UNITED STATES DISTRICT COURT 

FOR THE DISTRICT OF PUERTO RICO

In re:

The Financial Oversight and Management Board for 

Puerto Rico, 

as representative of

The Commonwealth of Puerto Rico, et al.,

Debtors.1

PROMESA

Title III

Case No. 17-3283-LTS

Court Filing Relates Only to 

PREPA

In re:

The Financial Oversight and Management Board for 

Puerto Rico, 

as representative of

The Puerto Rico Electric Power Authority,

Debtor.

PROMESA

Title III

Case No. 17-4780-LTS

(Jointly Administered)

OBJECTION OF SYNCORA GUARANTEE, INC. TO THE MOTION OF PUERTO 

RICO ELECTRIC POWER AUTHORITY FOR AN ORDER (I) APPROVING 

DISCLOSURE STATEMENT, (II) FIXING VOTING RECORD DATE, (III) 

APPROVING CONFIRMATION HEARING NOTICE AND CONFIRMATION 

SCHEDULE, (IV) APPROVING SOLICITATION PACKAGES AND DISTRIBUTION 

PROCEDURES, (V) APPROVING FORMS OF BALLOTS AND VOTING 

PROCEDURES, (VI) APPROVING NOTICE OF NON-VOTING STATUS, 

(VII) FIXING VOTING AND CONFIRMATION DEADLINES, AND 

(VIII) APPROVING VOTE TABULATION PROCEDURES

1 The Debtors in these Title III Cases, along with each Debtor’s respective Title III case number 

and the last four (4) digits of each Debtor’s federal tax identification number, as applicable, are the 

(i) Commonwealth of Puerto Rico (Bankruptcy Case No. 17-BK-3283-LTS) (Last Four Digits of Federal 

Tax ID: 3481); (ii) Puerto Rico Sales Tax Financing Corporation (“COFINA”) (Bankruptcy Case No. 17-

BK-3284-LTS) (Last Four Digits of Federal Tax ID: 8474); (iii) Puerto Rico Highways and Transportation 

Authority (“HTA”) (Bankruptcy Case No. 17-BK-3567-LTS) (Last Four Digits of Federal Tax ID: 3808); 

(iv) Employees Retirement System of the Government of the Commonwealth of Puerto Rico (“ERS”) 

(Bankruptcy Case No. 17-BK-3566-LTS) (Last Four Digits of Federal Tax ID: 9686); (v) Puerto Rico 

Electric Power Authority (“PREPA”) (Bankruptcy Case No. 17-BK-4780-LTS) (Last Four Digits of 

Federal Tax ID: 3747); and (vi) Puerto Rico Public Buildings Authority (“PBA”) (Bankruptcy Case No. 

19-BK-5523-LTS) (Last Four Digits of Federal Tax ID: 3801) (Title III case numbers are listed as 

Bankruptcy Case numbers due to software limitations).

Case:17-03283-LTS Doc#:23480 Filed:02/03/23 Entered:02/03/23 16:57:53 Desc: Main

Document Page 1 of 43
1

TABLE OF CONTENTS

Page

PRELIMINARY STATEMENT .....................................................................................................1

RELEVANT FACTUAL BACKGROUND....................................................................................5

OBJECTION....................................................................................................................................9

I. THE COURT SHOULD DENY APPROVAL OF THE DISCLOSURE STATEMENT BECAUSE 

THE PLAN IS PATENTLY UNCONFIRMABLE AS A MATTER OF LAW ......................................9

A. The Plan Reflects A Mere Placeholder Plan In Violation Of This Court’s 

Directives.............................................................Error! Bookmark not defined.1

B. The Plan Is Admittedly Not Based On What PREPA Can Afford To Pay, 

And The Legal Foundation For The Plan Is Fatally Flawed. .....Error! Bookmark 

not defined.2

C. The Plan Cannot Be Confirmed Under Section 1129(b) Of The 

Bankruptcy Code Regardless Of The Amended Lien & Recourse 

Challenge Outcome..............................................Error! Bookmark not defined.7

D. The Plan Cannot Satisfy PROMESA § 314(b)(6)’s “Best Interests Of 

Creditors” Test.....................................................Error! Bookmark not defined.0

E. The Plan Was Not Proposed In Good Faith.........Error! Bookmark not defined.2

F. The Plan Impermissibly Gerrymanders Classes Of Claims In Violation Of 

Section 1122(a) Of The Bankruptcy Code...........Error! Bookmark not defined.6

1. Separate classification of Settling and Non-Settling Bondholders. ... Error! 

Bookmark not defined.7

2. Separate Classification of Vitol ...............Error! Bookmark not defined.8

3. Separate Classification of Fuel Line Lenders to Facilitate Impaired 

Accepting Class .......................................Error! Bookmark not defined.8

G. The Plan Is Tainted By PREPA’s Impermissible Solicitation Without An 

Approved Disclosure Statement ............................................................................30

II. THE DISCLOSURE STATEMENT FAILS TO PROVIDE ADEQUATE INFORMATION AS 

REQUIRED BY SECTION 1125(B) OF THE BANKRUPTCY CODE ............................................35

RESERVATION OF RIGHTS ......................................................................................................36

CONCLUSION..............................................................................................................................36

Case:17-03283-LTS Doc#:23480 Filed:02/03/23 Entered:02/03/23 16:57:53 Desc: Main

Document Page 2 of 43
1

TABLE OF AUTHORITIES

Page

Cases

In re 18 RVC, LLC,

485 B.R. 492, 495 (Bankr. E.D.N.Y. 2012)............................................................................. 29

In re ACEMLA de P.R. Inc.,

2019 WL 311008 (Bankr. D. P.R. 2019)................................................................................. 35

In re Affordable Auto Repair, Inc.,

2020 WL 6991012 (Bankr. C.D. Cal. Sept. 2, 2020)............................................................... 27

In re Am. Cap. Equip.,

688 F.3d 145 (3d Cir. 2012)....................................................................................................... 9

In re Bos. Post Rd. Ltd. P’ship (Boston Post),

21 F.3d 477, 483-84 (2d Cir. 1994) ......................................................................................... 26

Century Glove, Inc. v. First Am. Bank of N. Y.,

860 F.2d 94 (3d Cir. 1988)................................................................................................. 32, 33

In re City of Detroit,

524 B.R. 147 (Bankr. E.D. Mich. 2014)........................................................................... passim

In re Clamp-All Corp.,

233 B.R. 198 (Bankr. D. Mass. 1999) ..................................................................................... 31

In re Cnty. of Orange,

219 B.R. 543 (Bankr. C.D. Cal. 1997)..................................................................................... 35

In re E. Me. Elec. Co-op., Inc.,

125 B.R. 329 (Bankr. D. Me. 1991)..................................................................................... 9, 10

In re El Comandante Mgmt Co., LLC,

2006 WL 3903592 (Bankr. D.P.R. Mar. 3, 2006) ............................................................. 10, 19

In re El Comandante Mgmt. Co.,

359 B.R. 410 (Bankr. D.P.R. 2006)........................................................................................... 9

Fano v. Newport Heights Irr. Dist.,

1[1]4 F.2d 563 (9th Cir. 1940)........................................................................................... 13, 14

In re Ferretti,

128 B.R. 16 (Bankr. D.N.H. 1991).......................................................................................... 31

Case:17-03283-LTS Doc#:23480 Filed:02/03/23 Entered:02/03/23 16:57:53 Desc: Main

Document Page 3 of 43
2

In re Filex, Inc.,

116 B.R. 37 (Bankr. S.D.N.Y. 1990)......................................................................................... 9

In re Fin. Oversight and Mgmt. Bd. for Puerto Rico, 

637 B.R. 223, 211 (D. P.R. 2022)...................................................................................... passim

In re FirstEnergy Sols. Corp.,

606 B.R. 720 (Bankr. N.D. Ohio 2019)..................................................................................... 9

Granada Wines, Inc. v. New England Teamsters & Trucking Industry Pension Fund,

748 F.2d 42 (1st Cir. 1984)...................................................................................................... 26

In re Greystone III Joint Venture,

995 F.2d 1274 (5th Cir. 1991) ................................................................................................. 27

In re GSC, Inc.,

453 B.R. 132, 157, n.27 (Bankr. S.D.N.Y. 2011)...................................................................... 9

In re Hanish, LLC,

570 B.R. 4 (Bankr. D.N.H. 2017)............................................................................................ 27

Hardeman County Hospital District,

540 B.R. 229 (Bankr. N.D. Tex. 2015).............................................................................. 14, 15

In re Heritage Org., L.L.C.,

376 B.R. 783 (Bankr. N.D. Tex. 2007).................................................................................... 32

In re Hermanos Torres Perez Inc.,

2011 WL 5854929 (Bankr. D.P.R. Nov. 21, 2011) ................................................................. 18

In re Indianapolis Downs, LLC.,

486 B.R. 286 (Bankr. D. Del. 2013)........................................................................................ 33

In re LightSquared Inc.,

513 B.R. 56 (Bankr. S.D.N.Y. 2014)....................................................................................... 18

Lorber v. Vista Irr. Dist.,

127 F.2d 628 (9th Cir. 1942) ................................................................................................... 14

In re Monroe Well Serv., Inc.,

80 B.R. 324 (Bankr. E.D. Pa. 1987) ........................................................................................ 10

In re Phoenix Petroleum Co.,

278 B.R. 385 (Bankr. E.D. Pa. 2001) ...................................................................................... 10

In re Quigley Co.,

377 B.R. 110 (Bankr. S.D.N.Y. 2007)........................................................................... 9, 25, 29

Case:17-03283-LTS Doc#:23480 Filed:02/03/23 Entered:02/03/23 16:57:53 Desc: Main

Document Page 4 of 43
3

In re Thornwood Assocs.,

161 B.R. 367 (Bankr. M.D. Pa. 1993), aff’d, 162 B.R. 438 (M.D. Pa. 1993) ........................ 28

Statutory Authorities

11 U.S.C. § 1123..................................................................................................................... 20, 27

11 U.S.C. § 1125.................................................................................................................... passim

11 U.S.C. § 1126..................................................................................................................... 25, 29

11 U.S.C. § 1129.................................................................................................................... passim

11 U.S.C. § 943....................................................................................................................... 13, 14

22 L.P.R.A. § 207 ......................................................................................................................... 21

22 L.P.R.A. § 208 ......................................................................................................................... 21

Act 33-2019 § 24 .......................................................................................................................... 21

PROMESA § 301................................................................................................................... passim

PROMESA § 314................................................................................................................... passim

Rules and Regulations

Fed. R. Bankr. P. 3013.................................................................................................................. 29

Legislative Materials

H.R. Rep. No. 94-686 (1976), reprinted in 1976 U.S.C.C.A.N. 539, 1975 WL 12383................ 13

H.R. Rep. No. 95-595 (1977), reprinted in 1978 U.S.C.C.A.N. 5963, 1977 WL 9628................ 31

Additional Authorities

AAFAF Chief Marrero Signals PREPA RSA ‘Most Likely’ Will Need Renegotiation, 

Given Lack of Legislative Support, REORG (Feb. 7, 2022), https://app.reorg.com/v3.............. 16

Oversight Board Outlines Next Steps for Taking Commonwealth Plan Effective by 

March 15 Deadline, Aims to Complete Restructuring of PREPA, HTA in 2022, REORG

(Jan. 18, 2022), https://app.reorg.com/v3 ................................................................................... 6

Case:17-03283-LTS Doc#:23480 Filed:02/03/23 Entered:02/03/23 16:57:53 Desc: Main

Document Page 5 of 43
1

Syncora Guarantee, Inc. (“Syncora”) hereby respectfully submits this objection (the 

“Objection”) to the Motion of Puerto Rico Electric Power Authority for Order (I) Approving 

Disclosure Statement, (II) Fixing Voting Record Date, (III) Approving Confirmation Hearing 

Notice and Confirmation Schedule, (IV) Approving Solicitation Packages and Distribution 

Procedures, (V) Approving Forms of Ballots and Voting Procedures, (VI) Approving Notice of 

Non-Voting Status, (VII) Fixing Voting and Confirmation Deadlines, and (VIII) Approving Vote 

Tabulation Procedures (ECF No. 3111) (the “Disclosure Statement Motion”) and the related 

Disclosure Statement for Title III Plan of Adjustment for Puerto Rico Electric Power Authority

(ECF No. 3113) (the “Disclosure Statement”), and respectfully states as follows:

2

 

PRELIMINARY STATEMENT

1. This Court has confirmed five Title III plans of adjustment since the first Title III 

case was filed in May 2017. Each of the confirmed plans was largely uncontested with the 

Oversight Board working cooperatively with each debtor’s largest creditor constituencies in order 

to develop consensus and facilitate an efficient and orderly confirmation hearing process. Puerto 

Rico now stands on the precipice of achieving finality and closure on its entire Title III process 

with only a single governmental entity—The Puerto Rico Electric Power Authority (“PREPA”)—

remaining in Title III and under the supervision of this Court. Unfortunately, rather than follow 

the path taken with the other Title III debtors, the Oversight Board has opted for brinkmanship and 

litigation by proposing a non-consensual Plan. 

2

 Capitalized terms used but not otherwise defined herein shall have the meanings ascribed to such 

terms in the Disclosure Statement Motion and Disclosure Statement, as applicable. Reference to ECF 

numbers are to Case No. 17-4780-LTS unless otherwise noted. Syncora joins in Part III (relating to the 

litigation and discovery timeline) of the Omnibus Objection of the Ad Hoc Group of PREPA Bondholders’ 

to the Disclosure Statement for the Title III Plan of Adjustment for the Puerto Rico Electric Power 

Authority (ECF No. 3111) and Related Procedural Motions Related to the Disclosure Statement and 

Plan Confirmation (ECF Nos. 3113, 3114).

Case:17-03283-LTS Doc#:23480 Filed:02/03/23 Entered:02/03/23 16:57:53 Desc: Main

Document Page 6 of 43
2

2. The Oversight Board has no such free option, and was required to file a realistic 

plan in good faith. In direct violation of this Court’s directive, the Oversight Board filed a placeholder Plan that suffers from facial (and fatal) defects. As such, it would be incompatible with this 

Court’s Order (and the Bankruptcy Code) to authorize dissemination of the Disclosure Statement 

for this Plan.

3. Late in the fifth year of this Title III case, the Governor of Puerto Rico with the 

support of the Oversight Board announced he was terminating PREPA’s post-petition restructuring 

support agreement (the “2019 RSA”). In order to facilitate a new agreement, the Court appointed 

a mediation team consisting of three experienced bankruptcy judges (the “Mediation Team”) to 

work with the parties to achieve a consensual restructuring. Regrettably, the Oversight Board 

declined to engage in good-faith negotiations with creditors whose class represents more than 80% 

of PREPA’s total indebtedness—an opportunity the Oversight Board took for granted. Instead, it 

made its latest low-ball offer based on outdated and erroneous data and assumptions, while 

hitching its wagon to an amended complaint against the Bondholders’ trustee. The Oversight 

Board’s unilateral approach to mediation doomed it to failure.3 

4. Even though the Court set a deadline for the Oversight Board to file a confirmable 

plan for PREPA, the Oversight Board abandoned the pretense of negotiating with Bondholders 

and instead entered into a sweetheart and impermissible deal with the Fuel Line Lenders, creditors 

holding less than 10% of PREPA’s indebtedness. In an attempt to justify the favorable treatment

provided to procure an impaired accepting class, the settlement purports to treat the Fuel Line 

3 See Statement of Justin Peterson, dated Dec. 16, 2022 (the “Peterson Statement”) (“The Oversight 

Board’s unilateral approach to mediation was disappointing. It prevented a global deal with all bondholders 

that was within reach.”),

https://drive.google.com/file/d/1_dGcLf64DJ7gwiA7_GFjPMdT9wwa7KIQ/view.

Case:17-03283-LTS Doc#:23480 Filed:02/03/23 Entered:02/03/23 16:57:53 Desc: Main

Document Page 7 of 43
3

Lenders’ (pre-petition) claims as “current expenses,” an absurd position that the Oversight Board 

had repeatedly and vigorously opposed at every opportunity. Irrespective of the Oversight Board’s 

inexplicable about-face regarding the merits of the Fuel Line Lenders’ entitlement to priority, the 

Oversight Board’s attempt to “settle” a purely inter-creditor issue (in which the Debtor has no 

stake) is entirely inappropriate, especially when its sole purpose is to buy off (using Bondholder

collateral) an impaired accepting class. 

5. As the Court itself remarked, the Oversight Board has also taken a 180-degree turn 

in its legal position vis-à-vis the Bondholders.4 Instead of formulating a plan that would balance 

the legitimate interests of Bondholders and ratepayers reasonably and fairly, the Oversight Board 

wants to forge ahead with its non-consensual Plan while it hides as much information as possible 

from creditors and the Court. While this Plan clearly fails to meet the confirmation requirements 

of PROMESA, the Oversight Board appears to believe that it can take as many shots at 

confirmation as it pleases. In essence, the Oversight Board has treated this plan filing as a free 

option without regard for the consequences of spending the next six months pursuing wasteful 

litigation only to discover what is already obvious—this Plan stands no chance of being confirmed. 

The consequences of the Oversight Board’s cavalier behavior is far from free for PREPA’s many 

stakeholders, including the residents of the island who deserve a functioning electric utility that 

can access the capital markets. 

4 See Transcript of Hearing Held November 2, 2022 (“Nov. 2, 2022 Tr.”), at 12:11-18 (“It continues 

to puzzle me why the Oversight Board now is focusing so much time and effort on promoting a position in 

motion practice that’s directly contrary to the risk analysis that must have under[laid] the Board’s prior 

advocacy for the RSA and the prior proposals that offered significant recovery to the bondholders. Can 

you give me any insight into why there is such a dramatic flip of the switch?”).

Case:17-03283-LTS Doc#:23480 Filed:02/03/23 Entered:02/03/23 16:57:53 Desc: Main

Document Page 8 of 43
4

6. By asking the Court to approve a disclosure statement for a patently unconfirmable 

plan, which flouts the Court’s prior Order,5the Oversight Board is either asking the Court to 

reconsider its prior directive or to turn a blind eye to the Plan’s numerous fatal and patent 

deficiencies. Foremost among the Plan’s defects is the Oversight Board’s reliance on an incorrect 

legal standard under which the Oversight Board believes it need not make any showing regarding 

affordability or even provide candid disclosure of PREPA’s financial capacity. 

7. Among other deficiencies, the Plan: (a) fails to comply with this Court’s Order that the 

Oversight Board file something more than a “placeholder”; (b) was not proposed in good faith, as 

demonstrated by, inter alia, blatant vote buying; (c) hides the most relevant financial information 

needed to evaluate the reasonableness of proposed impairments; (d) by employing a novel legal 

construct, does not even attempt to meet PROMESA § 314(b)(6)’s “best interests of creditors” test

as it must; (e) unfairly discriminates and is not fair and equitable to the class of Non-Settling 

Bondholders; (f) is tainted by unlawful premature solicitations that never received any approval of the 

Court; and (g) is plagued by a gerrymandered classification. 

8. Syncora respectfully submits that Court should decline to approve the Disclosure 

Statement for a Plan that should never have been filed and is dead on arrival. 

5 See Order (A) Granting in Part and Denying in Part Urgent Motion of Financial Oversight and 

Management Board for Order (I) Establishing Schedule to Continue Negotiations During Litigation of 

Gating Issues Pursuant to litigation Schedule and (II) Granting Related Relief and (B) Staying Certain 

Motions Filed by PREPA Bondholders, Sept. 29, 2022 (ECF No. 3013) (“September Scheduling Order”) 

(requiring the Oversight Board to file a plan that “it believes could be confirmable, taking into account the 

litigation risk and economic issues that are in dispute.”). The Court clarified at the November 2, 2022 

hearing that “what I mean by a confirmable plan is one that meaningfully and realistically contemplates 

scenarios in which each party fails to prevail on their claims in litigation to the extent that they expect to in 

order that, on resolution of the issues in the litigation, no matter what the outcome is, we can move forward 

toward confirmation with alacrity.” Nov. 2, 2022 Tr. at 16:10-16.

Case:17-03283-LTS Doc#:23480 Filed:02/03/23 Entered:02/03/23 16:57:53 Desc: Main

Document Page 9 of 43
5

RELEVANT FACTUAL BACKGROUND

9. In June 2016, then-President Obama signed into law the Puerto Rico Oversight, 

Management, and Economic Stability Act (“PROMESA”). The financial crisis then enveloping 

the Commonwealth of Puerto Rico (the “Commonwealth”) and its instrumentalities precipitated 

the need for such legislation. Among other things, PROMESA provided for the appointment of 

the Oversight Board and provided it with the tools necessary to adjust the debts of the 

Commonwealth and its instrumentalities. The tools included the ability to file a bankruptcy-type 

proceeding under Title III of PROMESA or through a primarily out-of-court qualifying 

modification process under Title VI. 

10. At the time PROMESA was enacted, PREPA had already entered into the 

Prepetition RSA with its largest creditors, the Bondholders and Fuel Line Lenders, which provided 

for a significant adjustment of PREPA’s indebtedness.6 Given this pre-existing agreement, 

PROMESA included specific provisions that were designed to facilitate implementation of the 

Prepetition RSA’s transactions with alacrity.7 Despite this path to an expeditious and economical 

restructuring envisioned by Congress, on July 2, 2017, the Oversight Board filed a full-blown Title 

III case for PREPA. 

11. Following the natural disasters that befell the Commonwealth after the Title III 

filing, including the devastation to the Island and its electric grid caused by Hurricane Maria, the 

6 See Disclosure Statement For Title III Plan of Adjustment of PREPA, Dec. 16, 2022 (ECF 

No. 3111) (the “Disclosure Statement”), at 122. 

7 See PROMESA § 104(i)(3) (providing that a “voluntary agreement” reached prior to May 18, 

2016 is deemed to satisfy the certification requirements under PROMESA); PROMESA § 601(g)(2) 

(providing a special process for Oversight Board authorization to implement voluntary agreements with 

creditors under Title VI). 

Case:17-03283-LTS Doc#:23480 Filed:02/03/23 Entered:02/03/23 16:57:53 Desc: Main

Document Page 10 of 43
6

Oversight Board and its creditors entered into the 2019 RSA with additional creditors that had not 

been parties to the Prepetition RSA, including Syncora.8 

12. On May 10, 2019, the Oversight Board moved for this Court’s approval of the 2019 

RSA.9 The Oversight Board explained that the terms of the 2019 RSA were “eminently 

reasonable,” set “fair and reasonable” terms, and would be “the foundation for a plan of adjustment 

for PREPA.”10 The 9019 Motion remained pending, with the Oversight Board’s and Government 

Parties’ continuing support as recently as February 2022,11 the Oversight Board reiterated its 

determination to “move forward with the settlement set forth in the . . . [2019] RSA.”12

13. Despite its many benefits, Governor Pedro Pierluisi terminated the 2019 RSA in 

March 2022.

13

 After years of supporting the 2019 RSA, the Oversight Board abruptly changed its 

mind and backed the Governor’s termination of the RSA.14 

14. Following the termination of the 2019 RSA, the Court ordered the parties to

mediation to facilitate confidential negotiations regarding the formulation of a plan of adjustment 

8 See Disclosure Statement at 171.

9 See Joint Motion of Puerto Rico Electric Power Authority and AAFAF Pursuant to Bankruptcy 

Code Sections 362, 502, 922, and 928, and Bankruptcy Rules 3012(A)(1) and 9019 for Order Approving 

Settlements Embodied in the Restructuring Support Agreement and Tolling Certain Limitations Period, 

May 10, 2019 (ECF No. 1235) (the “9019 Motion”).

10 Id. ¶¶ 1, 9, 50-51

11 See Objection of Financial Oversight and Management Board for Puerto Rico to Urgent Motion 

of the Ad Hoc Group of PREPA Bondholders to Compel Mediation and Impose Deadlines for a PREPA 

Plan of Adjustment (ECF No. 2735) (the “FOMB Mediation Objection”) at ¶ 20; Oversight Board Outlines 

Next Steps for Taking Commonwealth Plan Effective by March 15 Deadline, Aims to Complete 

Restructuring of PREPA, HTA in 2022, REORG (Jan. 18, 2022), 

https://app.reorg.com/v3#/items/intel/1869?item_id=166198.

12

 FOMB Mediation Objection at ¶ 20.

13 See AAFAF’s Informative Motion Regarding Termination of PREPA RSA (Case No. 17-3283-

LTS, ECF No. 20277-2 at 2).

14 See FOMB Statement, (March 8, 2022),

https://drive.google.com/file/d/1TQqI5kZTVeHX0BEmRLa6GSFShVSnEgG9/view.

Case:17-03283-LTS Doc#:23480 Filed:02/03/23 Entered:02/03/23 16:57:53 Desc: Main

Document Page 11 of 43
7

for PREPA, and appointed the Mediation Team to assist the parties in reaching a new agreement.

15

 

After the parties failed to reach a mediated settlement during the initial phase of mediation, the

Court ordered the parties back to mediation, and ordered the Oversight Board to file a plan “that it 

believes could be confirmable, taking into account the litigation risk and economic issues that are 

in dispute,” adding that the plan should include “alternative provisions addressing proposed 

resolutions contingent on different outcomes of the disputed issues.”16 

15. At the November 2, 2022 omnibus hearing, the Court explained what it expected to 

see from the Oversight Board: “What I mean by a confirmable plan,” is one “that meaningfully 

and realistically contemplates scenarios in which each party fails to prevail on their claims in 

litigation to the extent that they expect to in order that, on resolution of issues in the litigation, no 

matter what the outcome, we can move forward toward confirmation with alacrity.”17 The Court 

made clear: “I don’t expect to see a place holder filed on December 1. I want to see something 

that the Oversight Board believes in good faith should move toward approval of a disclosure 

statement.”18 

16. Without going into any confidential material, it is a matter of public record that the 

Oversight Board made one proposal to the Bondholders in mediation.19 Thereafter, the 

Bondholders asked for information regarding the assumptions and data underlying the proposal. 

15 See Order and Notice of Preliminary Designation of Mediation Team and Setting Deadlines for 

Objections to Membership (ECF No. 2767) (the “Mediation Order”) at 3. 

16 See Order (A) Granting in Part and Denying in Part Urgent Motion of Financial Oversight and 

Management Board for Order (I) Establishing Schedule to Continue Negotiations During Litigation of 

Gating Issues Pursuant to Litigation Schedule and (II) Granting Related Relief and (B) Staying Certain 

Motions filed by PREPA Bondholders, Sept. 29, 2022 (ECF No. 3013).

17 Nov. 2, 2022 Tr. at 16. 

18 Id. at 18.

19 See PREPA FOMB Proposal to Bondholder Group at 6-7, (Nov. 8, 2022), 

https://emma.msrb.org/P11641653-P11264323-P11690562.pdf. 

Case:17-03283-LTS Doc#:23480 Filed:02/03/23 Entered:02/03/23 16:57:53 Desc: Main

Document Page 12 of 43
8

Upon pointing out the errors in such assumptions and data, the Bondholders made a good-faith 

counterproposal. This record is all posted publicly on EMMA.20 Despite being provided 

numerous opportunities to make a good-faith counter to the Bondholders’ proposal, the Oversight 

Board simply declined to do so.21 As the Mediation Team leader had reported to the Court, the 

mediators did not “feel much coming back from the Board,” and “[t]he creditors have been kept 

waiting . . . and it’s just gone on too long.”22 

17. As is now clear, the Oversight Board’s tactics were all part of its overall litigation

strategy, and it never intended to move from its first offer. On December 16, 2022, the Oversight 

Board filed a non-consensual Plan and related Disclosure Statement. The Oversight Board flouted 

this Court’s directions and filed a Plan that can only be described as a placeholder plan. The Plan 

is not even premised on the confirmation requirements of PROMESA and the Bankruptcy Code, 

but rather the opposite. In the words of one Oversight Board member, “it was predicated on 

financial analysis produced to solve for a desired outcome—to pay as little as possible.”

23

 Thus, 

instead of complying with the Court’s mandate to file a confirmable plan no matter the outcome 

of litigation, the Oversight Board has pinned all hope on the Court ruling in its favor on every 

contested issue—from the Amended Lien & Recourse Challenge to the Oversight Board’s newly 

invented standard for confirmation. 

20

 Id.

21 See Order Granting Second Urgent Motion of the Financial Oversight and Management Board 

for Puerto Rico Requesting Extension of Filing Deadline to December 16, 2022 Automatically Extendable 

through December 21, 2022 for Submission of PREPA Plan of Adjustment, Disclosure Statement, & Related 

Motions, Dec. 34, 2022 (ECF No. 3109). 

22 Nov. 2, 2022 Tr. at 26:21-27:3.

23 See Peterson Statement (emphasis added).

Case:17-03283-LTS Doc#:23480 Filed:02/03/23 Entered:02/03/23 16:57:53 Desc: Main

Document Page 13 of 43
9

OBJECTION

I. THE COURT SHOULD DENY APPROVAL OF THE DISCLOSURE STATEMENT BECAUSE THE 

PLAN IS PATENTLY UNCONFIRMABLE AS A MATTER OF LAW

18. A court cannot approve a disclosure statement describing a plan that is patently 

unconfirmable. See, e.g., In re Am. Cap. Equip., 688 F.3d 145, 154 (3d Cir. 2012) (a court should 

“not proceed with the time-consuming and expensive proposition of hearings on a disclosure 

statement and plan when the plan may not be confirmable because it does not comply with 

[confirmation requirements]”); In re El Comandante Mgmt. Co., 359 B.R. 410, 415 (Bankr. D.P.R. 

2006) (“At the hearing on the approval of a disclosure statement, the court may consider issues 

pertaining to the plan, and may rule upon such issues, when the plan defects will make it 

unconfirmable[.]”).

24

 Thus, “if it appears there is a defect that makes a plan inherently or patently 

unconfirmable, the Court may consider and resolve that issue at the disclosure stage[.]” In re 

FirstEnergy Sols. Corp., 606 B.R. 720, 731–32 (Bankr. N.D. Ohio 2019). Simply put, “court 

approval of a disclosure statement for a plan which will not, nor can not, be confirmed by the 

Bankruptcy Court is a misleading and artificial charade which should not bear the imprimatur of 

the court.” In re Filex, Inc., 116 B.R. 37, 41 (Bankr. S.D.N.Y. 1990).25 

19. While it is a high bar for a court to deny approval of the disclosure statement based 

on plan futility, that bar is easily surpassed here. See Am. Cap. Equip., 688 F.3d at 155 ) (citing

24

 See also In re GSC, Inc., 453 B.R. 132, 157, n.27 (Bankr. S.D.N.Y. 2011) (“An unconfirmable 

plan is grounds for rejection of the disclosure statement; a disclosure statement that describes a plan patently 

unconfirmable on its face should not be approved.”); In re Quigley Co., 377 B.R. 110, 115-16 (Bankr. 

S.D.N.Y. 2007) (“If the plan is patently unconfirmable on its face, the application to approve the disclosure 

itself must be denied as solicitation of the vote would be futile.”); In re E. Me. Elec. Co-op., Inc., 125 B.R. 

329, 333 (Bankr. D. Me. 1991) (“Where the plan’s inadequacies are patent, they may, and should be 

addressed at the disclosure statement stage.”).

25 The Court has previously recognized that these principles apply to the Title III cases. In 

overruling confirmation-related objections made to approval of the disclosure statement in the 

Commonwealth of Puerto Rico’s Title III case, the Court noted that none of the objections pose “a pure 

question of law that would render confirmation futile or unfeasible at this stage,” see Transcript of July 14, 

Case:17-03283-LTS Doc#:23480 Filed:02/03/23 Entered:02/03/23 16:57:53 Desc: Main

Document Page 14 of 43
10

In re Monroe Well Serv., Inc., 80 B.R. 324, 333 (Bankr. E.D. Pa. 1987)) (noting that a plan is 

patently unconfirmable where (i) it contains confirmation defects that cannot be overcome by 

creditor voting results; and (ii) those defects concern matters upon which all material facts are not 

in dispute). As a result of these patent flaws, solicitation of the Plan would constitute a tremendous 

waste of time and resources and, ultimately, would be futile. See In re Phoenix Petroleum Co., 

278 B.R. 385, 394 (Bankr. E.D. Pa. 2001) (“If the disclosure statement describes a plan that is so 

fatally flawed that confirmation is impossible, the court should exercise its discretion to refuse to 

consider the adequacy of disclosures. Such an exercise of discretion is appropriate because 

undertaking the burden and expense of plan distribution and vote solicitation is unwise and 

inappropriate if the proposed plan could never legally be confirmed.”).

20. Plan-related issues relevant at the disclosure statement approval stage include 

whether the plan unfairly discriminates against a class of claims, artificial classification of claims, 

improper solicitation procedure, In re El Comandante Mgmt Co., LLC, 2006 WL 3903592, at *5 

(Bankr. D.P.R. Mar. 3, 2006), inability to comply with the fair and equitable requirement with 

respect to class that is sure to reject the plan, and “the stark absence of good faith.” E. Me. Elec., 

125 B.R. at 333.

21. For multiple and independent reasons addressed below, the Plan proposed by the 

Oversight Board is patently unconfirmable. Consequently, the Court should decline to approve 

the Disclosure Statement and related relief sought by the Disclosure Statement Motion. 

2021 Further Disclosure Statement Hearing (Case No. 17-3283 ECF 17379) (the “July 14, 2021 Tr.”) at 

81:21-23 or “demonstrated that the proposed plan is patently unconfirmable.” Id. at 84:7-8. 

Case:17-03283-LTS Doc#:23480 Filed:02/03/23 Entered:02/03/23 16:57:53 Desc: Main

Document Page 15 of 43
11

A. The Plan Reflects A Mere Placeholder Plan In Violation Of This Court’s 

Directives

22. As an initial matter, the Oversight Board admits that the Plan is not confirmable 

based on at least one very obvious scenario. The Disclosure Statement includes a section on 

litigation affecting distributions under the Plan. There, after discussing various potential 

outcomes, the Oversight Board admits that if the Court finds that (i) the Trustee has a lien26 on

PREPA’s present and future revenues and (ii) the arbitrary cap on recoveries imposed by the Plan 

are insufficient to pay the Bondholders’ entitlement, then the Plan “may not be confirmable or 

feasible without material amendments.” 27 This outcome, which is squarely in the range of possible 

(if not probable) litigation scenarios, demonstrates that the Oversight Board has failed to comply 

with the Court’s directive that it file a plan that can be confirmed whatever the litigation’s outcome. 

Indeed, the Oversight Board admits that if it loses on the value of the Trustee’s liens, it will have

to embark on a do-over of the whole solicitation and confirmation process because the amendments 

will be “material.” This Court specifically charged the Oversight Board—after six years in 

bankruptcy, a terminated RSA, overall lack of progress, and inexplicable flip-flops in legal and 

factual positions—not to treat this plan deadline as just another free option. Yet, that’s exactly 

what the Oversight Board has done.

23. Moreover, the Oversight Board’s single admission is hardly the only litigation scenario 

in which the proposed Plan would not be confirmable. As explained further below, the Plan fails the 

“fair and equitable” and “unfair discrimination” tests with respect to the inevitable rejecting class 

26 “Lien” under section 101(37) of the Bankruptcy Code means “charge against or interest in 

property to secure payment of a debt or performance of an obligation.” 11 U.S.C. § 101(37). Under section 

928(a) of the Bankruptcy Code, as a result of the covenants and pledges of revenues contained in the Trust 

Agreement, the Bondholders have a lien on all current and future special revenues generated by PREPA’s 

electric power system. 

27 See Disclosure Statement at 37-38.

Case:17-03283-LTS Doc#:23480 Filed:02/03/23 Entered:02/03/23 16:57:53 Desc: Main

Document Page 16 of 43
12

of Non-Settling Bondholders and Monolines based upon its treatment of the Oversight Board’s 

new creditor-of-the-month,28 the Fuel Line Lenders. In every potential litigation scenario—

irrespective of whether the Bondholders’ claims are secured or unsecured, and even if the sevenyear old claims of the Fuel Line Lenders are treated as “current expenses” (which they are not), 

the Plan will not comply with section 1129(b)(2).

B. The Plan Is Admittedly Not Based On What PREPA Can Afford To Pay, And 

The Legal Foundation For The Plan Is Fatally Flawed.

24. The Oversight Board does not mince its words; it plainly declared with regard to 

the Plan that “PROMESA Does Not Include an ‘Affordability’ Test.”29 Just weeks before it filed 

the Plan, the Oversight Board proposed a distribution of $7.8 billion30 (which is public 

information) to its creditors (resulting in an approximately 71% recovery for Bondholders). And 

this proposal already reflected a reduction relative to the recoveries proposed under the 2019 RSA, 

which the Oversight Board supported as recently as last year. Yet, by any metric, the Puerto Rican

28 When pressed by the Court on how the Oversight Board could conceivably move forward on a 

plan with just one tiny consenting creditor in Vitol, counsel for the Fuel Line Lenders agreed with that 

dubious proposition. See Nov. 2, 2022 Tr. at 29:4-9 (“Mr. Mason: Mr. Bienenstock referred to Vitol, which 

I think is a small creditor in the scheme of things, as potentially being an impaired accepting class. I think 

we would meet that with some pretty severe skepticism, but, obviously, if that's the road he is going to go 

down, we’ll address it at the time.”). This proposition has become even more dubious because the Fuel 

Line Lenders’ rights to payment are subordinate to the Bondholders. 

29 See Omnibus Reply of the Oversight Board in Support of the Urgent Motion of Puerto Rico 

Electric Power Authority for Order (I) Scheduling a Hearing to Consider Adequacy of Information 

Contained in Disclosure Statement, (II) Establishing Deadline for Filing Objections to the Disclosure 

Statement and Replies Thereto, (III) Approving Form and Manner of Notice Thereof, (IV) Establishing 

Document Depository Procedures in Connection Therewith, and (V) Granting Related Relief, Dec. 22, 

2022 (ECF No. 2990) at ¶ 8 (stating that PROMESA does not include a requirement that PREPA pay the 

maximum it can pay creditors; rather, the “Oversight Board considers affordability along with multiple 

factors impacting PREPA and Puerto Rico”). Previously, counsel for the Oversight Board said the 

Oversight Board was looking for PREPA to pay what it could afford to creditors. See Nov. 2, 2022 Tr. at 

22:9-11 (“[The Board’s] not trying to save money. It’s not trying to pay less than it can pay to creditors 

who are absorbing some amount of losses. That's never been the Board’s objective.”). 

30 See PREPA FOMB Proposal to Bondholder Group at 6-7 (Nov. 8, 2022),

https://emma.msrb.org/P11641653-P11264323-P11690562.pdf. 

Case:17-03283-LTS Doc#:23480 Filed:02/03/23 Entered:02/03/23 16:57:53 Desc: Main

Document Page 17 of 43
13

economy has actually strengthened since March 2022. Moreover, inexplicably, the Plan even

proposes to distribute $2.4 billion less to its creditors that the Board proposed to creditors just a 

few weeks before (slashing Bondholder recoveries to, at most, 55%). Despite the obvious 

confusion this causes in the public markets, the Disclosure Statement makes no effort even to 

bridge the difference and explain the reasonableness and necessity of the drastically slashed

proposed distributions. Finally, the Disclosure Statement includes virtually no information or data 

from which a creditor could assess what it in fact PREPA can afford.31

25. Section 314(b) of PROMESA is modeled on Section 943(b) of the Bankruptcy 

Code, which prescribes the confirmation requirements for a municipality’s plan of adjustment. 

Prior to 1976, Chapter IX of the Bankruptcy Act included, as conditions for confirmation, that the 

plan be fair and equitable, not discriminatory, and in the best interests of creditors. Congress 

described the “fair and equitable” test as the following: 

Fair and equitable has additional consent in Chapter IX. The petitioner must 

exercise its taxing power to the fullest extent possible for the benefit of its 

creditors. Fano v. Newport Heights Irr. Dist., 1[1]4 F.2d 563 (9th Cir. 1940). The 

court must find that the amount proposed to be paid under the plan was all that the 

creditors could reasonably expect under the circumstances . . . .

H.R. REP. NO. 94-686, at 33 (1976), reprinted in 1976 U.S.C.C.A.N. 539, 571, 1975 WL 12383

(emphasis added). In the cited Fano case, the Ninth Circuit upheld the reversal of confirmation of 

a plan, finding that the plan was not fair and equitable because there was an insufficient showing 

that taxes could not be raised to pay creditors. Fano, 114 F.2d at 565-66 (“[W]e are unable to find 

any reason why the tax rate should not have been increased sufficiently to meet the District’s 

31 Without this information, it would be impossible for Bondholders to make an “informed 

judgment” about the Plan. See 11 U.S.C. § 1125(a) (describing what constitutes “adequate information”). 

The Disclosure Statement should not be approved on the separate, independent, basis that it does not contain 

“adequate information” as required under section 1125(b) of the Bankruptcy Code, made applicable to this 

case by section 301 of PROMESA.

Case:17-03283-LTS Doc#:23480 Filed:02/03/23 Entered:02/03/23 16:57:53 Desc: Main

Document Page 18 of 43
14

obligations or why it can be said that the plan is ‘equitable‘ and ‘fair’ and for the ‘best interest of 

the creditors’ with no sufficient showing that the taxing power was inadequate to raise the taxes to 

pay them.”).

32

26. Today, under the Bankruptcy Code, the “fair and equitable” standard in the Chapter 

9 context remains as described in its legislative history and Fano—the debtor must pay all that it 

is reasonably able to pay to creditors in an impaired dissenting class. Of course, a Title III plan 

(like a Chapter 9 plan) must in all circumstances be “feasible.” PROMESA § 314(b)(6); 11 U.S.C. 

§ 943(b)(7); see also In re City of Detroit, 524 B.R. 147, 219 (Bankr. E.D. Mich. 2014) (noting 

that the “feasibility” requirement establishes a ceiling which prevents the debtor from promising 

more than it can deliver, and therefore “may obtain confirmation of a plan over objection, which 

does not utilize all of the assets of the estate to retire its obligation . . . . There is no more money 

available for creditors in the City’s already tight budget projections. Every dollar is accounted for 

in providing necessary services, implementing the necessary [reinvestment and restructuring 

initiatives], and in meeting plan obligations.” (emphasis added)).

27. A good example of how the balancing of fairness and equity, on one hand, and 

feasibility on the other, must be undertaken is the Chapter 9 case of Hardeman County Hospital 

District, 540 B.R. 229 (Bankr. N.D. Tex. 2015). In confirming a plan over the dissent of general 

unsecured creditors, the court found that the plan was fair and equitable because it “reasonably 

compensates and provides the best recovery for Creditors in the circumstances and the maximum

that the Debtor is able to pay while maintaining its mission of continuing to provide health care 

32 See also Lorber v. Vista Irr. Dist., 127 F.2d 628, 639 (9th Cir. 1942) (applying fair and equitable 

test by considering “whether or not the amount to be received by the bondholders is all that they can 

reasonably expect in the circumstances,” which required the trial court to make findings to support a 

conclusion that “the payments provided for in the plan of composition are all that the District is reasonably 

able to pay in the circumstances” (internal quotation marks omitted and emphasis added)).

Case:17-03283-LTS Doc#:23480 Filed:02/03/23 Entered:02/03/23 16:57:53 Desc: Main

Document Page 19 of 43
15

services to Hardeman County and its needy inhabitants.” Id. at 239 (emphasis added). Ultimately, 

“[n]o viable alternative to the Plan exist[ed] that would resolve the debtor’s insolvency and provide 

a greater recovery to the objecting and the rejecting Creditors in Class 5.” Id. at 240; see also id.

at 242 (“[T]he credible evidence at the Confirmation Hearing is that the Debtor is not in a position 

to raise taxes because of property values and economic conditions; and the taxpayers of the county 

are already paying the maximum the taxpayers will permit.”).

28. Even if the Oversight Board had not readily admitted it, there is no doubt that the 

Plan proposes to pay less than what PREPA can reasonably afford to pay under the circumstances. 

It cannot be lost on the Court or voting creditors, that the Plan proposes billions of dollars less 

than every previous RSA to which the Oversight Board was a party. For example, under the 2019 

RSA negotiated in the wake of Hurricanes Irma and Maria, each dollar of Bondholder claims was 

to be exchanged for 67.5 cents in tax-exempt “A” bonds and 10 cents in “B” bonds. Total 

distributions to Bondholders would have exceeded $8.0 billion had the plan reflected in the 2019 

RSA (for which the Oversight Board reiterated its support in early 2022) been consummated at the 

end of last year. In contrast, proposed distributions to bondholders under the Plan are $4.0 billion. 

29. The Government Parties have long been on record stating that the debt reduction 

and transition charge they agreed to in the 2019 RSA were reasonable, affordable, and beneficial 

to PREPA and its customers. As late as February 2022, in the midst of the Commonwealth’s 

emergence from bankruptcy, the Government Parties publicly pronounced on the Court’s docket 

that the 2019 RSA “provides PREPA and all present and future ratepayers with gargantuan 

benefits.”33 That same month, AAFAF’s Executive Director proudly noted that “it is not typical 

33 See FOMB Mediation Objection ¶ 4.

Case:17-03283-LTS Doc#:23480 Filed:02/03/23 Entered:02/03/23 16:57:53 Desc: Main

Document Page 20 of 43
16

to achieve such a substantial reduction.”34 The Disclosure Statement makes no effort to explain 

why those statements are no longer true. Instead, the Oversight Board adopts a novel, 

discretionary, and untestable proposition: PREPA need only pay what the Oversight Board deems 

appropriate. 

30. Indeed, rather than requiring PREPA to pay as much as it can afford, the Oversight 

Board has deputized PREPA to be the Commonwealth’s engine of growth—a shiny new role for 

PREPA that is incompatible with PREPA’s obligation to act fairly and equitably towards its own

dissenting class of creditors. See 11 U.S.C. § 1129(b). As explained above, that standard requires 

the Court to find that PREPA has paid all that it could reasonably pay. And this standard is not 

only embedded in the history of the term "fair and equitable," it makes sense because, outside of 

bankruptcy, the municipality's policy decisions would be constrained by the Contracts 

Clause. Cf. U.S. CONST. Art. I, sect. 10; United Steel Paper & Forestry Rubber Mfg. Allied Indus. 

& Serv. Workers Int'l Union AFL-CIO-CLC v. Gov't of Virgin Islands, 842 F.3d 201, 210 (3d Cir. 

2016) (explaining that when impairing private obligations, the state must act in a “reasonable and 

necessary” way).

31. While the affordability analysis is a fact-specific one, it is fundamental to this 

Court’s role in considering a contested plan of adjustment to have those facts in front of it. Here, 

the Oversight Board has clearly conceded in both words (see ECF No. 3131) and substance (see 

2019 RSA and its latest proposal on EMMA)) that it is not even trying to satisfy this requirement 

34 See AAFAF Chief Marrero Signals PREPA RSA ‘Most Likely’ Will Need Renegotiation, Given 

Lack of Legislative Support, REORG (Feb. 7, 2022), 

https://app.reorg.com/v3#/items/intel/1869?item_id=168129, (attached as Exhibit 5 to Motion of the Ad 

Hoc Group of PREPA Bondholders, Assured Guaranty Corp., Assured Guaranty Municipal Corp., 

National Public Finance Guarantee Corporation, and Syncora Guarantee, Inc. to Dismiss PREPA’s Title 

III Case, or for Relief From the Automatic Stay to Enforce Their Right to a Receiver, Sept. 19, 2022 (ECF 

No. 2973) (the “Bondholder Motion to Dismiss/Stay Relief Motion”)).

Case:17-03283-LTS Doc#:23480 Filed:02/03/23 Entered:02/03/23 16:57:53 Desc: Main

Document Page 21 of 43
17

because the Plan is based on a different standard entirely. Indeed, at the most recent hearing in the 

Title III Cases, counsel for the Oversight Board doubled down on the position that PREPA does 

not need to demonstrate how much it can afford to pay creditors at the confirmation hearing, 

effectively excising the “best interests” and “fair and equitable” tests from PROMESA’s Section 

314 confirmation requirements.

35

 Accordingly, the Court can and should at this stage determine 

that the Plan is premised on a flawed subjective (and novel) standard that writes “fair and 

equitable” out of the Bankruptcy Code. Rather than waste everyone’s time with a half-baked Plan 

that is based on an incorrect legal standard, this case is a paradigm for when the Disclosure 

Statement should not be approved.

C. The Plan Cannot Be Confirmed Under Section 1129(b) Of The Bankruptcy 

Code Regardless Of The Amended Lien & Recourse Challenge Outcome

32. A debtor can confirm a plan on a non-consensual basis (i.e., over the objection of a 

dissenting impaired class of creditors), if the plan otherwise satisfies the requirements of section 

1129(a) (other than section 1129(a)(8)) and meets the additional “cramdown” requirements of 

section 1129(b). Section 1129(b) authorizes confirmation of a plan over the dissenting vote of an 

impaired class so long as the plan does not “discriminate unfairly” and is “fair and equitable.” 11 

U.S.C. § 1129(b)(2). The appropriate fair and equitable test for cramdown is based upon whether 

the dissenting impaired class of creditors is secured or unsecured.

33. To satisfy the “fair and equitable” requirement of section 1129(b)(2)(A) with 

respect to an impaired secured class of creditors, a plan must provide for the secured creditors to 

either (i) retain the liens securing their claims and receive deferred cash payments totaling the 

allowed amount of their secured claims, or (ii) receive the “indubitable equivalent” of their 

35

 See Transcript of February 1, 2023 hearing at 111:21-24 (Mr. Bienenstock: “There’s no 

separate . . . affordability test. They can argue that. That's not the way we read PROMESA.”).

Case:17-03283-LTS Doc#:23480 Filed:02/03/23 Entered:02/03/23 16:57:53 Desc: Main

Document Page 22 of 43
18

claims.36 For an impaired non-consenting class of unsecured claims, a plan is considered fair and 

equitable if “the holder of any claim or interest that is junior to the claims of such class will not 

receive or retain under the plan on account of such junior claim or interest any property.” 11 U.S.C. 

§ 1129(b)(2)(B)(ii). As set forth below, the Plan fails to meet the “cramdown requirements” of 

1129(b) with respect to the Non-Settling Bondholder Class, irrespective of whether the 

Bondholders’ claims are found to be secured or unsecured

34. First, if the Court determines that the Bonds are secured by PREPA’s revenues, 

then the Plan necessarily will violate section 1129(b)(2)(A) with respect to the Non-Settling 

Bondholder Class. Under the Plan, the Bondholders would be capped at approximately 55%

recovery even if Bondholders prevail on the lien and recourse issues. There is no assertion in the 

Disclosure Statement that this arbitrary cap is based on the value of PREPA’s revenues or, 

therefore, the full value of the Bondholders’ secured claim. 

35. Moreover, even if the Court determines that the Bondholders’ collateral is limited 

to the $8 million of cash in the Sinking Fund as of the petition date, and therefore the Bondholders’ 

claims are effectively unsecured, the Plan unfairly discriminates between Bondholders and Fuel 

Line Lenders, because they would all be similarly situated unsecured creditors. The unfair 

discrimination standard prevents creditors “with similar legal rights from receiving materially 

different treatment under a proposed plan without compelling justifications for doing so.” In re 

Hermanos Torres Perez Inc., 2011 WL 5854929, at *9 (Bankr. D.P.R. Nov. 21, 2011); see also In 

re LightSquared Inc., 513 B.R. 56, 99 (Bankr. S.D.N.Y. 2014) (“The purpose of the requirement 

is to ensure that a dissenting class will receive relative value equal to the value given to all other 

36 Section 1129(b)(2)(A) also provides an additional basis to cramdown a non-consenting secured 

class in the context of an asset sale. See id. § 1129(b)(2)(A)(ii). However, this provision is not applicable 

because the Plan does not contemplate a sale of property.

Case:17-03283-LTS Doc#:23480 Filed:02/03/23 Entered:02/03/23 16:57:53 Desc: Main

Document Page 23 of 43
19

similarly situated classes.”). It is clear that the treatment of the Fuel Line Lenders is materially 

different from the proposed treatment of Bondholders where Fuel Line Lenders are receiving a 

60% greater recovery than even the best-case scenario for Bondholders. See El Comandante, 

2006 WL 3903592, at *5 (Under the unfair discrimination test, the “differentiated treatment of 

similar classes intended merely to induce acceptance by one class fails”).

36. The Oversight Board seeks to justify the discrimination between the Bondholders 

and the Fuel Line Lenders by asserting that the Fuel Line Lenders’ claims are “Current Expenses” 

or “Necessary Operating Expenses.”37 As an initial matter, the Oversight Board’s newfound 

discovery of the nature of the Fuel Line Lenders’ claims is born out of expediency, not any 

legitimate legal analysis or purported good-faith settlement. In any event, the argument that the 

Fuel Line Lenders’ claims are current expenses is not credible.

37. The Fuel Line Lenders provided unsecured loans, and their claims represent debts 

incurred entirely prior to the Title III filing. Therefore, in the more than six years since its 

establishment, the Oversight Board never certified a budget for PREPA that authorized PREPA to 

make payments to the Fuel Lien Lenders. That is because the claims of the Fuel Line Lenders 

have never been expenses necessary for PREPA to continue operating all these years. In the 

Oversight Board’s own words: “Payment of debt service on prepetition unsecured debt cannot 

possibly play any role in keeping PREPA operational in this or any future fiscal year.”

38

 

37 The Trust Agreement defines Current Expenses as PREPA’s “reasonable and necessary current 

expenses of maintaining, repairing and operating the System” and includes a long list of direct expenses to 

fund PREPA’s operations. See Trust Agreement at 20-22.

38 See Memorandum of Law of PREPA, AAFAF, and the Oversight Board in Support of Motion, 

Pursuant to Fed. R. Civ. P. 12(b)(6) to Dismiss Counts I, II, III, IV, VI, and VII of Plaintiffs’ Amended 

Complaint with Prejudice (Adv. Proc. No. 19-396-LTS, ECF No. 54), at 33 (emphasis added).

Case:17-03283-LTS Doc#:23480 Filed:02/03/23 Entered:02/03/23 16:57:53 Desc: Main

Document Page 24 of 43
20

38. Even assuming, arguendo, that the claims of the Fuel Line Lenders could be 

considered “current expenses” (even though they are not), then PREPA should have been paying 

them in the ordinary course in order to maintain its operations, as it has been doing with all

legitimate “current expenses,” as permitted by the Trust Agreement. In this respect, current 

expenses are akin to administrative expenses under the Bankruptcy Code, which are not subject to 

classification at all. See 11 U.S.C. § 1123(a). Since administrative claims are not classified, they 

cannot qualify as a sole impaired consenting class for the purposes of section 1129(a)(10). 

Accordingly, the Oversight Board’s attempt to invent an accepting impaired class of claims 

thorough bogus classification of the allegedly “current expenses” of the Fuel Line Lenders fails. 

D. The Plan Cannot Satisfy PROMESA § 314(b)(6)’s “Best Interests Of 

Creditors” Test

39. The Plan does not provide PREPA’s creditors—the overwhelming majority of 

whom are Bondholders—with a better alternative than dismissal of the Title III case, and therefore 

cannot satisfy the requirement that it is in the “best interests of creditors,” PROMESA § 314(b)(6), 

providing yet another basis for denying approval of the Disclosure Statement. 

40. Section 314(b)(6) requires that the Plan be in the “best interests of creditors,” which 

“requires the court to consider whether available remedies under the non-bankruptcy laws and 

constitution of the territory would result in a greater recovery for the creditors than is provided in 

such plan.” PROMESA § 314(b)(6). The test requires the court to consider “whether creditors in 

the aggregate receive an equal or greater recovery on their Claims pursuant to the Plan than they 

would outside of Title III if the Debtor’s Title III case were dismissed and creditors exercised their 

remedies.” In re Fin. Oversight and Mgmt. Bd. for P.R., 637 B.R. 223, 211 (D. P.R. 2022) 

(emphasis in original).

Case:17-03283-LTS Doc#:23480 Filed:02/03/23 Entered:02/03/23 16:57:53 Desc: Main

Document Page 25 of 43
21

41. Here, more than 80% of PREPA’s prepetition debt is held by Bondholders who, as 

the Oversight Board acknowledges, “[o]utside bankruptcy” have specific performance remedies 

by which they could cause PREPA to “add more money to the Sinking Fund”39 by raising rates 

and making revenues available for credit to that fund, as well as a contractual right to seek the 

appointment of a receiver to enforce the Trust Agreement. See Trust Agreement §§ 502, 804, 808. 

The Oversight Board also acknowledges that, outside of Title III, “a court is likely to find the 

Bondholders have a right to receiver appointed under 22 L.P.R.A. § 207.”40

42. Moreover, Puerto Rico law independently requires PREPA to meet its obligations 

to Bondholders. PREPA’s Authority Act, as amended, requires PREPA to collect revenues “that 

are sufficient . . . for the payment of the principal of and interest on its bonds, and for fulfilling the 

terms and provisions of the agreements entered into with or for the benefit of purchasers or holders 

of any bonds of [PREPA] and other creditors.” Act 33-2019 § 24 (amending Section 5 of the 

Authority Act). The Authority Act also gives Bondholders the right to enforce PREPA’s statutory 

and contractual obligations “by mandamus or other suit, action, or proceeding at law or in equity.” 

22 L.P.R.A. § 208.

43. Because Bondholders undoubtedly would do better upon dismissal of this Title III 

case, they have moved to dismiss the case, or lift the automatic stay, to permit them to pursue their 

rights under the Trust Agreement and Puerto Rican law.41 Indeed, in recognition of the powerful 

39 Financial Oversight and Management Board of Puerto Rico’s Motion for Summary Judgment

(Adv. Proc. 19-391-LTS, ECF No. 63) ¶ 2 n.6; see also id. ¶ 41 n.17 (“Outside of bankruptcy, those 

covenants provide the [b]ondholders with contractual rights to enforce payment on the Bonds.” (emphasis 

added)); id. ¶ 83 n.22 (Bondholders could, “outside of Title III, enforce the Covenants and Remedies to 

expand their collateral” (emphasis added)). 

40 See Best Interest Test Report for PREPA, Appendix 1, Assumptions, filed by the Oversight Board 

on Jan. 27, 2023 (ECF No. 3169-2).

41 See Bondholder Motion to Dismiss/Stay Relief Motion.

Case:17-03283-LTS Doc#:23480 Filed:02/03/23 Entered:02/03/23 16:57:53 Desc: Main

Document Page 26 of 43
22

rights of the Bondholders and their Trustee under Puerto Rican law, the Oversight Board asks that 

the creditor protections embedded in the Authority Act (e.g., rate covenant, right to a receiver, 

specific performance, etc.) be preempted upon confirmation of the Plan.42 

44. Meanwhile, the proposed Plan does not provide (and the Disclosure Statement does 

not describe) any significant benefits to PREPA’s creditors (other than, perhaps, the Fuel Line 

Lenders who were bought off with the Bondholders’ collateral) that would be lost in the event of 

dismissal. In this way, the Plan is entirely distinguishable from the plan of adjustment confirmed 

by the court in the city of Detroit’s chapter 9 case. There, the court cited the lost benefits to 

creditors, whose recoveries would be “substantially impaired” if the case were dismissed, as well 

as the city’s loss of significant settlement contributions and potential enhanced credit ratings, in 

holding that the plan was in the best interests of creditors. See Detroit, 524 B.R. at 217-18. 

PREPA’s proposed Plan does not provide such benefits. Unlike the State of Michigan, the 

Commonwealth of Puerto Rico is not making any contribution to PREPA that would be 

jeopardized upon dismissal, and it is difficult to see how PREPA’s credit ratings would benefit 

from the arbitrary slashing of Bondholder recoveries based not on PREPA’s true financial 

condition, but on its (or the Oversight Board’s) unwillingness to generate revenues to the actual 

amount PREPA could afford to pay. Here, it is the Plan—not dismissal of the Title III—that would 

“substantially impair” the recoveries for lion’s share of PREPA’s creditors.

E. The Plan Was Not Proposed In Good Faith

45. The Oversight Board has not proposed the Plan in good faith, which “generally 

requires that the plan be proposed with honesty and good intentions . . . and that the plan proponent 

42 See Fuel Line Lender Plan Term Sheet, Dec. 16, 2022 (ECF No. 3111-13), attached as Ex. X to 

the Disclosure Statement.

Case:17-03283-LTS Doc#:23480 Filed:02/03/23 Entered:02/03/23 16:57:53 Desc: Main

Document Page 27 of 43
23

deal with its creditors in a manner that is fundamentally fair.” Detroit, 524 B.R. at 248 (internal 

quotation marks omitted). 

46. PREPA, through the Oversight Board, has over the years reneged on every

agreement negotiated with Bondholders—most recently, the 2019 RSA. For over three years, 

Bondholders complied with their obligations under the 2019 RSA, including by refraining from 

seeking to lift the stay and objecting to various issues in PREPA’s and the Commonwealth’s Title 

III cases. During that time, inducing the Bondholders’ continued reliance, the Government Parties 

repeatedly reiterated their support for the RSA. See, supra, ¶ 12. Then, without any economic 

justification, on March 8, 2022, the Governor, with the support of the Oversight Board, abruptly 

terminated the 2019 RSA.

47. Following termination, on April 1, 2022, the Court ordered the Ad Hoc Group of 

Bondholders and other key constituencies to mediation (the “Mediation Parties”).43 After four 

extensions of the mediation termination deadline, on September 29, 2022, the Court entered the 

Amended Mediation Order, which, among other things, directed representatives of the Mediation 

Parties to attend and participate in more mediation sessions “without undue delay,” and further 

directed the Oversight Board to “promptly” designate a lead negotiator to facilitate the Mediation 

Team’s and the other Mediation Parties’ interaction with the Oversight Board.44

48. The Oversight Board dragged its feet for two weeks even to pick its lead negotiator, 

who ended up being the party “whom the mediators felt was the obvious party to act as the lead 

negotiator.” Nov. 2, 2022 Tr. at 23:22-24. Meanwhile, the Oversight Board had no 

communications whatsoever with the Mediation Team. See id. “Two weeks became six weeks,” 

43 See Mediation Order. 

44 See Amendments to Order Establishing the Terms and Conditions of Mediation, Sept. 29, 2022

(ECF No. 3011).

Case:17-03283-LTS Doc#:23480 Filed:02/03/23 Entered:02/03/23 16:57:53 Desc: Main

Document Page 28 of 43
24

during which there were “virtually no substantive communications.” Id. at 24:1-7. As explained 

on the record of these proceedings, the Meditation Team did not “feel much coming back from the 

Board,” and “[t]he creditors have been kept waiting . . . and it’s just gone on too long.” Id. at 

26:21-27:3.

49. At that important November 2, 2022 hearing, the Court emphasized the importance 

of the December 1, 2022 deadline by which the Oversight Board was required to propose a 

confirmable plan of adjustment that “meaningfully and realistically contemplates scenarios in 

which each party fails to prevail on their claims in litigation.” See id. at 16:4-16. Thereafter, the 

Bondholders and the Oversight Board exchanged proposals. As discussed, supra ¶ 24 the 

Oversight Board’s latest proposal on or around November 8, 2022, would have made $7.8 billion 

available for distribution to PREPA’s creditors. Bondholders explained that the Oversight Board 

was actually using incorrect assumptions and data, and that simply correcting the Oversight 

Board’s assumptions would show PREPA could afford to pay creditors enough to bridge the gap 

while still maintaining reasonable rates for the ratepayers.45 In response, the Oversight Board

never engaged again and filed the Plan. 

50. Indeed, despite all that time afforded by the Court ahead of its deadline, that was 

the end of the exchange of proposals. Rather than work with the largest bloc of creditors, and 

presumably knowing it had to find an impaired consenting class, following the Fuel Line Lenders’ 

45 See Ad Hoc Group of PREPA Bondholders Discloses Additional Materials Produced in Recently 

Terminated Mediation with FOMB, with hyperlink to Analysis Group Presentation on the Share of Wallet 

Analysis (Dec. 19, 2022), https://www.businesswire.com/news/home/20221218005080/en/Ad-HocGroup-of-PREPA-Bondholders-Discloses-Additional-Materials-Produced-in-RecentlyTerminated-Mediation-with-FOMB.

Case:17-03283-LTS Doc#:23480 Filed:02/03/23 Entered:02/03/23 16:57:53 Desc: Main

Document Page 29 of 43
25

filing of a Rule 2004 motions regarding the use of Vitol as an impaired accepting class, the 

Oversight Board quickly made a sweetheart deal with the Fuel Lien Lenders.46 

51. By entering into the settlement with the Fuel Line Lenders, and proposing they be 

classified in their own separate class, it is clear the Oversight Board is attempting to buy the votes 

of a small unsecured creditor class with the apparent goal of cramming down their largest creditor 

constituency. Vote-buying has significant consequences, resulting either in designation of the 

creditor’s vote, see 11 U.S.C. § 1126(e) (“the court may designate any entity whose acceptance or 

rejection of such plan was not in good faith, or was not solicited or procured in good faith or in 

accordance with the provisions of this title”), or preventing confirmation: Where a plan is not

proposed in good faith—including because of bad faith in the solicitation process, like votebuying—the plan violates section 1129(a)(3) and cannot be confirmed. See, e.g., In re Quigley 

Co., 437 B.R. at 129 (denying confirmation because the plan “was proposed in bad faith since it 

was designed to achieve acceptance through a tainted vote”). Moreover, the Oversight Board’s 

settlement with the Fuel Line Lenders is improper as it seeks to settle an intercreditor dispute 

between the Fuel Line Lenders and the Bondholders as to priority of claims vis-à-vis one another. 

The Fuel Line Lenders themselves recognized this point when they objected to the 2019 RSA, 

arguing that “[t]he Oversight Board should not be permitted to compromise or release the 

particularized objections and claims of the Fuel Line Lenders.”47 

52. Therefore, even if the Plan could satisfy the requirements under section 1129(b) for 

confirmation over the dissent of an impaired class—which for the reasons discussed above, it 

46 See Urgent Motion of Fuel Line Lenders for Examination of Oversight Board Under Federal 

Rule of Bankruptcy Procedure 2004 Concerning Vitol Settlement, Nov. 4, 2022 (ECF No. 3066).

47

 See Objection of Cortland Capital Markets Services LLC, as Administrative Agent, and Solus 

to PREPA Bondholder Settlement, Oct. 30, 2019 (ECF No. 1700), at 67-68.

Case:17-03283-LTS Doc#:23480 Filed:02/03/23 Entered:02/03/23 16:57:53 Desc: Main

Document Page 30 of 43
26

cannot—the Oversight Board did not negotiate fairly or in good faith, and it did not propose the 

Plan in good faith. Approval of the Disclosure Statement should accordingly be denied.

F. The Plan Impermissibly Gerrymanders Classes Of Claims In Violation Of 

Section 1122(a) Of The Bankruptcy Code. 

53. Section 1122(a) of the Bankruptcy Code provides that a plan may place a claim or 

an interest in a particular class only if such claim or interest is substantially similar to the other 

claims or interests of such class. PROMESA § 301 incorporates section 1122 into Title III cases 

and adds the additional gloss that in determining “whether claims are ‘substantially similar’ for 

the purpose of section 1122 . . . , the Oversight Board shall consider whether such claims are 

secured and whether such claims have priority over other claims.” PROMESA § 301(e). In In

Granada Wines, Inc. v. New England Teamsters & Trucking Industry Pension Fund, 748 F.2d 42 

(1st Cir. 1984), the First Circuit took a strict approach to classification determinations under 

section 1122, holding that “all creditors of equal rank with claims against the same property should 

be placed in the same class.” Granada Wines, 748 F.2d at 46 (stating that “[s]eparate 

classifications for unsecured creditors are only justified where the legal character of their claims 

is such as to accord them a status different from the other unsecured creditors[.]”).

54. In the Commonwealth Title III case, the Court stated its view that PROMESA 

provided the Oversight Board with flexibility when classifying claims.

48

 Notwithstanding this 

flexibility, the main commandment of section 1122, “thou shall not gerrymander” classes for 

purposes of creating an impaired accepting class, undoubtedly applies to Title III cases. See, e.g., 

In re Bos. Post Rd. Ltd. P’ship (Boston Post), 21 F.3d 477, 483-84 (2d Cir. 1994) (holding that 

“approving a plan that aims to disenfranchise the overwhelmingly largest creditor through artificial 

48 See July 14, 2021 Tr. at 80:23-25 (“[T]he Court finds no basis to import the Granada Wines strict 

classification principle into PROMESA.”). 

Case:17-03283-LTS Doc#:23480 Filed:02/03/23 Entered:02/03/23 16:57:53 Desc: Main

Document Page 31 of 43
27

classification is simply inconsistent with the principles underlying the Bankruptcy Code”); In re 

Hanish, LLC, 570 B.R. 4, 16 (Bankr. D.N.H. 2017) (citing In re Greystone III Joint Venture, 995 

F.2d 1274, 1279 (5th Cir. 1991) (surveying the split in circuits on the interpretation of section 

1122, and holding there “is one clear rule to which all courts adhere—thou shalt not classify similar 

claims differently in order to gerrymander an affirmative vote on a reorganization plan” (emphasis 

in original and internal quotes omitted)). 

55. In this case, unlike the Commonwealth Title III plan, the proposed classification 

reeks of gerrymandering in a transparent attempt to artificially create an impaired accepting class. 

The Plan purports to contain three separate classes of impaired creditors but each such class breaks

the cardinal rule against gerrymandering as a matter of law. 

1. Separate classification of Settling and Non-Settling Bondholders.

56. The Plan seeks to create two separate classes of Bondholders. The only basis for 

the separate classification is the Bondholders’ election whether to support the Plan. Up until the 

moment the Bondholder votes, there are no distinguishing characteristics between and among the 

Bondholders as their legal entitlements are exactly the same. If classification rises and falls with

whether or not a creditor supports a plan, then a debtor would always be able to buy off a settling 

creditor for purposes of artificially creating an impaired accepting class. This blatant form of 

gerrymandering disenfranchises Bondholders who seek to protect their legal rights rather than 

accede to the Oversight Board’s coercive demands.49 

49 To the extent the Oversight Board would rely on cases that approve “death-traps” in plans, those 

cases are inapposite to what the Oversight Board proposes here. While Courts have approved death-trap 

type plans, the approved death traps are based on how the class votes as a whole (i.e., treatment of entire 

class is the same irrespective of whether or not the class, as a whole, accepts or rejects the plan). Here, there 

is not a class-wide death-trap but individual death-traps that punish creditors who vote no and reward 

creditors who vote yes on the Plan. See In re Affordable Auto Repair, Inc., 2020 WL 6991012, at *2 (Bankr. 

C.D. Cal. Sept. 2, 2020) (noting that while courts have approved class-wide death traps, an individual death 

trap may violate § 1123(a)(4)).

Case:17-03283-LTS Doc#:23480 Filed:02/03/23 Entered:02/03/23 16:57:53 Desc: Main

Document Page 32 of 43
28

2. Separate Classification of Vitol

57. In its first attempt to artificially create an accepting impaired class, the Oversight 

Board’s counsel informed the Court at the November 2, 2022 hearing that it had reached a 

settlement with Vitol, Inc., a single unsecured creditor holding a claim of approximately $41.5 

million and that the Plan would classify Vitol separately from all other unsecured creditors based 

upon the allegedly lesser treatment that Vitol agreed to under the settlement.50 As counsel for the 

Fuel Line Lenders stated at the November 2 hearing, separate classification of Vitol’s settled 

approximately $41.5 million disputed claim should be looked at with some pretty severe 

skepticism.51 Seeking to confirm a cramdown plan for a debtor with creditors holding more than 

$8 billion in Bondholder claims based upon a settlement with a single unsecured creditor is indeed 

dubious. Simply put, there is no legal justification to cherry pick and separately classify Vitol’s 

claim from the hundreds, if not thousands, of claims of other unsecured creditors, other than for 

gerrymandering purposes.52 

3. Separate Classification of Fuel Line Lenders to Facilitate Impaired Accepting 

Class

58. At the 11th hour, the Oversight Board decided to settle with the Fuel Line Lenders 

upon terms extremely favorable to them, including elevating their claims above the claims of the 

Bondholders and general unsecured creditors. The settlement is not currently before the Court and 

50

 Nov. 2, 2022 Tr. at 19:8-15.

51

 Id. at 29:4-9. 

52

 See In re Thornwood Assocs., 161 B.R. 367, 374 (Bankr. M.D. Pa. 1993) aff’d, 162 B.R. 438 

(M.D. Pa. 1993) (classification based on treatment was improper because such a “difference is in a debtor’s 

proposed treatment of a claim rather than in the nature of the claim as it relates to the assets of the estate. 

The latter constitutes the proper test for differential classification”).

Case:17-03283-LTS Doc#:23480 Filed:02/03/23 Entered:02/03/23 16:57:53 Desc: Main

Document Page 33 of 43
29

any objections to the settlement will wait for another day but the proposed use of that settlement 

should be heard now. 

59. One of the effects of the settlement and purported justification for the favorable 

treatment to be afforded the claims of the Fuel Line Lenders is that the Oversight Board now argues 

that, in fact, the claims are really “current expenses” that would be paid prior to the Bondholders. 

If the claims of the Fuel Line Lenders are deemed to be “current expenses,” then such claims 

should have been paid in the ordinary course. As a result, the Fuel Lenders Claims should not be 

classified and cannot be used as an accepting impaired class. In any event, as counsel for the Fuel 

Line Lenders previously acknowledged in this case (before the Fuel Line Lenders’ settlement), 

using a relatively small creditor group in the scheme of things, as potentially being an impaired 

accepting class is inherently suspect. See supra, ¶¶ 23 n.28, 57. Moreover, the settlement also 

represents impermissible vote-buying that should be addressed at the disclosure statement stage. 

See, e.g., Quigley, 437 B.R. at 126-29. Syncora reserves all rights with respect to the treatment 

afforded the claims of the Fuel Line Lenders, including the right to seek to designate the votes of 

the Fuel Line Lenders under section 1126(e) of the Bankruptcy Code.

60. While true that classification objections are usually issues for confirmation, it is 

proper and timely for the Court to rule on the appropriateness of the classification scheme at the 

disclosure statement stage. See FED. R. BANKR. P. 3013; In re 18 RVC, LLC, 485 B.R. 492, 495 

(Bankr. E.D.N.Y. 2012) (declining to approve a disclosure statement which described a 

classification scheme that constituted improper gerrymandering). Where a disclosure statement 

describes a plan that is patently unconfirmable, it should not be approved. See Quigley, 377 B.R. 

at 115 (finding that an unconfirmable plan is grounds for rejection of the disclosure statement). 

Further, improper classification of claims is a valid basis for declining to approve a disclosure 

Case:17-03283-LTS Doc#:23480 Filed:02/03/23 Entered:02/03/23 16:57:53 Desc: Main

Document Page 34 of 43
30

statement. See id. Accordingly, the Court should decline to approve the Disclosure Statement and 

not permit the Oversight Board to engage in a futile solicitation process. 

G. The Plan Is Tainted By PREPA’s Impermissible Solicitation Without An 

Approved Disclosure Statement

61. The Oversight Board unabashedly seeks to drum up support for its patently 

unconfirmable Plan through an impermissible solicitation, made with whatever information the 

Oversight Board itself deems adequate. Through a so-called settlement offer, which the Oversight 

Board began disseminating to Bondholders on January 27, 2023, the Oversight Board seeks to 

have Bondholders elect their treatment under the Plan by February 24—i.e., four days before the 

Disclosure Statement hearing.53 Both PROMESA and the Bankruptcy Code prohibit the Oversight 

Board’s premature attempt to entice Bondholders to accept treatment under a Plan without the 

benefit of a disclosure statement approved by the Court as containing “adequate information.” 

62. Before the Oversight Board may solicit acceptance of the Plan, PROMESA 

expressly requires that the Oversight Board obtain court approval of a disclosure statement that 

complies with the requirements of 11 U.S.C. § 1125. PROMESA §§ 301(a), 314(b)(2); 11 U.S.C. 

§ 1125(a), (b). Section 1125(b) prohibits debtors from soliciting “acceptance or rejection of a 

plan . . . after the commencement of a case . . . unless, at the time of or before such solicitation, 

there is transmitted to such holder . . . a written disclosure statement approved, after notice and a 

hearing, by a the court as containing adequate information.” 11 U.S.C. § 1125(b) (emphasis 

added). This is no mere technicality; section 1125(b)’s pre-approval requirement ensures “that all 

claim holders are provided with adequate information” that enables them “to make an informed 

judgment regarding whether to vote for or against a reorganization plan.” Id. at 204 (citing In re 

53

 See Notice of Distribution of Settlement Offer Notice to Uninsured Bondholders, Jan. 30, 2023 

(ECF No. 3171) (“Notice of Distribution of Settlement Offer”).

Case:17-03283-LTS Doc#:23480 Filed:02/03/23 Entered:02/03/23 16:57:53 Desc: Main

Document Page 35 of 43
31

Ferretti, 128 B.R. 16, 18 (Bankr. D.N.H. 1991)). The Oversight Board’s unprecedented 

dissemination of such a solicitation is an “end-run around the disclosure requirements” imposed 

by section 1125. In re Clamp-All Corp., 233 B.R. 198, 208 (Bankr. D. Mass. 1999) (quoting H.R.

REP. NO. 95-595, at 227 (1977), reprinted in 1978 U.S.C.C.A.N. 5963, 1977 WL 9628)). The 

Oversight Board’s Plan is thus tainted and unconfirmable. See 11 U.S.C. § 1129(a)(2).

63. A “key feature” of the Oversight Board’s proposed Plan is the “inclusion of two 

separate classes for Bond claims”—a class of Settling Bondholders and a class of Non-Settling 

Bondholders.54 Under the Plan, Settling Bondholders stand to receive a floor recovery of 50% of 

their allowed claims. Non-Settling Bondholders, on the other hand, will be paid according to 

litigation outcomes; if the Oversight Board prevails on both the lien scope and recourse issues, 

Non-Settling Bondholders will receive less than a penny (a 0.21% recovery), while if the NonSettling Bondholders prevail on both the lien scope and recourse issues, their maximum recovery 

is 52.81%.

55

 

64. To effectuate this divergent treatment, the Oversight Board sent Settlement Offers 

to Uninsured Bondholders on January 27, 2023, with responses due February 24, four days before

this Court is scheduled to consider what information would be adequate for solicitations.56 

Through this “offer” process, the Oversight Board purportedly “enable[s] every bondholder to 

choose whether it wants to be part of the settling class or non-settling class” under the proposed 

Plan.57 Uninformed, unrepresented Bondholders must therefore determine, without the benefit of 

54

 Disclosure Statement Motion ¶5.

55 See Settlement Offer Notice, Jan. 30, 2023 (ECF No. 3171-1), attached as Schedule 1 to Notice 

of Distribution of Settlement Offer, at 6.

56 See Notice of Distribution of Settlement Offer, Jan. 30, 2023 (ECF No. 3171-1).

57 Disclosure Statement Motion ¶ 5.

Case:17-03283-LTS Doc#:23480 Filed:02/03/23 Entered:02/03/23 16:57:53 Desc: Main

Document Page 36 of 43
32

an approved disclosure statement, whether the Settlement Offer represents a fair valuation of the 

Bondholders’ claims against PREPA, in light of their likelihood of success in the Amended Lien 

& Recourse Challenge as well as whether the proposed Plan provides fair treatment. 

65. The Oversight Board’s contention that the Settlement Offers do not constitute 

“solicitation” is nothing but a feebly attempted jedi mind trick. The Settlement Agreement requires 

Settling Bondholders to “support, and not otherwise object to . . . confirmation of the Plan.”58 

Still, the Oversight Board dissonantly claims Settling Bondholders are free to “accept or reject the 

Plan.” Despite this window dressing, the solicitation requires Bondholders to “support” the Plan 

and agree to a particular treatment under the Plan. Accordingly, the Settlement Offer is an 

“untimely solicitation of an acceptance or rejection.” Century Glove, Inc. v. First Am. Bank of N. 

Y., 860 F.2d 94, 102 (3d Cir. 1988).59 

66. As crazy as it sounds, the Notice of Settlement Offer includes no information (let 

alone “adequate information”) regarding, among other things, (1) background about the Amended 

Lien & Recourse Challenge, including the legal issues in dispute, (2) the strengths and weaknesses 

of the Bondholders’ position in the Amended Lien & Recourse Challenge, (3) the previous—

significantly higher—offers made to Bondholders, and why those higher offers are no longer being 

58 Settlement Agreement, attached as Exhibit B to the Settlement Offer Notice § 5.02 (Covenants 

of the Settling Bondholder) (emphasis added).

59 In the decision confirming the Commonwealth, Employee Retirement System and Public 

Buildings Authority Plan, this Court noted that creditors’ pre-disclosure-statement agreements to support a 

plan “remain[] executory until the creditor file[s] its accepting ballot.” In re Fin. Oversight & Mgmt. Bd. 

for Puerto Rico, 637 B.R. 223, 284-85 (D.P.R. 2022) (the “CWPR/ERS/PBA”) (quoting In re Heritage Org., 

L.L.C., 376 B.R. 783, 793 (Bankr. N.D. Tex. 2007)). The Oversight Board offers nothing to suggest that 

the purported plan support agreement will impose an executory obligation on Bondholders or how the plan 

support agreement will be enforced. If the Oversight Board can enforce the Settling Bondholders’ 

obligation to “support the proposed Plan” through specific performance, the Settlement Offer is not 

executory and constitutes an improper solicitation under 11 U.S.C. § 1125(b). See id. at 793-94 (citing 

Century Glove, 860 F.2d at 102) (explaining that “locking-up” a creditor’s vote pre-disclosure strips the 

creditor of its right to court-approved disclosure under the Code). 

Case:17-03283-LTS Doc#:23480 Filed:02/03/23 Entered:02/03/23 16:57:53 Desc: Main

Document Page 37 of 43
33

offered, or (4) PREPA’s ability to pay Bondholders, or why that is simply irrelevant under the 

Oversight Board’s novel legal framework. This information cannot adequately enable a 

Bondholder to make an informed decision regarding the Plan such that he or she can agree not to 

object to, and support, confirmation of the Plan. While section 1125(b) accommodates some predisclosure communications aimed at facilitating honest negotiations between the debtor and its 

creditors, Century Glove, 860 F.2d at 101, there is nothing to suggest the Oversight Board is 

engaging in sincere negotiations with numerous strangers (particularly when it did no such thing 

with the other Mediation Parties). Indeed, the Settlement Offer the Oversight Board describes is 

not even an invitation to the negotiating table—it is just a confusing mass mailer that intimidates

uninformed, unrepresented Bondholders with a take-it-or-leave-it ultimatum. 

67. The Oversight Board cites this Court’s findings in CWPR/ERS/PBA to support its 

argument that the Settlement Offer is not a pre-disclosure “solicitation.”60 There, this Court 

explained that the pre-disclosure execution of plan support agreements did not constitute improper 

solicitations because such agreements were the product of “extensive negotiations” and lengthy 

mediations. CWPR/ERS/PBA, 637 B.R. at 250-51, 284 (citing In re Indianapolis Downs, LLC., 

486 B.R. 286, 295 (Bankr. D. Del. 2013)). Indeed, the Oversight Board engaged with various 

creditor constituencies to reach mutually agreeable plan support agreements that resulted in the 

confirmed, largely consensual, plan in CWPR/ERS/PBA. Id. at 250-52. The plan support 

agreements at issue in CWPR/ERS/PBA were the culmination of bilateral bargaining processes, 

where the key constituencies were given a seat at the negotiating table. Id. Here, quite to the 

contrary, the Oversight Board seeks to impose a unilaterally-conceived, “take-it-or-leave-it” offer 

on Bondholders: agree to support the Plan you have not seen and you get to retain some of your 

60 See Disclosure Statement Motion ¶ 5 n.6 (citing CWPR/ERS/PBA, 637 B.R. at 284-85).

Case:17-03283-LTS Doc#:23480 Filed:02/03/23 Entered:02/03/23 16:57:53 Desc: Main

Document Page 38 of 43
34

rights; dissent and you may get nothing. This is not the type of honest negotiation section 1125(b) 

accommodates or that this Court approved in other Title III cases.

68. The Oversight Board also relies on this Court’s finding in CWPR/ERS/PBA that the 

“Exchange Offer” made to bondholders was not an improper solicitation.61 The “Exchange Offer” 

afforded bondholders not yet party to the plan support agreement, which had been extensively 

negotiated by other similarly situated bondholders, an opportunity to join the plan support 

agreement and share in its benefits.62 Moreover, the Oversight Board there justified the Exchange 

Offer as “a procedural mechanism for all uninsured bondholders to deal with the tender and 

exchange of bonds.”63 Here, no such benefits or procedural mechanism appear to exist (or at least 

they certainly have not been adequately articulated). And the Exchange Offer there afforded

creditors more than two weeks to consider the offer, and if the creditors declined the offer, they 

still stood to benefit to the same extent as accepting bondholders under the plan.64 Critically, 

through the Exchange Offer, the debtors invited bondholders to join a plan support agreement that 

was negotiated and agreed to by similarly situated bondholders holding a majority of the 

bondholder claims.65 The PREPA Settlement Offer bears little resemblance to the Exchange Offer.

61 See Disclosure Statement Motion ¶ 5 n.6 (citing ERS/PBS, 637 B.R. at 284-85).

62

 Id. at 284-85. 

63

 Id. at 285 (internal quotation marks omitted)

64

 See id. (“[T]he Exchange Offer did not require retail bondholders to take immediate action 

before the Participation Deadline to become entitled to a support fee. . . . The Exchange Offer also disclosed 

that . . . retail bondholders who did not tender their bonds by the Participation Deadline remain entitled to 

a [support fee under the plan] (in the same amount as the [support fee provided for in the plan support 

agreement]), so long as their Class of retail bondholders approves the Plan and the retail bondholder certifies 

their retail investor status.”).

65

 Id. at 252, 268-69 (“As a product of the negotiations culminating in the [Exchange Offer] PSA, 

a similar Retail Support Fee (i.e., a form of “restriction fee”) will be available to Retail Investors who did 

not tender and exchange their bonds to join the [Exchange Offer] PSA.”). 

Case:17-03283-LTS Doc#:23480 Filed:02/03/23 Entered:02/03/23 16:57:53 Desc: Main

Document Page 39 of 43
35

II. THE DISCLOSURE STATEMENT FAILS TO PROVIDE ADEQUATE INFORMATION AS

REQUIRED BY SECTION 1125(B) OF THE BANKRUPTCY CODE

69. Aside from the numerous fatal defects in the Plan, the Disclosure Statement cannot 

be approved because it does not contain “adequate information” as required under section 1125(b) 

of the Bankruptcy Code. 11 U.S.C. § 1125(b).

70. Section 1125(b) of the Bankruptcy Code, which is incorporated into PROMESA by 

section 301, “requires that the disclosure statement contain ‘adequate information’” that enables a 

“hypothetical reasonable investor to make an informed judgment about the plan.” In re Cnty. of 

Orange, 219 B.R. 543, 560 (Bankr. C.D. Cal. 1997); see also 11 U.SC. § 1125(b); In re ACEMLA 

de P.R. Inc., 2019 WL 311008, at *14 (Bankr. D. P.R. 2019) (“A disclosure statement should 

provide the creditors with an accurate basis for determining their position and their ability to make 

an informed decision with regard to the acceptance or rejection of the plan.”). The Disclosure 

Statement does not come close to including adequate information that would enable PREPA’s 

creditors, let alone Bondholders, to make an informed decision regarding the Plan.

71. Unlike other disclosure statements, this Disclosure Statement cannot be remedied 

by suggested additions or revisions; it needs to be re-drafted. Among its countless deficiencies, 

both large and small, is the Disclosure Statement’s lack of any information that could assist a 

creditor (particularly, a Bondholder) in determining whether a Plan is “fair and equitable” or in the 

“best interests” of creditors. More specifically, it does not provide a bridge to the analysis of how 

the Oversight Board believed payments were affordable in February 2022, as well as its mediation 

offers as late as November 2022, to the materially worse treatment of Bondholders proposed under 

the Plan. It also does not contain any analysis on how much PREPA could afford to pay creditors 

or how proposed electricity rates relate to affordability. Consequently, the Disclosure Statement 

does not contain the adequate information that section 1125 demands. 

Case:17-03283-LTS Doc#:23480 Filed:02/03/23 Entered:02/03/23 16:57:53 Desc: Main

Document Page 40 of 43
36

RESERVATION OF RIGHTS

72. Syncora continues to review the Disclosure Statement and Plan, and reserves all 

rights in connection with any amended Disclosure Statement or Plan. Syncora reserves the right 

to supplement or amend this Objection in advance of, or in connection with, the hearing to approve 

the Disclosure Statement. Nothing herein shall be or is intended to be a waiver by Syncora of any 

right, objection, argument, claim or defense in connection with any matter, including matters 

involving the Disclosure Statement and the Plan, all of which are expressly reserved.

CONCLUSION

WHEREFORE, Syncora respectfully requests that the Court deny the Disclosure Statement 

Motion, and provide Syncora such other and further relief as the Court deems appropriate.

Case:17-03283-LTS Doc#:23480 Filed:02/03/23 Entered:02/03/23 16:57:53 Desc: Main

Document Page 41 of 43
37

DATED: February 3, 2023

Respectfully submitted,

REICHARD & ESCALERA

By : /s/ Rafael Escalera

Rafael Escalera

USDC No. 122609

escalera@reichardescalera.com

Sylvia M. Arizmendi

USDC-PR 210714

arizmendis@reichardescalera.com

Carlos R. Rivera-Ortiz 

USDC-PR 303409

riverac@reichardescalera.com

255 Ponce de León Avenue

MCS Plaza, 10th Floor

San Juan, Puerto Rico 00917-1913

QUINN EMANUEL URQUHART & 

SULLIVAN, LLP

Susheel Kirpalani (pro hac vice)

susheelkirpalani@quinnemanuel.com

Daniel Salinas

USDC-PR 224006

danielsalinas@quinnemanuel.com

Eric Kay (pro hac vice)

erickay@quinnemanuel.com

Kate Scherling (pro hac vice)

katescherling@quinnemanuel.com

51 Madison Avenue, 22nd Floor

New York, New York 10010-1603

Co-Counsel for Syncora Guarantee, Inc.

Case:17-03283-LTS Doc#:23480 Filed:02/03/23 Entered:02/03/23 16:57:53 Desc: Main

Document Page 42 of 43
13870353.5

CERTIFICATE OF SERVICE

I hereby certify that on this same date, I electronically filed the foregoing with the Clerk 

of the Court using the CM/ECF system which will send notification of such filing to counsel for 

the parties of record.

/s/ Carlos R. Rivera-Ortiz

USDC-PR 303409

Case:17-03283-LTS Doc#:23480 Filed:02/03/23 Entered:02/03/23 16:57:53 Desc: Main

Document Page 43 of 43