. Bienestock also mentioned that he had information that the Legislature was about to approve a 29% retention of payment to all US lawyers that did work in the case outside PR. He made it clear that if faced with this, his firm would have to increase its fees, and obviously all others would. Judge Swain was dismayed and it was very telling that counsel for AAFAF had no information as to this according to Mr. Bienestock. Very bad news indeed. Let’s see what happens.
The Omnibus objections to proofs of claim was discussed and these will be the ones having to do with double filing of bond claims and others that did not belong in one case or the other. This should start at the end of the year. The UCC mentioned that it had been discussing the way in which the proofs of claims of unsecured creditors would be resolved. Mr. Despin mentioned mediation and a short discovery and hearings. Although a good idea, we need more information as to how this will work.
The rest of the week not much happened. Judge Swain approved the settlement between the Commonwealth and COFINA in the Commonwealth Title III case. Also, the Legislature passed the COFINA bill required by the agreement. Many PPD politicians and radio analysts objected to the deal but none had filed any objection, not even an amicus brief. Moreover, they did not offer any alternative to the deal. Those type of objections are easy to do, but no Court will pay them any heed.
In an interesting development in the Assured, et al request for lifting stay for the naming of receiver for PREPA, the parties further extended the deadlines in that issue. Instead of having to oppose the request by December 3, the schedule states:
November 21, 2018: Parties to complete rolling document productions;
December 21, 2018: Parties to exchange preliminary will/may call witness lists (identifying whether witnesses will appear live or via designated deposition testimony);
January 4, 2019: Parties to file opposition brief and supporting declarations;
January 14, 2019: Parties to exchange final will/may call witness lists (identifying whether witnesses will appear live or via designated deposition testimony);
January 24, 2019: Movants to file reply brief and supporting declarations;
January 30, 2019: Parties to complete expert discovery and depositions;
January 30, 2019: Parties to file exhibit lists;
January 31, 2019: Parties to designate deposition testimony; and
February 2, 2019: Parties to cross-designate deposition testimony.
The Parties further propose that a hearing on this Motion take place on February 5, 2019 in New York, or on February 6, 2019 either in New York or San Juan.
What this shows is that the Board does not have to make public whether it will oppose the request until January 4, 2019, a full month’s extension. Since there are persistent rumors the Board is considering joining the Assured request, this will give it more time to ponder the issue. In addition, since I think this motion is a ploy of the monolines to obtain better treatment in the PREPA RSA, this will give the parties time to negotiate. We will see.
Talking about PREPA, the Board, PREPA and AAFAF filed a Joint Informative Motion of a Request for Qualifications for the Transmission and Distribution System. The Request for Qualifications has 38 pages and no newspaper reported it. I will not go through it all here, but I highly recommend its reading for anyone interested in this issue. For starters, this is a P3 proceeding, where the ownership of the transmission and distributions system remains with PREPA. The procedure is as follows:
October 31, 2018 – Date of issuance and first publication of public notice of RFQ by the Authority.
November 14, 2018 – Deadline for submission of Requests for Clarification with respect to this RFQ by prospective Respondents (“RFC”).
November 20, 2018 – Deadline for the Authority to release responses to RFCs.
December 5, 2018 – Deadline for submission of SOQs (no later than 5:00 pm AST).
January 16, 2019 – Estimated date for notification of Qualified Respondents.
All SOQs must be submitted by no later than December 5, 2018 at 5:00 pm AST (the “Submission Deadline”) in the manner set forth in Section 4 of this RFQ.
Other highlights are:
This RFQ is being issued to identify those Respondents that meet the minimum requirements necessary to carry out the Project in compliance with Act 120 and the PPP Act, in particular those Respondents that demonstrate:
experience operating a large electric utility;
financial strength and capital resources, with significant access to the capital markets; and
strong technical expertise, with a track record of high-quality operations.
These requirements eliminates the possibility of the much touted energy cooperatives in PR, of which there are none, to compete, unless they partner with large stateside groups. In fact, this requirement eliminates any locals, except if they partnership with outside companies. Other highlights are:
As currently envisioned, a single Private Partner will assume all rights and responsibilities related to the operation, maintenance and management of the T&D system. These rights and responsibilities are expected to include, among other things:
operation and maintenance of the T&D assets and system, including street lights and meters;
control center operations, including generation scheduling and economic system dispatch;
integration of renewable generation and distributed energy resources;
end customer metering, service and support (including billing and collections);
new service requests for secondary and primary connected customers;
outage management and restoration;
coordination of emergency planning and storm restoration and recovery;
interfacing with regulators, including with respect to environmental compliance;
general system planning, including sourcing, designing and implementing system growth and improvement;
acting as a servicer in connection with any charges imposed in respect of legacy obligations; and
ongoing public reporting.
First thing to note is that as Mr. Bienestock told Judge Swain, the issue of how much of the PREPA debt will be taken over by the buyers or lessees of PREPA is still an open question. In addition, the monopoly will continue, at least in regards to the transmission and distribution, since a single company will be in charge of buying power and billing customers. This entity will probably be the most important entity in the whole system but we still do not have the Energy Policy bill or PREPA’s Integrated Resources Plan. Hence, I see it difficult for the new entity and the P3 Government agency to comply with the timetable. We will see.
This summary is merely what I believe are the more salient motions and decisions in the cases. I receive an average of 20 filings each day so it would be impossible to summarize everything. If you have legal interest in these cases, I urge you to hire an attorney to represent you.