UNITED STATES DISTRICT COURT 

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

No. 17 BK 3283-LTS

(Jointly Administered)

In re:

THE FINANCIAL OVERSIGHT AND 

MANAGEMENT BOARD FOR PUERTO RICO,

as representative of

PUERTO RICO ELECTRIC POWER 

AUTHORITY,

Debtor.

PROMESA 

Title III

No. 17 BK 4780-LTS

In re:

THE FINANCIAL OVERSIGHT AND 

MANAGEMENT BOARD FOR PUERTO RICO,

as representative of

PROMESA 

Title III

Adv. Pro. No. 19-391 (LTS)

 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 (“Commonwealth”) (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#:22371 Filed:09/23/22 Entered:09/23/22 13:52:59 Desc: Main

Document Page 1 of 12
ii

PUERTO RICO ELECTRIC POWER 

AUTHORITY,

And

THE PUERTO TICO FISCAL AGENCY AND 

FINANCIAL ADVISORY AUTHORITY,

As Section 926 co-trustee of

PUERTO RICO ELECTRIC POWER 

AUTHORITY,

Plaintiffs,

v.

U.S. BANK NATIONAL ASSOCIATION, 

as Trustee

Defendant

CORTLAND CAPITAL MARKET SERVICES 

LLC, et al.,

 Plaintiffs

 v.

THE FINANCIAL OVERSIGHT AND 

MANAGEMENT BOARD FOR PUERTO RICO, 

et al.,

 Defendants

PROMESA 

Title III

Adv. Proc. No. 19-396 (LTS)

SISTEMA DE RETIRO DE LOS EMPLEADOS 

DE LA 

AUTORIDAD DE ENERGIA ELECTRICA,

 Plaintiff,

 v.

THE FINANCIAL OVERSIGHT AND 

MANAGEMENT BOARD FOR PUERTO RICO, 

et al.,

PROMESA 

Title III

Adv. Pro. No. 19-405 (LTS)

Case:17-03283-LTS Doc#:22371 Filed:09/23/22 Entered:09/23/22 13:52:59 Desc: Main

Document Page 2 of 12
iii

 Defendants

RESPONSE OF FINANCIAL OVERSIGHT

AND MANAGEMENT BOARD TO MEDIATION TEAM’S PROPOSED 

AMENDED ORDER ESTABLISHING TERMS AND CONDITIONS OF MEDIATION

To The Honorable United States District Court Judge Laura Taylor Swain:

The Financial Oversight and Management Board for Puerto Rico (the “Oversight Board”), 

as sole Title III representative of the Puerto Rico Electric Power Authority (“PREPA” or the 

“Debtor”) in this Title III case pursuant to section 315(b) of the Puerto Rico Oversight, 

Management and Economic Stability Act (“PROMESA”),2 respectfully submits this response to 

(i) [Proposed] Amended Order Establishing the Terms and Conditions of Mediation [ECF No. 

2966] 3 (the “Proposed Amended Order”) and (ii) Notice of Mediation Team’s Proposed Amended 

Order Establishing Terms and Conditions of Mediation [ECF No. 2967] (the “Notice”) filed by 

the Mediation Team4 and respectfully states:

RESPONSE TO PROPOSED AMENDED ORDER

1. The Oversight Board reiterates its gratitude to the Mediation Team for its

willingness to continue to oversee Mediation, and is grateful for the Court’s September 20, 2022 

order5 continuing to designate the Mediation Team to facilitate negotiations among stakeholders 

in PREPA’s Title III Case. The Mediation Team’s determination not to have extended the prior 

 2 PROMESA is codified at 48 U.S.C §§ 2101–2241.

3 Unless otherwise stated, all ECF references shall refer to Case No. 17-4780.

4 Capitalized terms used but not otherwise defined herein shall have the meaning given to them in the 

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 (ECF No. 2269 in Case No. 17-3283; ECF No. 2956 in Case No. 17-4780; ECF 

No. 11 in Adv. Pro. No. 19-391; ECF No. 98 in Adv. Pro. No. 19-396; and ECF No. 70 in Adv. Pro. No. 

19-405, the “Urgent Motion”)

5 Order Concerning Continuation of PREPA Mediation [ECF No. 2987].

Case:17-03283-LTS Doc#:22371 Filed:09/23/22 Entered:09/23/22 13:52:59 Desc: Main

Document Page 3 of 12
2

mediation coincided with the Bondholders’ and Oversight Board’s last proposals made after 

months of negotiations whose mandatory disclosure demonstrated a large gap. The Oversight 

Board believes the gap is unbridgeable without litigation of the security and allowability of the 

Bondholders’ claims, but also believes parallel negotiations best preserve the possibility of 

settlement while putting a confirmable plan in reach regardless of success in the negotiations. To 

that end, the Oversight Board supports many provisions of the Proposed Amended Order.

6 Certain 

terms of the Proposed Amended Order and certain suggestions in the Notice, are problematic,

however, and the Oversight Board respectfully submits a revised, proposed order, as Exhibit A

(the “Board’s Proposed Order”), adopting many provisions and varying other provisions for the 

following reasons:

2. “Pause” of Litigation. The Oversight Board agrees the Mediation Team should 

have authority to file reports “at any time during the Mediation recommending whether any 

pending litigation scheduled by the Court should be paused to enable negotiations to proceed with 

a materially enhanced prospect of success.” Proposed Amended Order at 4. Although implicit in 

the Mediation Team’s proposed order, the Oversight Board’s version makes express that parties 

in interest may object to pauses. As a practical matter, the Oversight Board believes that until the 

critical aspects of the Bondholders’ claims are fully briefed and ready for decision, a pause would 

be counter-productive because the litigants’ knowledge that the matter may be determined at or 

about a fixed time is what is best calculated to lead to settlement. In any event, the Board’s 

Proposed Order, adds that “all parties to the subject litigation shall have the right to respond to any 

request to pause pending litigation.”

 6 Case No. 17-3283, ECF. No. 20527; Case No. 17-4780, ECF. No. 2773.

Case:17-03283-LTS Doc#:22371 Filed:09/23/22 Entered:09/23/22 13:52:59 Desc: Main

Document Page 4 of 12
3

3. Attendance of Oversight Board Members at Mediation Sessions. As a practical 

matter, Oversight Board members have attended negotiation sessions for the last five years, 

notwithstanding that they each have demanding day jobs and they are uncompensated for their 

time on Oversight Board business. Not all members attend every session, but each member has 

participated when practicable and beneficial.7 They have each been super dedicated and remain 

so. That, however, is voluntary. The Oversight Board has the discretion, and submits it must be 

allowed to retain the discretion, to have its employees and advisors negotiate on its behalf. 

Notably, the board of directors or the equivalent of each creditor party does not attend negotiations 

to the best of our knowledge. They never have. We understand the Mediation Team might desire 

to have the Oversight Board attend negotiations so it can respond more quickly to 

counterproposals. That is understandable, but the circumstances must be considered. The 

Oversight Board acts in a deliberative manner with access to its advisors and other experts to 

consider new points and data raised by creditors, AAFAF, the Legislature, and the unions. The 

Oversight Board’s members consider and debate opposing positions. Thus, the Oversight Board 

sometimes requires more time to act in the best interest of Puerto Rico and all its people and 

stakeholders. Rapid changes in positions pose risks to attaining the best possible results for Puerto 

Rico. The Proposed Amended Order (at 5) would “direct the members of the Oversight Board to 

attend and participate in Mediation sessions without undue delay of the scheduling of such 

sessions.” The Oversight Board has in the past participated and believes it can continue to 

participate productively in mediation without the added requirements proposed by the Mediation 

Team. The Oversight Board also endeavors to be available quickly, but cannot always be quick 

 7 Notably, in the only ‘in person’ mediation session that was conducted by the Mediation Team, a majority of the 

Board was present in person, and the remainder of the Board dialed-in for parts of the session.

Case:17-03283-LTS Doc#:22371 Filed:09/23/22 Entered:09/23/22 13:52:59 Desc: Main

Document Page 5 of 12
4

when the presence of individual members is requested. The Oversight Board therefore opposes 

any order directing it as to who must attend and negotiate for it.

4. Designation of Lead Negotiator. The Proposed Amended Order requires the 

Oversight Board to “designate a lead negotiator.” Proposed Amended Order at 5. A footnote 

provides “The Court strongly suggests . . . that the Oversight Board retain a financial advisor with 

extensive experience in financial restructurings to fill this role.” Id. n.12. As explained above, it 

is important the Oversight Board retain the discretion PROMESA allows to negotiate as it believes 

will enable it to carry out its statutory missions to restore fiscal responsibility and market access. 

The Oversight Board’s financial advisors have unparalleled experience and track record in 

municipal restructurings inside and outside Chapter 9. If circumstances change and another 

advisor is required, the Oversight Board will act promptly. The Oversight Board’s advisors, one 

of whose principals has been designated to function and has consistently functioned as the “lead 

negotiator,” work under the close control of the Oversight Board, whereby the Oversight Board 

determines what proposals can be made, what messages can be communicated, and what objectives 

can be pursued, not the other way around. An additional advisor could also inject substantial delay

and expense, and coordination and messaging complications. PROMESA provides the Oversight 

Board with discretion over its functions (see, e.g., PROMESA § 101(h)), including who it selects 

as its employees (PROMESA § 103(a), (b)) and advisors (PROMESA § 104(g) (Oversight Board 

empowered to enter into contracts as it sees fit), § 108(a) (Oversight Board “shall be represented 

by such counsel as it may hire or retain”), § 316(a) (Oversight Board may hire professionals in 

Title III case “in the Oversight Board’s sole discretion”)). The Board’s Proposed Order, therefore, 

removes this language.

Case:17-03283-LTS Doc#:22371 Filed:09/23/22 Entered:09/23/22 13:52:59 Desc: Main

Document Page 6 of 12
5

5. Dataroom Requirement. The Proposed Amended Order (at 4–5) provides that the 

Oversight Board shall assemble data in a dataroom containing its economic analyses and financial 

projections, among other things. This request is unnecessary, as the Oversight Board has already 

provided its nonprivileged data, economic analyses, and projections to creditors. To the extent the 

request is for the Oversight Board to shares its professionals’ analyses of creditor proposals, the 

Oversight Board is open to sharing this information on an ad hoc basis to the extent it is not 

privileged or work product. The Bondholders’ advisors, however, have not provided certain 

analyses requested by the Oversight Board.

RESPONSE TO NOTICE

6. The Notice by the Mediation Team makes certain recommendations for how 

PREPA’s Title III case should proceed that intersect with the relief the Oversight Board seeks in 

its Urgent Motion filed in response to the Court’s Path Forward Order. The Oversight Board 

appreciates the suggestions and concurs in part. Based on its years of involvement in Title III 

cases for the Commonwealth, PREPA, and others, however, the Oversight Board, believes some 

of the suggestions would be counterproductive to advancing PREPA’s case to resolution. The 

Oversight Board respectfully submits that, under PROMESA, its proposed path be afforded 

deference. AmeriNational Cmty. Servs., LLC v. Ambac. Assur. (In re Fin. Oversight & Mgmt. 

Bd.), 635 B.R. 216, 231 (D.P.R. 2021) (“PROMESA provides substantial deference to the strategy 

and tactics of the Oversight Board.”); In re Fin. Oversight & Mgmt. Bd., 478 F.Supp.3d 190, 197 

(D.P.R. 2020) (“The Oversight Board, as the sole representative of [the debtors], is entitled to 

deference as it makes important decisions on behalf of those debtors.”); see Notice at 2 

(“recognizing that the litigation schedule is of direct importance to the conduct of the Mediation, 

although also subject to other considerations that are beyond the Mediation Team’s remit.”). 

Case:17-03283-LTS Doc#:22371 Filed:09/23/22 Entered:09/23/22 13:52:59 Desc: Main

Document Page 7 of 12
6

7. Deadline to File a Plan and Disclosure Statement. The Mediation Teams shares the 

Oversight Board’s view that the “the prospects of a successful Mediation will be greatly enhanced” 

if a litigation schedule is adopted by the Court. Notice at 2. The Mediation Team, however, asks 

the Court to order that, while the Oversight Board is concurrently litigating with creditors and 

participating in Mediation sessions, the Oversight Board file a “Toggle Plan” and disclosure 

statement in 60 days, with litigation to proceed in the context of confirmation, and a hearing to be 

held no later than June 2023. The deadline is possible and the Oversight Board wants to 

accomplish it, but the suggestion is otherwise problematic for a number of reasons. 

8. In the big picture, the Bondholders’ allowable claim, whether secured or unsecured, 

has profound implications for what can be paid to all other constituencies. The Bondholders 

propound a claim in excess of $8 billion without postpetition interest and more than $10.5 billion 

with postpetition interest included. If any material portion of the $8 billion claim is not allowable, 

it has a dramatic impact on what PREPA will pay all other allowed claims. There are too many 

potential outcomes of the Bondholders’ ultimately allowable secured and unsecured claims for 

there to be a ‘toggle plan.’ We would need multiple toggles! So, the concept is impracticable as 

a factual matter. 

9. While the Oversight Board recognizes the Court may establish a deadline for filing

a plan, PROMESA does not provide for the Court to predetermine the contents or structure of the 

plan, including that it be a “Toggle Plan.” See e.g. PROMESA §§ 312, 313, and 315. The purpose 

of litigating the Threshold Issues is to determine Bondholders’ and Current Expense Claimants’

rights, which will pave the way to strike deals with those creditors or other groups. It remains the 

Oversight Board’s strong preference to file a consensual plan, at least in part, and as it currently 

stands, the Oversight Board does not have a deal with any major creditor constituency to serve as 

Case:17-03283-LTS Doc#:22371 Filed:09/23/22 Entered:09/23/22 13:52:59 Desc: Main

Document Page 8 of 12
7

an impaired accepting class for a plan. Because mediation has taken a “staged” approach focusing 

solely on the Bondholders’ claims, (see ECF No. 2908 ¶ 1), the Oversight Board has not had the 

opportunity to complete its negotiations with PREPA’s unions or retiree system, or to 

meaningfully engage with other creditor constituencies. The Oversight Board should be given the 

opportunity to reach consensus with other parties before it files a nonconsensual plan. 

10. Because the Oversight Board understands and shares the desire of the Mediation 

Team and the Mediation Parties to begin the confirmation process as swiftly as possible, the 

Oversight Board can commit to filing a proposed plan of adjustment within 45 days of the earlier 

of (i) a restructuring support agreement with a major creditor constituency, or (ii) the Title III 

Court’s adjudication of the Amended Lien Challenge.

11. Litigation on Non-Recourse and Motion to Dismiss. The Mediation Team states

that “if litigation is to proceed, the Mediation Team believes that scheduling only two litigation 

issues—the ‘non-recourse’ and dismissal/lift stay/receiver disputes—for consideration before a 

hearing on confirmation of a Toggle Plan might further such negotiations, while all other issues 

should be heard in the context of confirmation or thereafter.” Notice at 3 n.4.

12. The Oversight Board appreciates the Mediation Team’s recognition of the 

significance of the non-recourse issue (i.e., that creditors having limited recourse to certain 

collateral have no allowable unsecured claims against the debtor). The Mediation Team expressly 

recognizes the need to litigate the non-recourse issue. That issue, however, cannot be adjudicated 

in isolation from the issues of lien scope and perfection in the Amended Lien Challenge. The 

Bondholders have already acknowledged they have limited recourse to certain collateral, which 

renders their claims non-recourse against PREPA. See, e.g., Initial Receiver Motion (as defined 

below) at 1 (“The purpose of [PREPA’s promise to set rates at specific levels] is to compensate 

Case:17-03283-LTS Doc#:22371 Filed:09/23/22 Entered:09/23/22 13:52:59 Desc: Main

Document Page 9 of 12
8

PREPA’s bondholders for the limited recourse nature of the Bonds and the inability of PREPA to 

grant a mortgage or other lien on its physical assets.”). The question then is what security are the 

bondholders limited to? The Bondholders assert they are secured by all PREPA’s Revenues. The 

Oversight Board, Committee, and others, argue that based on the language of the Trust Agreement 

and the Court’s precedent in HTA and PRIFA, the Bondholders are limited to monies deposited in 

the Sinking Fund.8 This is a gating issue critical to determining what can and should be paid to 

the Bondholders.

13. As explained in its Reply in support of its Urgent Motion (ECF No. 2990, ¶¶ 1, 3, 

13), the Court’s Path Forward Order directed the Oversight Board to choose between showing 

cause why the case should not be dismissed and filing a litigation schedule, a plan or a plan term 

sheet. The Oversight Board chose the litigation schedule as no plan was practicable for the reasons 

explained above, and dismissal undermines PROMESA by preventing PREPA from discharging 

its debts and creating chaos that could easily cause all restructurings already completed to-date to 

fail. Most importantly, the Oversight Board’s litigation proposal only included issues critical to a 

successful restructuring and confirmation. Dismissal has nothing to do with restructuring and 

confirmation. It is the antithesis of both. Additionally, litigating dismissal should be held in 

abeyance because the Threshold Issues must be determined in connection with any dismissal, lift 

stay,9 or plan confirmation process. No purpose is served by diverting the parties’ attentions and 

 8 Indeed, the Bondholders effectively concede the HTA and PRIFA decisions are controlling on the limited 

scope of their security interest by no longer moving for lack of adequate protection as cause to lift the stay

(ECF No. 2937 ¶ 71), despite doing so on two prior occasions. 

9 While the Bondholders seek to lift the stay solely on “balance of harms” issues, the First Circuit has made 

clear that the “balance of harms” analysis requires an examination of their purported security interest. In 

re Fin. Oversight and Mgt. Bd. for Puerto Rico, 899 F.3d 13, 23 (1st Cir. 2018) (“to say that the potential 

harm to the debtor and the Title III process ‘far outweighs the temporary impediments imposed on the 

bondholders’ would also seem to require some assessment of the pre-petition value of the bondholders' 

collateral (if any exists), whether the bondholders face a threat of uncompensated diminution in such 

value, whether the bondholders are seeking the protection of existing collateral or, instead, the creation of 

Case:17-03283-LTS Doc#:22371 Filed:09/23/22 Entered:09/23/22 13:52:59 Desc: Main

Document Page 10 of 12
9

resources away from those Threshold Issues, the adjudication of which will provide extraordinary 

clarity on creditors’ rights and make deals and a plan imminently achievable. 

14. Finally, the Court should stay any litigation of the “dismissal/lift stay/receiver 

disputes,” especially if it sets a deadline to propose a plan or plan term sheet. If the Oversight 

Board proposes a confirmable plan, there can be no cause to dismiss the case. Indeed, even the 

Bondholders recognized that setting a plan deadline is an alternative path to litigating the dismissal 

motion. Bondholder Obj. [ECF No. 2966] at 23 (“In the alternative, if the Court chooses to hear 

the Motion to Dismiss/Lift-Stay at a later date, then the Court should require the Oversight Board, 

no later than November 1, 2022, to propose a plan of adjustment and timetable for obtaining 

confirmation of that plan at a hearing scheduled no later than May 1, 2023.”). Stay relief would 

require the Bondholders’ claim to be determined first, which is exactly what the Oversight Board 

has proposed to do.

WHEREFORE the Oversight Board requests the Court enter the Board’s Proposed Order 

and grant it such other relief as it deems just and proper.

Dated: September 23, 2022

San Juan, Puerto Rico

Respectfully submitted,

/s/ Martin J. Bienenstock

Martin J. Bienenstock

Paul V. Possinger

Ehud Barak

Margaret A. Dale

Michael T. Mervis

 

new collateral, and what, if any, adequate protection PREPA can offer short of a receiver being appointed 

to manage it if protection is warranted.”) (citing United Sav. Ass'n of Texas v. Timbers of Inwood Forest

Associates, Ltd., 484 U.S. 365, 370 (1988)).

Case:17-03283-LTS Doc#:22371 Filed:09/23/22 Entered:09/23/22 13:52:59 Desc: Main

Document Page 11 of 12
10

Daniel S. Desatnik

(Admitted Pro Hac Vice)

PROSKAUER ROSE LLP

Eleven Times Square

New York, NY 10036

Tel: (212) 969-3000

Fax: (212) 969-2900

Email: mbienenstock@proskauer.com

 ppossinger@proskauer.com

 ebarak@proskauer.com

 ddesatnik@proskauer.com

Attorneys for the Financial 

Oversight and Management Board 

as representative for PREPA

/s/ Hermann D. Bauer 

Hermann D. Bauer

USDC No. 215205

O’NEILL & BORGES LLC

250 Muñoz Rivera Ave., Suite 800

San Juan, PR 00918-1813

Tel: (787) 764-8181

Fax: (787) 753-8944

Email: hermann.bauer@oneillborges.com

Co-Attorney for the Financial Oversight and 

Management Board as representative for 

PREPA

Case:17-03283-LTS Doc#:22371 Filed:09/23/22 Entered:09/23/22 13:52:59 Desc: Main

Document Page 12 of 12