IN THE 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

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

(Jointly Administered)

THE FINANCIAL OVERSIGHT AND 

MANAGEMENT BOARD FOR PUERTO RICO,

as representative of

PUERTO RICO ELECTRIC POWER AUTHORITY,

Movant,

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).

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ii

v.

AD HOC GROUP OF PREPA BONDHOLDERS; HON. 

RAFAEL HERNÁNDEZ-MONTAÑEZ, in his capacity as 

Speaker of the Puerto Rico House of Representatives;

HON. JOSÉ L. DALMAU-SANTIAGO, in his capacity as 

President of the Puerto Rico Senate; PV PROPERTIES, 

INC.; SISTEMA DE RETIRO DE LOS EMPLEADOS DE 

LA AUTORIDAD DE ENERGÍA ELÉCTRICA; UNIÓN 

DE TRABAJADORES DE LA INDUSTRIA ELÉCTRICA 

Y RIEGO, INC.; MANUEL GONZALEZ JOY; 

WHITEFISH ENERGY HOLDINGS, LLC; OFFICIAL 

COMMITTEE OF UNSECURED CREDITORS; U.S. 

BANK NATIONAL ASSOCIATION, in its capacity as 

bond trustee; SYNCORA GUARANTEE INC.; ASSURED 

GUARANTY CORP.; ASSURED GUARANTY 

MUNICIPAL CORP.

Respondents.

OMNIBUS REPLY OF THE PUERTO RICO 

ELECTRIC POWER AUTHORITY TO OBJECTIONS 

TO THE (I) ADEQUACY OF THE DISCLOSURE STATEMENT, (II) RELIEF 

REQUESTED IN THE DISCLOSURE STATEMENT MOTION, AND (III) RELIEF 

REQUESTED IN THE CONFIRMATION DISCOVERY PROCEDURES MOTION

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TABLE OF CONTENTS

Page

PRELIMINARY STATEMENT .................................................................................................... 2

BACKGROUND ............................................................................................................................ 8

OMNIBUS REPLY ...................................................................................................................... 11

A. The Plan’s Classification Structure Does Not Render the Plan Patently 

Unconfirmable ...................................................................................................... 15

B. The Plan Is Not Patently Unconfirmable as a Result of Unfair 

Discrimination....................................................................................................... 20

 1...........The Amended Plan Does Not Unfairly Discriminate Against the General 

 Unsecured Claimholders....................................................................... 20

 2.........The Bondholders Are Not Unfairly Discriminated Against in Favor of the 

 Fuel Line Lenders................................................................................... 23

C. Affordability Contentions Do Not Render the Plan Patently 

Unconfirmable ...................................................................................................... 24

D. The Bondholders’ Bad Faith Allegations are Inappropriate and Incorrect........... 33

E. The Ad Hoc Group’s Feasibility Argument Fails................................................. 45

F. The Uninsured Bond Settlement Agreement Is Not an Improper 

Solicitation in Violation of Bankruptcy Code § 1125(b) and Does Not 

Constitute Unlawful Gerrymandering................................................................... 46

II. THE DISCLOSURE STATEMENT PROVIDES ADEQUATE INFORMATION........ 51

A. The Disclosure Statement Adequately Apprises Creditors of their 

Recoveries in Various Scenarios. ......................................................................... 51

B. The Disclosure Statement Adequately Apprises Creditors of the Risks of 

an Adverse Judgment in the Amended Lien & Recourse Challenge, 

Including that the Plan May Not Be Feasible in Certain Circumstances.............. 55

C. The Disclosure Statement Adequately Describes the Unsecured Claim 

Pool and the Range of Creditor Claims and Recoveries....................................... 56

RESERVATION OF RIGHTS ..................................................................................................... 61

CONCLUSION............................................................................................................................. 62

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TABLE OF AUTHORITIES

Page(s)

CASES

ACQIS, LLC v. EMC Corp.,

No. 14-cv-13560, 2017 WL 2818984 (D. Mass. June 29, 2017).............................................36

AMC Demolition Specialists, Inc. v. Bechtel Jacobs Co.,

2007 U.S. Dist. LEXIS 7463 (E.D. Tenn. Feb. 1, 2007) .........................................................39

Andalusian Glob. Designated Activity Co. v. Fin. Oversight & Mgmt. Bd. for P.R. 

(In re Fin. Oversight & Mgmt. Bd. for P.R.),

954 F.3d 1 (1st Cir. 2020)........................................................................................................27

Brooks v. Lincoln Nat’l Life Ins. Co.,

No. 8:05-cv-118, 2006 WL 2487937 (D. Neb. Aug. 25, 2006)...............................................39

Dawson v. United States,

68 F.3d 886 (5th Cir. 1995) .....................................................................................................39

Duff v. United States Tr. (In re Cal. Fidelity, Inc.),

198 B.R. 567 (9th Cir. B.A.P. 1996)........................................................................................47

Fano v. Newport Heights Irrigation Dist., 

114, F.2d 563 (9th Cir. 1940) ..................................................................................................30

Fisher v. SmithKline Beecham Corp.,

No. 07-cv-0347A(F), 2008 WL 4501860 (W.D.N.Y. Sept. 29, 2008)....................................40

Hunter v. Prisbe,

No. 12-cv-2013, 2013 WL 1246797 (M.D. Pa. 2013).............................................................40

In re A.T. Reynolds & Sons, Inc.,

452 B.R. 374 (S.D.N.Y. 2011)...............................................................................34, 37, 39, 40

In re Am. Cap. Equip., LLC,

688 F.3d 145 (3d Cir. 2012)...............................................................................................12, 13

In re Comandante Mgmt. Co.,

359 B.R. 410 (Bankr. D.P.R. 2006).............................................................................12, 14, 16

In re Copy Crafters Quickprint, Inc.,

92 B.R. 973 (Bankr. N.D.N.Y. 1988) ......................................................................................54

In re Corcoran Hosp. Dist.,

233 B.R. 449 (Bankr. E.D. Cal. 1999)...................................................................18, 20, 29, 30

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iii

In re Dow Corning Corp.,

227 B.R. 111 (Bankr. E.D. Mich. 1999)..................................................................................47

In re Dow Corning Corp.,

244 B.R. 634 (Bankr. E.D. Mich. 1999)............................................................................18, 19

In re DVR, LLC,

582 B.R. 507 (Bankr. D. Colo. 2018), aff’d, 606 B.R. 80 (D. Colo. 2019).............................23

In re E. Me. Elec. Coop., Inc.,

125 B.R. 329 (Bankr. D. Me. 1991).........................................................................................14

In re Ellipso, Inc.,

No. 09-00148, 2012 WL 368281 (Bankr. D.D.C. Feb. 3, 2012) .......................................13, 16

In re Ferretti,

128 B.R. 16 (Bankr. D.N.H. 1991)....................................................................................53, 54

In re Filex, Inc.,

116 B.R. 37 (Bankr. S.D.N.Y. 1990).......................................................................................14

In re Fin. Oversight & Mgmt. Bd. for P.R.,

432 F. Supp. 3d 25 (D.P.R. 2020), aff’d, 954 F.3d 1 (1st Cir. 2020) ......................................27

In re Fin. Oversight & Mgmt. Bd. for P.R.,

478 F. Supp. 3d 190 (D.P.R. 2020)..........................................................................................27

In re Fin. Oversight & Mgmt. Bd. forP.R.,

621 B.R. 289 (D.P.R. 2020), aff’d, 7 F.4th 31 (1st Cir. 2021) ................................................27

In re FirstEnergy Sols. Corp.,

606 B.R. 720 (Bankr. N.D. Ohio 2019).............................................................................12, 14

In re Forest Grove, LLC,

448 B.R. 729 (Bankr. D.S.C. 2011).........................................................................................54

In re Genco Shipping & Trading Ltd.,

513 B.R. 233, 261 (Bankr. S.D.N.Y. 2014)...............................................................................6

In re Gilbert,

104 B.R. 206 (Bankr. W.D. Mo. 1989)....................................................................................47

In re Hardeman Cnty. Hosp. Dist.,

540 B.R. 229 (N.D. Tex. 2015)................................................................................................31

In re Heritage Org., LLC,

376 B.R. 783 (Bankr. N.D. Tex. 2007)....................................................................................48

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In re Indianapolis Downs, LLC,

486 B.R. 286 (Bankr. D. Del. 2013)..................................................................................47, 48

In re Kellogg Square Partnership,

160 B.R. 336 (Bankr. D. Minn. 1993) .....................................................................................47

In re Pecht,

57 B.R. 137 (Bankr. E.D. Va. 1986)........................................................................................13

In re Perry,

425 B.R. 323 (Bankr. S.D. Tex. 2010) ....................................................................................57

In re Phoenix Petroleum Co.,

278 B.R. 385 (Bankr. E.D. Pa. 2001) ......................................................................................14

In re Pleasant Hill Partners, L.P.,

163 B.R. 388 (Bankr. N.D. Ga. 1994) .....................................................................................47

In re Quigley Co.,

377 B.R. 110 (Bankr. S.D.N.Y. 2007).....................................................................................18

In re Quigley Co., Inc.,

437 B.R. 102 (Bankr. S.D.N.Y. 2010)...............................................................................44, 45

In re Rodriguez Gas & Oil Servs., Inc.,

No. 08-50152, 2008 WL 4533687 (Bankr. S.D. Tex. Oct. 2, 2008)........................................54

In re Rook Broad. of Idaho, Inc.,

154 B.R. 970 (Bankr. D. Idaho 1993)......................................................................................47

In re Sunshine Precious Metals, Inc.,

142 B.R. 918 (Bankr. D. Idaho 1992)..........................................................................13, 16, 46

In re Thornwood Assocs.,

161 B.R. 367 (Bankr. M.D. Pa. 1993) aff’d, 162 B.R. 438 (M.D. Pa. 1993) ..........................19

In re Trib. Co.,

972 F. 3d 228 (3d Cir. 2020)....................................................................................................21

In re U.S. Brass Corp.,

194 B.R. 420 (Bankr. E.D. Tex. 1996) ....................................................................................13

In re Wash. Mut., Inc.,

442 B.R. 314 (Bankr. D. Del. 2011)........................................................................................19

In re Worth,

29 B.R. 220 (Bankr. D. Colo. 1983)........................................................................................54

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Kothe v. Smith,

771 F.2d 667 (2d Cir. 1985).....................................................................................................39

Lorber v. Vista Irr. Dist.,

127 F.2d 628 (9th Cir. 1942) ...................................................................................................29

Procaps S.A. v. Patheon Inc.,

No. 12-24356-CIV, 2015 WL 3539737 (S.D. Fla. Jun. 4, 2015) ................................34, 37, 39

Puerto Rico v. Franklin Cal. Tax-Free Tr.,

579 U.S. 115 (2016).................................................................................................................30

Quint v. A.E. Staley Mfg. Co.,

172 F.3d 1 (1st Cir. 1999)........................................................................................................38

U.S. Bank N.A. v. Vill. at Lakeridge, LLC,

138 S.Ct. 960 (2018)................................................................................................................17

W. Real Estate Equities, L.L.C. v. Vill. at Camp Bowie I, L.P. (In re Vill. at Camp 

Bowie I, L.P.),

710 F.3d 239 (5th Cir. 2013) ...................................................................................................17

STATUTES & RULES

11 U.S.C. § 928(b).........................................................................................................................43

11 U.S.C. § 1122......................................................................................................................17, 18

11 U.S.C. § 1122(a) .......................................................................................................................18

11 U.S.C. § 1125..........................................................................................................................6, 8

11 U.S.C. § 1125(a) .......................................................................................................................54

11 U.S.C. § 1125(a)(1)...................................................................................................................54

11 U.S.C. § 1125(b)...........................................................................................................46, 47, 48

11 U.S.C. § 1129..............................................................................................................................5

11 U.S.C. § 1129(a)(3).................................................................................................................5, 6

11 U.S.C. § 1129(a)(10).................................................................................................................17

11 U.S.C. § 1129(b).....................................................................................................11, 21, 25, 55

11 U.S.C. § 1325(b).......................................................................................................................28

48 U.S.C. §§ 2101–2241..................................................................................................................1

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48 U.S.C. § 2174(b)(6) ..................................................................................................................28

PROMESA § 106(e)......................................................................................................................25

PROMESA § 201...........................................................................................................................25

PROMESA § 201(b)(1)(B)............................................................................................................30

PROMESA § 201(b)(1)(I) .............................................................................................................27

PROMESA § 301.......................................................................................................................8, 47

PROMESA § 301(a)......................................................................................................................18

PROMESA § 301(e)......................................................................................................................18

PROMESA § 314(b)(6) .................................................................................................5, 11, 26, 28

PROMESA § 314(b)(7) .................................................................................................................27

PROMESA § 405(m)(2)................................................................................................................30

Fed. R. Evid. 408 ................................................................................................................... passim

OTHER AUTHORITIES

Custodial Receipts: A Useful Tool for Restructuring Insured Municipal Bonds, 

Apr. 30, 2018, https://www.kramerlevin.com/en/perspectivessearch/custodial-receipts-a-useful-tool-for-restructuring-insured-municipalbonds.html (last accessed Feb. 10, 2023) ................................................................................19

Governor of Puerto Rico announces termination of Electric Power Authority’s 

Restructuring Support Agreement, Thursday, March 10, 2022, 

https://www.bnamericas.com/en/news/governor-of-puerto-rico-announcestermination-of-electric-power-authoritys-restructuring-support-agreement............................42

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

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

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

“Debtor”), pursuant to section 315(b) of the Puerto Rico Oversight, Management, and Economic 

Stability Act (“PROMESA”)2 respectfully submits this omnibus reply (the “Omnibus Reply”) in 

support of (i) approval of the Disclosure Statement for the Title III Plan of Adjustment of the Puerto 

Rico Electric Power Authority [ECF No. 3111],

3 as amended in the Disclosure Statement for the 

First Amended Title III Plan of Adjustment of the Puerto Rico Electric Power Authority [ECF No. 

3201] (as the same may be further amended, modified, or supplemented from time to time before 

the close of the disclosure statement hearing, the “Disclosure Statement”), (ii) 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. 3113] (the 

“Disclosure Statement Motion”), and (iii) the Motion of Puerto Rico Electric Power Authority for 

Order Establishing, Among Other Things, Procedures and Deadlines Concerning Objections to 

Confirmation and Discovery in Connection Therewith [ECF No. 3114] (the “Confirmation 

Discovery Procedures Motion”), and in response to the objections and responses filed in 

connection with the same. In support of this Omnibus Reply, the Debtor respectfully states as 

follows:

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

3 Unless otherwise stated, all ECF Nos. shall refer to the docket in Case No. 17-bk-4780-LTS.

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Preliminary Statement4

1. From the Objections of many of the bondholders one would think that the 

confirmation hearing has already commenced. While the filing of PREPA’s proposed Title III 

plan of adjustment [ECF No. 3110] (the “Plan”) and the Disclosure Statement were critical first 

steps towards a comprehensive adjustment of PREPA’s debts and the transformation of PREPA 

into a reliable and affordable electric system for Puerto Rico, we are still at the beginning of the 

process, and the only issue before the Court at this time is the adequacy of information in the 

Disclosure Statement. Ironically, each objector to the Disclosure Statement allowed to vote seems 

to have already determined how it will vote. On February 9, 2023, the Oversight Board filed 

amended versions of the Plan [ECF No. 3200] (the “Amended Plan”) and Disclosure Statement 

reflecting, among other things, the inclusion of a settlement reached between the Oversight Board 

and National, as well as certain alterations to the Disclosure Statement to reflect that settlement, 

other changes to the Plan, and many changes to accommodate the Objections to the Disclosure 

Statement and Disclosure Statement Motion. The Oversight Board respectfully submits the 

Disclosure Statement provides adequate information for a hypothetical investor to make an 

informed decision on the Amended Plan, and it should be approved. The Oversight Board also 

respectfully submits the Disclosure Statement Motion seeks approval of procedures and deadlines 

consistent with (i) this Court’s prior guidance and (ii) fundamental due process and fairness, and 

should therefore be approved.

2. Instead of focusing on the issue before the Court—whether the Disclosure 

Statement contains adequate information—many groups, including Syncora and the Ad Hoc 

4 Capitalized terms used in this preliminary statement shall have the meaning ascribed to such terms in the following 

sections of the Omnibus Reply. Capitalized terms used in the Omnibus Reply but not otherwise defined herein shall 

have the meanings ascribed to such terms in the Plan or the Disclosure Statement, as applicable.

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Group—dedicate the vast majority of their Objections to opposing confirmation. As the 

jurisprudence makes clear, confirmation objections are premature at the disclosure statement 

hearing except for objections showing a plan provision renders the plan patently unconfirmable 

under any set of facts. As shown below, there are no such provisions here. The Objections include

inappropriate and baseless accusations against the Oversight Board, including relating to the 

Oversight Board’s alleged conduct in confidential and privileged mediation sessions. They 

characterize negotiated settlements as “vote-buying,” and assert the Oversight Board has attempted

to engage in a “jedi mind trick” to obtain support for the Amended Plan. Syncora Obj. ¶ 65. At 

bottom, these parties assert no plan is confirmable unless it has their consent. But the Bondholders’ 

scattershot approach, attempting to assert all manner of confirmation objections to derail the 

confirmation process before it begins, are premature, depend on facts not yet in existence, and, at 

least in part, depend on the outcome of voting. The Objectors fail to show any flaw rendering the 

Amended Plan patently unconfirmable. They all should therefore be overruled. 

3. More specifically, the Ad Hoc Group and Syncora complain the Plan is a

“placeholder” plan because the Oversight Board included as a risk factor that the Plan may not be 

confirmable in the scenario where bondholders (i) win the Amended Lien & Recourse Challenge 

and (ii) show at confirmation they are secured by all future revenues that could ever be created by 

PREPA, and thus the value of their collateral exceeds the value of the New Bonds to be issued 

under the Amended Plan. This argument, however, does not show the Amended Plan is patently 

unconfirmable because it assumes the outcome of the objection to their disputed claim (that the 

scope of their security interests is as broad as they erroneously claim) and another highly disputed 

factual matter (that the value of any security interests ultimately allowed is worth more than all 

bonds issued under the Amended Plan). But the Court did not direct the Oversight Board to file a 

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plan that could be confirmed under every hypothetical scenario, but rather one that is confirmable 

in a range of “realistic[]” litigation outcomes. Nov. 2, 2023 Tr. 16:4–16. Notably, the bondholders 

do not dispute the Plan would be confirmable if the Oversight Board were to prevail on the 

Amended Lien & Recourse Challenge, and even in various other circumstances where the 

Oversight Board’s position is not wholly vindicated. For instance, while the Oversight Board 

believes the bondholders do not have an allowable recourse claim for defaults under the Trust 

Agreement because there could never be nonrecourse debt if its default would create a recourse 

claim and the permissible remedy under the governing agreement is ignored, even if the Oversight 

Board is wrong and the bondholders do have an allowable unsecured recourse claim, the Plan is 

confirmable as long as the bondholders’ allowed secured claim does not include future, unearned 

revenues.

4. The Amended Plan is not patently unconfirmable as a result of purported 

illegitimate classification, unfair discrimination, supposed “affordability” considerations, bad 

faith, or under the best interests test, contrary to the Ad Hoc Group’s, the Committee’s, and

Syncora’s contentions. Each and every one of these objections address confirmation issues 

dependent on evidence at the confirmation hearing. The Oversight Board will present the evidence

necessary at the confirmation hearing to demonstrate the confirmability of the Amended Plan. 

None of the confirmation objections raised by these Objectors raise a “pure question of law” 

apparent “from the face of the plan” and thus none can be considered in evaluating the adequacy 

of the Disclosure Statement. 

5. In any event, no Objector raises any meritorious objection to confirmation. The 

Amended Plan’s classification scheme is fair and appropriate. First and foremost, because there 

are already three classes of impaired accepting claims, there can be no gerrymandering concern. 

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We understand the objectors are unhappy the Fuel Line Lenders agreed to a discount, but there can 

be no dispute their claims were for expenses to be paid before bonds under the Trust Agreement. 

Similarly, Vitol has an undisputed claim and agreed to half the return other general unsecured 

claims receive. National settled its secured and unsecured claims. Second, the Plan classifies 

different claims based on differences in the rights they assert and the treatment of them that makes 

sense. The Amended Plan provides recoveries that the Court’s consideration of the best interests 

test in PROMESA § 314(b)(6), should not disturb, as will be demonstrated at the confirmation 

hearing. This test does not contain the bright-line “affordability” test advocated by Syncora and 

the Ad Hoc Group, but rather requires the Court to “consider” what aggregate creditor recoveries 

would be outside Title III based on a host of complex factors, as well as the overall purpose of 

PROMESA Title III, which is not to maximize creditor recoveries, but rather to pay creditors 

fairly, subject to the provision of effective and affordable power critical to the Commonwealth.

6. Allegations of bad faith against the Oversight Board similarly fail. The attempts of 

the Ad Hoc Group and Syncora to turn disputed allegations regarding confidential mediation into 

patent bad faith within the meaning of § 1129(a)(3) of title 11 of the United States Code (the 

“Bankruptcy Code”) is a nonstarter. Their allegations not only depend on disputed facts; they 

depend on confidential mediation facts. Offers and conduct in mediation are not admissible in 

evidence under Rule 408 of the Federal Rules of Evidence, even if an offer is made public. 

Moreover, these allegations are entirely irrelevant to confirmation of the Amended Plan. 

Regardless, the Oversight Board has conducted itself consistent with its statutory mission and, by 

any measure, in good faith throughout these Title III cases, including in PREPA’s mediation. The 

Oversight Board will demonstrate at confirmation that the Plan meets the good faith requirement 

of Bankruptcy Code § 1129. While not an issue appropriately raised at this stage, whether the Plan 

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is proposed in good faith pursuant to Bankruptcy Code § 1129(a)(3) turns on whether the Plan 

carries out PROMESA’s requirements. It is not a measure of the Oversight Board or the Objectors’ 

subjective assessment of the Oversight Board or the Government.

7. The dissemination of the Uninsured Bondholders Settlement Offer does not 

constitute impermissible solicitation under Bankruptcy Code § 1125. The settlement offer does 

not initiate any plan voting process, or even bind the parties to it to vote in favor of the Amended 

Plan and offer when voting begins. Rather, it permits creditors to elect to have their bond claims 

classified in the Settling Bondholder Class (Class 1), or remain classified in the Non-Settling 

Bondholder Class (Class 2). This is not an improper plan solicitation or a sale of securities, but an 

opportunity for bondholders, including those not present in mediation, to have their bond claims 

avoid the risk of an adverse judgment in the Amended Lien & Recourse Challenge. 

8. No remaining objection to the Disclosure Statement shows how any additional 

information is necessary to enable a hypothetical investor to make an informed decision to accept 

or reject the Amended Plan. Some wish the Amended Plan had different treatment—but these 

Objections ignore the fact the Disclosure Statement adequately discloses the treatment the 

Amended Plan puts forward. 

9. Others, such as the Committee, contend the contingencies and complexities of the 

Amended Plan are too complicated for general unsecured claimholders to understand. The 

complexity, however, is simply the variety of claim treatments presented depending on different 

litigation outcomes. It is an inevitable consequence of proposing a plan before the Amended Lien 

& Recourse Challenge is decided, before the amount of general unsecured claims is determined, 

and while the offer to Settling Bondholders is pending. The Disclosure Statement nonetheless 

provides detailed explanations of the treatment contained in the Amended Plan and the 

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contingencies affecting recovery. The Disclosure Statement contains more than sufficient 

information of what the Amended Plan provides, including, among other things, (i) illustrative 

charts and graphs, and plain language explanations of recoveries and distributions in all relevant 

outcomes, (ii) the underlying fiscal plans and budgets showing revenue and expenses, (iii) the 

Debtor’s cash analyses, (iv) the Debtor’s best interest analyses, (v) PREPA’s debt history, (vi) the 

causes of distress, (vii) summaries of all litigation, and (viii) descriptions of the Plan’s treatment 

of each type of claim. The Oversight Board respectfully submits this constitutes adequate 

information to inform claimholders’ votes on the Plan. 

10. The Oversight Board has worked with numerous Objectors and adopted, in some 

form, the majority of their requested inclusions into the amended Disclosure Statement. This 

includes dozens of edits from the Ad Hoc Group’s redline of the original Disclosure Statement. A 

redline of the amended Disclosure Statement to the December 16, 2022 Disclosure Statement is 

included as Exhibit D. The Oversight Board, however, declines to include the Ad Hoc Group’s 

“statement” as part of the Disclosure Statement. The Ad Hoc Group is not a statutory committee, 

the trustee of the bonds, nor a representative or fiduciary of all bondholders. Its opinions on the 

Plan, Disclosure Statement, and the merits of the Amended Lien & Recourse Challenge are exactly 

that—its opinions. Its statement, moreover, contains unfounded accusations and attacks on the 

Oversight Board and the Plan. If the Ad Hoc Group wishes to make its opinions known to all 

bondholders, it is free to circulate its statement itself—but there is no requirement to include it in 

the Disclosure Statement, and the Oversight Board has no duty to help it advocate against the 

Amended Plan.

11. As to the remaining Objections or comments to the solicitation process proposed in 

the Disclosure Statement Motion and addressing the adequacy of the information contained in the 

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Disclosure Statement, the Objections and comments have been either addressed by revisions to the 

Disclosure Statement and the proposed order in the form attached to the Disclosure Statement 

Motion as Exhibit A (the “Disclosure Statement Order”) or should be overruled for the reasons set 

forth in the chart attached hereto as Exhibit A (the “Omnibus Reply Chart”).

12. In light of the foregoing and below, PREPA submits the Disclosure Statement 

satisfies the requirements of Bankruptcy Code § 1125, made applicable pursuant to PROMESA §

301. Accordingly, and for all reasons in the Disclosure Statement Motion and this Omnibus Reply, 

the Disclosure Statement Motion and the Confirmation Discovery Procedures Motion should be 

granted and the Debtor should be authorized to solicit votes on the Plan.

Background

13. On December 16, 2022, the Oversight Board filed with this Court, among other 

things: (i) the Plan; (ii) the Disclosure Statement; (iii) the Disclosure Statement Motion; and (iv) 

the Confirmation Discovery Procedures Motion.

14. On February 9, 2023, PREPA filed (i) the Amended Plan and (ii) the amended 

Disclosure Statement. The Amended Plan and Disclosure Statement reflect, among other things, 

the Plan Support and Settlement Agreement, dated as of January 31, 2023, by and among, the 

Oversight Board and National (the “National PSA”).

15. Pursuant to the Order (I) Scheduling a Hearing to Consider the Adequacy of 

Information Contained in the Disclosure Statement, (II) Establishing the 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 [ECF No. 3132], the Court established February 3, 2023, at 5:00 p.m. 

(AST), as the deadline to file objections to the adequacy of the information contained in the 

Disclosure Statement and the relief requested in the Disclosure Statement Motion (the “Objection 

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Deadline”). The following objections (collectively, the “Objections”) were submitted by the listed 

objecting parties (collectively, the “Objectors”):

ECF No. Date Filed Objection Party

Case No. 

17-bk3283-

LTS, ECF 

No. 23311

01/24/23 Objection to the Adequacy of the Disclosure 

Statement (“Hernández-Montañez, 

Objection”)

Hon. Rafael 

Hernández-Montañez, 

in his official capacity 

as Speaker of the PR 

House of Reps and the 

Hon. José L. DalmauSantiago, in his official 

capacity as President of 

the PR Senate

Case No. 

17-bk3283-

LTS, ECF 

No. 23311

01/26/23 PV Properties, Inc.’s Objection to Disclosure 

Statement to the Honorable Court (“PV 

Properties Objection”)

PV Properties, Inc.

3179 02/02/23 SREAEE’S Disclosure Statement Objection 

and Reservation of Rights (“SREAEE 

Objection”)

Sistema de Retiro de 

los Empleados de la

Autoridad de Energía 

Eléctrica (“SREAEE”)

3178 02/02/23 UTIER’S Disclosure Statement Objection and 

Reservation of Rights 

(“UTIER Objection”)

Unión de Trabajadores 

de la Industria

Eléctrica y Riego, Inc. 

(“UTIER”)

3181 02/02/23 Objection to Disclosure Statement (“Joy 

Objection”)

Manuel Gonzalez Joy

3195 02/03/23 Limited Objection and Reservation of Rights 

of Whitefish Energy Holdings, LLC to the 

Disclosure Statement for Title III Plan of 

Adjustment of the Puerto Rico Electric Power 

Authority (“Whitefish Objection”)

Whitefish Energy 

Holdings, LLC

3186 02/03/22 Omnibus Objection of Official Committee of 

Unsecured Creditors to (1) Disclose 

Statement for Title III Plan of Adjustment of 

Puerto Rico Electric Power Authority and (II) 

Related Motions (“UCC Objection”)

The Official Committee 

of Unsecured Creditors

(the “Committee”)

3189 02/03/22 Omnibus Objections of the Ad Hoc Group of 

PREPA Bondholders to the Disclosure 

Statement for the Title III Plan of Adjustment 

of Puerto Rico Electric Power Authority 

[ECF No. 3111], and Related Procedural 

Motions Related to the Disclosure Statement 

and Plan Confirmation [ECF Nos. 3113, 

3114] (“AHG Objection”)

Ad Hoc Group of 

PREPA Bondholders 

(the “Ad Hoc Group”)

3187 02/03/22 Objections of PREPA Bond Trustee 

Regarding Motion for Approval of Disclosure 

Statement for Title III Plan of Adjustment of 

PREPA Bond Trustee

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ECF No. Date Filed Objection Party

the Puerto Rico Electric Power Authority

(“Bond Trustee Objection”)

3190 02/03/22 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 (“Syncora Objection”)

Syncora Guarantee, 

Inc. (“Syncora”)

3188 02/03/22 Assured Guaranty Corp. and Assured 

Guaranty Municipal Corp.’s (A) Objection to 

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, and (B) Joinder to Omnibus 

Objections of the Ad Hoc Group of PREPA 

Bondholders to the Disclosure Statement For 

the Title III Plan of Adjustment of 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] 

(“Assured Objection”) 

Assured Guaranty 

Corp. and Assured 

Guaranty Municipal 

Corp. (collectively, 

“Assured”)

16. Additionally, to address various concerns raised by non-objecting parties in 

interest, and in light of the revised Plan and Disclosure Statement, the Debtors have attached a 

revised Disclosure Statement Order hereto as Exhibit B (the “Revised Disclosure Statement 

Order”). For convenience, a redline comparing the Revised Disclosure Statement Order against 

the Disclosure Statement Order is attached hereto as Exhibit C.

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OMNIBUS REPLY

17. For the reasons set forth herein and in the Omnibus Reply Chart, the Objections 

should be overruled in their entirety.5

I. THE PLAN IS NOT PATENTLY UNCONFIRMABLE 

18. Certain objectors argue the Plan is patently unconfirmable (and therefore the 

Disclosure Statement should not be approved) because: (i) the Amended Plan’s classification 

scheme is impermissible and there are no valid impaired accepting classes (AHG Obj. ¶¶ 46–60, 

Syncora Obj. ¶¶ 53–60); (ii) the Amended Plan unfairly discriminates against certain classes and/or 

is not “fair and equitable” within the meaning of Bankruptcy Code § 1129(b) (AHG Obj. ¶¶ 65–

75; Syncora Obj. ¶¶ 32–38); (iii) the Plan does not pay creditors enough, either to meet an 

“affordability test” invented by Bondholders or to meet the “best interests” test contained in 

PROMESA § 314(b)(6) (AHG Obj. ¶¶ 37–43; Syncora Obj. ¶¶ 24–31, 39–44); (iv) the Amended 

Plan was proposed in bad faith (AHG Obj. ¶¶ 23–32; Syncora Obj. ¶¶ 45–52); (v) the Amended 

Plan is a mere “placeholder” that violates this Court’s orders because the Amended Plan fails to 

accommodate a scenario where the Bondholders prove the value of their collateral exceeds the 

value of the New Bonds to be distributed to Non-Settling Bondhoders (Syncora Obj. ¶¶ 22–23; 

AHG Obj. ¶¶ 33–36); (vi) the Amended Plan is not feasible (AHG Obj. ¶¶ 44–45); and (vii) the 

Amended Plan is “tainted” by PREPA’s impermissible solicitation to Settling Bondholders

(Syncora Obj. ¶¶ 61–68). These objections all raise confirmation issues that should not be heard 

5 Failure of the Debtor to address other arguments made in the Objections does not constitute a waiver of the Debtor’s 

rights to object to such arguments at the hearing(s) to consider approval of the Disclosure Statement or confirmation 

of the Plan. The Debtor denies many of the factual and legal assertions and characterizations contained in the 

Objections and, for the avoidance of doubt, affirms that the Disclosure Statement, Disclosure Statement Motion, and 

Confirmation Procedures Discovery Motion all can be approved or granted over each and every objection. Similarly, 

the Amended Plan is confirmable and the Oversight Board will demonstrate it satisfies all applicable confirmation 

standards at the confirmation hearing. 

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at this stage, but in any case, they have no merit and do not warrant disapproval of the Disclosure 

Statement.

19. A plan will only be considered patently unconfirmable when it “is so fatally, and 

obviously flawed that confirmation is impossible”; in that case, and that case only, the court may 

then “consider issues pertaining to the plan, and may rule upon such issues.” In re Comandante 

Mgmt. Co., 359 B.R. 410, 415 (Bankr. D.P.R. 2006) (citing In re Mahoney Hawkes, LLP, 289 B.R. 

285, 294 (Bankr. D. Mass. 2002)). In these extreme circumstances, the scope of the court’s inquiry 

is limited to legal issues, not facts. See In re FirstEnergy Sols. Corp., 606 B.R. 720, 732 (Bankr. 

N.D. Ohio 2019) (“Patent unconfirmability is treated as a matter of law.”) (citation omitted). As 

the Third Circuit notes, “[a] plan is patently unconfirmable where (1) confirmation ‘defects 

[cannot] be overcome by creditor voting results’ and (2) those defects ‘concern matters upon which 

all material facts are not in dispute or have been fully developed at the disclosure statement

hearing.’” In re Am. Cap. Equip., LLC, 688 F.3d 145, 154–55 (3d Cir. 2012) (quoting In re Monroe 

Well Serv., Inc., 80 B.R. 324, 333 (Bankr. E.D. Pa. 1987)).

20. The Objectors cite a ragtag collection of authorities to attempt to support their 

arguments, but ignore the fact this Court has previously stated that there is a “high threshold” to 

demonstrate a plan is patently unconfirmable. July 14, 2021 Hr’g Tr. 84:18–85:1. As this Court 

has ruled, the defect rendering the plan unconfirmable must appear “on its face,” June 17, 2022 

Hr’g Tr. 26:22–27:4, and it must render the plan such that it “could never be legal.” Apr. 28, 2021 

Hr’g Tr. 145:13–22 (emphasis added). Thus, to render a plan patently unconfirmable, an objection

must “pose[] a pure question of law that would render a confirmation futile or unfeasible,” July 

14, 2021 Hr’g Tr. 81:20–23, and that does not “require further factual development.” Id. 84:1–2. 

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21. This Court’s ruling is in line with other courts’ jurisprudence, which warns that 

courts should be “careful[l] so as not to convert the disclosure statement hearing into a 

confirmation hearing, and [ensure] that due process concerns are protected.” In re U.S. Brass 

Corp., 194 B.R. 420, 422 (Bankr. E.D. Tex. 1996); see also In re Am. Cap. Equip., LLC, 688 F.3d 

at 154 n.6 (cautioning that bankruptcy court should “tak[e] care to not prematurely convert a 

disclosure statement hearing into a confirmation hearing.”) (citation omitted). Whether a plan is 

patently unconfirmable must be determined “on the face of the plan,” without any further 

evidentiary development. In re Pecht, 57 B.R. 137, 139 (Bankr. E.D. Va. 1986) (“If, on the face 

of the plan, the plan could not be confirmed, then the Court will not subject the estate to the expense 

of soliciting votes and seeking confirmation.”).

22. And, indeed, for precisely these reasons, courts routinely refuse to consider, at the 

disclosure statement hearing, the same kind of objections relating to a plan’s proposed 

classification or treatment of claims, whether a plan is fair and equitable, and other issues bearing 

on whether the plan should be confirmed or not raised by Objectors here. See, e.g., In re Sunshine 

Precious Metals, Inc., 142 B.R. 918, 920 (Bankr. D. Idaho 1992) (refusing to adjudicate objections 

to the plan’s classification of claims and feasibility at disclosure statement hearing, holding that 

“these are [] confirmation issues”); In re Ellipso, Inc., No. 09-00148, 2012 WL 368281, at *2 

(Bankr. D.D.C. Feb. 3, 2012) (declining to consider objections related to the feasibility of the 

proposed plan, the classification of claims, and whether the plan was proposed in good faith at 

disclosure statement hearing); see also In re Comandante Mgmt. Co., 359 B.R. at 420 (court 

refused to consider objections relating to unfair discrimination, improper classification, and plan 

feasibility at disclosure statement hearing).

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23. The cases cited by the Objectors—including In re Comandante Mgmt. Co., LLC, 

359 B.R. at 420 (AHG Obj. ¶ 20) (refusing to consider classification and other confirmation issues 

at disclosure statement stage) and In re E. Me. Elec. Coop., Inc., 125 B.R. 329, 335 (Bankr. D. Me. 

1991) (refusing to consider good faith issues at disclosure statement stage)—rejected the very kind 

of arguments raised by the Objectors here, and held that confirmation issues should be resolved at 

confirmation, not before. And those cases the Objectors cited that did deny approval of the 

disclosure statement did so for reasons not applicable here. See, e.g., In re FirstEnergy Sols. Corp., 

606 B.R. at 741 (inclusion of unsupportable, nonconsensual third-party release in plan rendered it 

patently unconfirmable); In re Phoenix Petroleum Co., 278 B.R. 385, 394 (Bankr. E.D. Pa. 2001) 

(court permitted consideration of gating issue as to one of debtor’s major creditor’s set off rights 

to be considered at disclosure statement stage where “all parties . . . urged” the Court “to consider 

this issue at the disclosure statement stage”); In re E. Me. Elec. Coop., Inc., 125 B.R. at 335 

(disapproving disclosure statement because plan proposed impaired accepting class by classifying 

various parties that clearly did not even possess claims against debtor); In re Filex, Inc., 116 B.R. 

37, 40 (Bankr. S.D.N.Y. 1990) (parties did not intend to seek confirmation of plan discussed in 

disclosure statement).

24. Significantly, with respect to the Objections related to: (i) classification (AHG Obj. 

¶¶ 46–60, Syncora Obj. ¶¶ 53–60); (ii) the best interests test and PREPA’s ability to pay (AHG 

Obj. ¶¶ 37–43; Syncora Obj. ¶¶ 24–31, 39–44); and (iii) feasibility (AHG Obj. ¶¶ 44–45), this 

Court has previously ruled that these are confirmation issues, not appropriate objections to the 

disclosure statement. See November 20, 2018 Hr’g Tr. 52:5–16 (COFINA disclosure statement 

hearing) (“The Court will consider the economics and structure of the proposed Plan of Adjustment 

as well as the legality of the elements of the plan in connection with the [confirmation hearing]”); 

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see also July 14, 2021 Hr’g Tr. 74:11–75:11 (CW disclosure statement hearing) (“Many of the 

objections that I have considered are to specific substantive and economic features or alleged 

consequences of the Plan of Adjustment, including, among others, the discharge of certain claims, 

the propriety of the proposed classification, and treatment of claims held by certain creditors, and 

the economic feasibility of satisfying the Commonwealth's liabilities in the manner contemplated 

by the Plan of Adjustment. These are serious issues, and they reflect important aspects of the 

proposed Plan of Adjustment that could affect large numbers of people. The adequacy and legality 

of the proposed Plan of Adjustment, however, are issues that principally will be addressed in 

connection with the Oversight Board's request for confirmation of the Plan of Adjustment.”).

25. As set forth below, because none of the Objections establishes that the Plan cannot 

be confirmed as a matter of law regardless of the evidence, they should be overruled.

A. The Plan’s Classification Structure Does Not Render the Plan Patently 

Unconfirmable

26. The Ad Hoc Group (¶¶ 46–61) and Syncora (¶¶ 53–60) both contend the Disclosure 

Statement cannot be approved because no less than four different classes of claims in the Amended 

Plan—the class containing the Vitol claim, the class of Fuel Line Lenders’ claims, the National 

class (in the Amended Plan), and the class of Settling Bondholders—are all invalid and all 

allegedly constitute gerrymandering. The objectors therefore contend “[t]here is [] no prospect 

that the Plan will have the support of at least one impaired class,” rendering it patently 

unconfirmable. AHG Obj. ¶ 46.

27. As a preliminary matter, the argument is facially premature as it is impossible for 

the Court to determine whether the Plan has an impaired accepting class—including, for example, 

general unsecured creditors—prior to votes being tabulated. This Court and others—including in 

cases cited by Objectors—have thus refused to consider classification challenges at the disclosure 

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statement stage, because they raise confirmation issues—not issues about whether the disclosure 

statement contains adequate information. See, e.g., In re Sunshine Precious Metals, Inc., 142 B.R. 

at 920 (refusing to adjudicate objections to the plan’s classification of claims, holding they “are [] 

confirmation issues”); In re Ellipso, Inc., 2012 WL 368281, at *2 (declining to consider objections 

related to the classification of claims at disclosure statement hearing); see also In re Comandante 

Mgmt. Co., 359 B.R. at 421 (court refused to consider objections relating to improper classification 

at disclosure statement hearing, because “[t]he classification may be permissible upon the 

particular circumstances of this case”). That makes good sense, because whether classification is 

permissible rests on whether there is a valid “governmental purpose” for the separate classification, 

based on evidence and considerations that will be presented at the confirmation hearing. See, e.g., 

Case No. 17-bk-3283-LTS, ECF No. 19812 ¶ 64 (Commonwealth plan findings of fact and 

conclusions of law) (“Separate classification of these Claims is reasonable, justified, and supported 

by a governmental purpose.”); cf. In re Comandante Mgmt. Co., 359 B.R. at 420 (classification 

issues not to be heard at disclosure statement stage as “[t]he classification may be permissible upon 

the particular circumstances of this case”). Objectors’ attempt to derail the confirmation process 

before it begins based on speculative arguments as to improper classification should be rejected.

28. Indeed, the sheer ambition of Objectors’ arguments demonstrate their flaw. The 

Ad Hoc Group and Syncora contend no impaired accepting class will exist because not a single

one of the four challenged classes is permissible. See, e.g., AHG Obj. ¶ 46. Implicit in that 

contention is the admission that if the separate classification of a single one of those classes is 

upheld, then the plan has an impaired accepting class and therefore is confirmable under 

Bankruptcy Code § 1129(a)(10). A plan cannot possibly be “patently unconfirmable” if it puts 

forward four plausible impaired accepting classes, any one of which could satisfy § 1129(a)(10). 

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And, indeed, it is impossible at this time to determine whether other impaired accepting classes 

whose classification is not even challenged—for example, the general unsecured claimholders—

will vote in favor of the Amended Plan. Given the sheer number of possible avenues to the plan 

obtaining an impaired accepting class, it is simply impossible for the Court to hold at this time that 

the plan is “patently unconfirmable” for lack of an impaired accepting class or due to 

gerrymandering.

29. Similarly, the repeated refrain from Objectors that a “relatively small creditor 

group” should not be used as an impaired accepting classin a plan, Syncora Obj. ¶ 59, rings hollow. 

There is no test in Bankruptcy Code §§ 1122 or 1129(a)(10) as to the size of any impaired accepting

creditor class for a plan to be confirmed. Nor do the settling creditors represent a small group. 

The Amended Plan features settlements with very significant PREPA creditor groups who have 

been very active, and at times very adverse, participants in this case, including the Fuel Line 

Lenders (holding claims in face value more than $700 million), National (holding and/or insuring

approximately $836 million PREPA Bonds), Vitol (holding an allowed claim of approximately 

$41.5 million), and a currently unknown number of Settling Bondholders. 

30. Tellingly, the Objectors fail to cite instances where classes of small claims satisfied 

the requirement to have at least one impaired accepting class. See, e.g., U.S. Bank N.A. v. Vill. at 

Lakeridge, LLC, 138 S.Ct. 960 (2018) (out of money $2.6 million claim purchased for $5,000 

served as impaired, accepting class in case involving over $12 million); Western Real Estate 

Equities, L.L.C. v. Vill. at Camp Bowie I, L.P. (In re Vill. at Camp Bowie I, L.P.), 710 F.3d 239, 

242 (5th Cir. 2013) (impaired accepting class held under $60,000 of claims in case involving over 

$32 million).

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31. In any event, the Oversight Board will demonstrate at confirmation that the 

classification scheme proposed by the Amended Plan is permissible under PROMESA Title III 

and this Court’s precedents. Significantly, Bankruptcy Code § 1122(a), made applicable by 

PROMESA § 301(a), provides similar claims may be classified together, not that they must be 

classified together:

• Fuel Line Loan Claims (Class 4): First, unlike the bond claims, the Fuel Line Loan Claims 

are not subject to objections they have no recourse. Second, PROMESA § 301(e) provides 

that the Oversight Board must consider for purposes of classifying claims under 

Bankruptcy Code § 1122 “whether such claims have priority over other claims.” Here, the 

Fuel Line Loan Claims had the benefit of the Trust Agreement providing an argument they 

were senior, because it provided they be paid before bond debt service. Separate 

classification of these claims is justified based on their asserted priority and the settlement 

thereof. PROMESA § 301(e); see also In re Corcoran Hosp. Dist., 233 B.R. 449 (Bankr. 

E.D. Cal. 1999) (existence of settlement with creditor justified separate classification); In 

re Dow Corning Corp., 244 B.R. 634 (Bankr. E.D. Mich. 1999) (same). Neither the Ad 

Hoc Group nor Syncora challenge any of this, instead arguing the Fuel Line Lenders cannot 

be an impaired accepting class because the Ad Hoc Group and Syncora do not like the 

settlement terms between the Oversight Board and the Fuel Line Lenders. AHG Obj. ¶¶ 

47–53; Syncora Obj. ¶¶ 58–60. That, of course, is not the test. Neither raise any real

argument suggesting the Fuel Line Loans cannot be separately classified or serve as an 

impaired accepting class.

6

• National Claims (Classes 5 and 6): The Amended Plan separately classifies National’s 

Insured Bond Claims from the other bonds (Class 5), and also separately classifies 

National’s asserted claim for reimbursement based upon its insurance policies (Class 6). 

The Ad Hoc Group preemptively challenged this classification of National’s claims, stating 

“National cannot form an impaired accepting class because it has no distinguishing legal 

features, and there is no business justification for treating it differently than other 

Monolines.” AHG Obj. ¶ 57. The Ad Hoc Group is wrong. National settled its secured 

claims in exchange for, among other things, a special custodial trust structure. The other 

monolines have not settled their secured claims. Every single plan confirmed in these Title 

III cases has separately classified monoline insurers that—like National here—have settled 

6 Syncora argues, without citation, that if the Fuel Line Loan Claims were “Current Expenses” then they should have 

been paid in the ordinary course, and, if they had been, they now could not serve as an impaired accepting class. 

Syncora Obj. ¶ 59. Syncora’s simple ipse dixit ignores the substantial litigation that has already occurred as to the 

Fuel Line Loan Claims’ status as Current Expenses, which is an unresolved question, and also that, regardless of 

imaginary counterfactuals, the Fuel Line Loan Claims are currently outstanding as prepetition claims. In re Quigley 

Co., 377 B.R. 110, 126–29 (Bankr. S.D.N.Y. 2007), cited by Syncora (¶¶ 51, 59), is not on point. There, the debtor’s 

parent engaged in a long running campaign to buy votes by promising claimants on certain product liability litigations 

a recovery from the parent, but, instead of obtaining a general release of the corporate family, intentionally left those 

claimants with claims against the debtor and required them to vote in favor of the plan. Id. There is no similar votebuying scheme here. Here, the Oversight Board simply settled claims against PREPA.

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and required a custodial trust structure as part of the treatment of their claims.7 See

National PSA § 5.3. The use of the custodial trust structure in restructuring insured 

municipal bonds is itself a valid justification for separate classification.8

 

• Vitol Class (Class 8): Vitol’s classification is based on a settlement entered into between 

Vitol and the Oversight Board resolving an appeal. The Court had already granted Vitol 

an allowed damage claim. In exchange for the Oversight Board withdrawing its appeal, 

Vitol agreed to accept half the return going to other general unsecured claims and to release 

PREPA. Without more, that justifies separate classification. The Ad Hoc Group’s 

speculation that the settlement could have been structured differently (¶¶ 54–55) does not 

account for Vitol’s release, nor does it alter the fact the settlement that was actually reached 

between the parties requires separate classification. Syncora complains that Vitol’s claim 

is small compared to the Bondholders. Syncora Obj. ¶ 57. The size of Vitol’s claim does 

not change the permissibility of separate classification due to Vitol’s different legal rights, 

the release of Vitol, and the existence of a settlement between the Oversight Board and 

Vitol.9

• Settling Bondholder Claims (Class 1): The Amended Plan permits all Bondholders to elect 

to either join the Settling Bondholder and Settling Monoline Claim Class (Class 1) and 

thereby settle their bond claims in exchange for a set recovery of 50% (which may increase 

in certain scenarios) or they can elect to remain in the Non-Settling Bondholder and NonSettling Monoline Claims Class (Class 2) and receive a recovery dependent on the extent 

to which they succeed in the lien and recourse litigation. Every bondholder has the right 

to choose the class in which they are to be treated. Plans containing materially 

indistinguishable structures are routinely approved by the courts. See, e.g., In re Dow 

Corning Corp., 244 B.R. at 669 (confirming plan permitting certain claimants to either 

settle and receive set recovery or continue litigation against debtor and receive whatever 

litigation eventually yields); In re Wash. Mut., Inc., 442 B.R. 314 (Bankr. D. Del. 2011) 

(same). And, as discussed above, separate classification is permitted when creditors settle. 

See, e.g., Corcoran, 233 B.R. at 449. The Ad Hoc Group and Syncora’s (¶ 56) arguments 

simply ignore this basis for separate classification and treatment. 

7 See Modified Fifth Amended Title III Plan of Adjustment of the Puerto Rico Highways and Transportation Authority

[ECF No. 1415 in Case No. 17-bk-3567-LTS]; Third Amended Title III Plan of Adjustment of Puerto Rico Sales Tax 

Financing Corporation [ECF No. 436 in Case No. 17-bk-3284-LTS]; Modified Eighth Amended Title III Joint Plan 

of Adjustment of the Commonwealth of Puerto Rico et al. [ECF No. 19813 in Case No. 17-bk-3283-LTS].

8 Custodial receipt structures are recognized as useful tools for restructuring insured municipal bonds. See, e.g., 

Custodial Receipts: A Useful Tool for Restructuring Insured Municipal Bonds, Apr. 30, 2018, 

https://www.kramerlevin.com/en/perspectives-search/custodial-receipts-a-useful-tool-for-restructuring-insuredmunicipal-bonds.html (last accessed Feb. 10, 2023). The inclusion of a custodial trust structure necessitates separate 

classification.

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

Syncora Obj. ¶ 57), is not to the contrary. Here, separate classification is not based upon different treatment, as in In 

re Thornwood Assocs. Rather, separate classification is required due to a pre-plan settlement that happens to also 

require different treatment, as well as the release for Vitol.

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B. The Plan Is Not Patently Unconfirmable as a Result of Unfair Discrimination

32. The Committee, the Ad Hoc Group, and Syncora all attack the Amended Plan as 

unconfirmable on the basis that it purportedly unfairly discriminates in favor of the Fuel Line Loan 

Claims and against their classes. Specifically, Objectors assert the Court cannot approve the 

Disclosure Statement as a result of the Fuel Line Lender PSA which settles the Fuel Line Lenders’ 

claims against PREPA and the Fuel Line Lender Priority Action, filed against the Oversight Board 

and PREPA, among others, seeking to ensure that the Fuel Line Lenders are paid in full before 

Bondholders are paid anything. Unlike the bonds claims, the Fuel Line Loan Claims are 

undisputed. Unlike the Committee’s constituency, the Fuel Line Loan Claims assert seniority 

rights against the bond claims arising from contracts particular to the Fuel Line Loan Claims. 

33. This Court has already held that unfair discrimination objections should not be 

heard at the disclosure statement stage because they “require factual development” as to the reason 

for the discrimination. July 14, 2021, Hr’g Tr. 84:13–17 (“Parties’ objections concerning whether 

the plan unfairly discriminates against certain classes or claims are also overruled. Such arguments 

are properly raised in connection with plan confirmation as they concern issues that require factual 

development.”). That is true here. The different treatment of different classes is supported by a 

variety of governmental, economic, historical, and other considerations that will be explored in 

detail at the confirmation hearing. There is simply no basis to state that the different treatment of 

different creditor classes “could never be legal.” Apr. 28, 2021 Hr’g Tr. 145:13–22 (emphasis 

added).

1. The Amended Plan Does Not Unfairly Discriminate Against the 

General Unsecured Claimholders

34. The Committee argues the Amended Plan provides unfair treatment by providing 

the Fuel Line Lenders with a different series of bonds and a greater recovery than general 

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unsecured creditors. UCC Obj. ¶¶ 96–104.

10 As a preliminary matter, this issue cannot be decided 

now. Unfair discrimination is only relevant if the objecting class rejects the Amended Plan. See

11 U.S.C. § 1129(b); In re Trib. Co., 972 F. 3d 228, 242 (3d Cir. 2020) (“unfair discrimination 

applies only to classes of creditors (not the individual creditors that comprise them), and then only 

to classes that dissent.”). It is impossible to determine, at this time, whether the general unsecured 

claimholders will or will note vote in favor of the Amended Plan. If they vote in favor of the 

Amended Plan, then no unfair discrimination argument can be raised with respect to them. As 

such, there is no basis for this Court to adjudicate this issue now. 

35. In any event, the treatment proposed for the Fuel Line Lenders is the result of a 

reasonable settlement of significant litigation risk between the parties, embodied in the Fuel Line 

Lender PSA. The Fuel Line Lenders have a colorable assertion of priority which they have 

asserted in their proof of claims against PREPA and vigorously litigated in the Fuel Line Lender 

Priority Action. The Fuel Line Lenders have argued this priority entitles their claims to payment 

in full plus postpetition interest accrued over the past 5-plus years before payments to bondholders 

can be made. The Fuel Line Lenders’ claims to priority are based on Trust Agreement provisions 

requiring Current Expenses to be paid before bond debt service, including as a result of the Fuel 

Line Lenders being expressly named in the Trust Agreement and having contracts with PREPA 

promising they would be treated as a Current Expense. The Committee’s constituency of general 

10 In addition, the Committee argues the Disclosure Statement fails to adequately explain the basis for the Fuel Line 

Lenders’ preferred treatment over general unsecured creditors. UCC Obj. ¶¶ 68–73. The Committee is wrong. The 

Committee ignores the multiple instances where the Disclosure Statement describes both the basis for and benefits 

incurred through the Fuel Line Lender PSA. See Disclosure Statement Parts II.B.1, II.B.7(iii), and VI.C. To the extent 

the Committee seeks additional information, the Committee’s argument is a thinly veiled attempt to compel the 

Oversight Board to preview its confirmation arguments by placing them in the Disclosure Statement. At confirmation, 

to the extent necessary, the Oversight Board will demonstrate that the Plan, including the treatment of the Fuel Line 

Lenders, satisfies all relevant confirmation requirements. 

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unsecured claims have no such arguments or rights. The proposed treatment of Fuel Line Lenders’ 

claims, therefore does not, and cannot, make the Amended Plan patently unconfirmable. 

36. The Committee further asserts the Plan is patently unconfirmable because “even to 

the extent the Fuel Line Lenders have a Current Expense Priority that other general unsecured 

creditors do not have, that priority can be asserted only against the Bondholders, and it cannot be 

used to justify a lower recovery for other general unsecured creditors.” UCC Obj. ¶ 101. The 

Committee is simply wrong. The Fuel Line Lenders Claims can receive more than bond claims 

based on their seniority arguments, and although that would cause the bond claims to be paid less 

than the Committee’s constituency of unsecured claims, the bond claims can receive in settlement 

more than the other general unsecured claims because the bond claims settlement also entails 

settling their claim to a security interest in all future, unearned revenues. While the Oversight 

Board believes the bond claims to such collateral security are completely wrong, the consequences 

of the Oversight Board being wrong are onerous enough to justify providing the bond claims more 

in settlement. 

37. The Oversight Board has settled these priority assertions, and the Amended Plan 

treats them accordingly. That is not unfair discrimination; it is distinct treatment based upon the 

settlement of different asserted rights.11 

11 The Committee contends the discrimination is unfair because, according to the Committee, some or all of the general 

unsecured claimholders are also “Current Expenses.” UCC Obj. ¶ 100. That is incorrect. The Fuel Line Lenders’ 

claims to priority are different than all other creditors, as they are based on prepetition agreements from PREPA 

specifically agreeing to pay the Fuel Line Lenders as Current Expenses before Bonds, specifically agreeing not to 

challenge the Fuel Line Loan Claims’ status as Current Expenses, and adding the Fuel Line Lenders as named parties 

to the Trust Agreement. Those facts set them apart from other claimholders that may assert to be Current Expenses 

and justify different treatment.

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2. The Bondholders Are Not Unfairly Discriminated Against in Favor of 

the Fuel Line Lenders

38. The Ad Hoc Group and Syncora, meanwhile, argue the Oversight Board does not 

have authority to enter into the Fuel Line Lenders PSA, rendering the Plan patently unconfirmable, 

because it is an intercreditor dispute in which PREPA has no stake.12 AHG Obj. ¶¶ 7, 16, 34; 

Syncora Obj. ¶ 51. These Objectors are also wrong. The Oversight Board can settle Fuel Line 

Lenders’ claims against PREPA, especially when the settlement nowhere deprives the bond claims 

of any rights and pays the Fuel Line Lenders’ prepetition claims less than in full. The Fuel Line 

Lenders have filed claims against PREPA as well as a lawsuit against PREPA seeking to block it 

from consummating restructuring transactions that violate their purported priority rights. And the 

Fuel Line Lenders’ rights arise from contracts with PREPA, including the credit agreements, the 

Trust Agreement, and specific forbearance agreements. Their claims are against PREPA, and the 

Oversight Board has discretion to settle them, as the Oversight Board has extensively argued 

before. See, e.g., Case No. 17-bk-3283-LTS, ECF No. 9291 ¶¶ 9–15.13 “To hold otherwise,”—

i.e., to hold that litigation pertaining to claims against the estate cannot be settled by the trustee 

alone—“would permit a creditor to hold the estate hostage to protracted litigation.” In re DVR, 

LLC, 582 B.R. 507, 522 (Bankr. D. Colo. 2018), aff’d, 606 B.R. 80 (D. Colo. 2019). Simply put, 

the Objectors’ contention the Fuel Line Lender PSA and the treatment of Fuel Line Lenders’ 

claims under the Plan is funded with Bondholder money (of which there is no such thing unless 

12 In a similar vein, the Ad Hoc Group argues the Plan is patently unconfirmable since it does not account for the 

possibility of the Ad Hoc Group prevailing over the Fuel Line Lenders in the Fuel Line Lender Priority Action. AHG 

Obj. ¶ 34. The Oversight Board’s ability to settle such disputes, as described herein, renders such arguments moot.

13 The Ad Hoc Group and Syncora both cite the Fuel Line Lenders’ briefs arguing that they held particularized claims 

that cannot be settled by the Oversight Board. Syncora Obj. ¶ 51; AHG Obj. ¶ 49. But they ignore the Oversight 

Board’s briefs, refuting those very arguments and demonstrating that the Oversight Board had the power to settle the 

priority issues relating to the Bondholders and Fuel Line Lenders. See, e.g., Adv. Proc. No. 19-396-LTS, ECF No. 79 

¶¶ 50–54. 

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they are secured by nonexistent, unearned future revenues) is incorrect—the Bondholders have 

conceded they are subordinate to Current Expenses,14 and PREPA has the right under the Trust 

Agreement to determine what constitutes Current Expenses and to pay them. Moreover, the 

Debtor has full authority to settle claims against it. Furthermore, no intercreditor claims are 

adjusted by the Amended Plan and the Amended Plan contains no third party releases. 

39. The Bondholders’ protestations on this point ring particularly hollow given their 

affirmative representations at the most recent hearing on February 1, 2023, that if the Fuel Line 

Loan claims are “Current Expenses” “[they] will be paid out ahead of us [i.e., ahead of 

bondholders].” Feb. 1, 2023 Hr’g Tr. 137:9–12. And, notably, the Fuel Line Lenders have asserted 

claims that PREPA is either estopped or contractually barred from challenging the Fuel Line 

Lenders’ status as a “Current Expense” under the Trust Agreement. See Fuel Line Lender Priority 

Action, ECF No. 62 at 32–33, 59–71. Moreover, under the Trust Agreement PREPA has discretion 

to determine which expenses qualify as current expenses and are paid first at any time. Trust 

Agreement at 1 (PREPA has “complete control and supervision of any undertaking . . . including 

the power to determine the character of and necessity for all its expenditures and the manner in 

which they shall be incurred, allowed and paid . . . and such determination shall be final and 

conclusive . . . .”). PREPA thus has authority under the Trust Agreement to determine what claims 

are Current Expenses and pay them before Bonds. Accordingly, Bondholders, who depend totally 

on the Trust Agreement, cannot complain as to the treatment of the Fuel Line Lenders.

C. Affordability Contentions Do Not Render the Plan Patently Unconfirmable

40. The Ad Hoc Group and Syncora assert the Court should not approve the Disclosure 

Statement because the Amended Plan does not provide creditors the maximum PREPA can afford 

14 Hr’g Tr. 137:9–12 (Feb. 1, 2023).

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to pay while maintaining public services. See AHG Obj. ¶¶ 37–43, 66–70; Syncora Obj. ¶¶ 24–

31, 39–44. Their argument can be distilled as follows: (1) the “fair and equitable” and “best 

interests of creditors” tests require that PREPA pay creditors what it can afford to pay under the 

Plan; (2) the Plan does not pay all PREPA can afford; so, therefore, (3) the Plan is patently 

unconfirmable. Id. Those arguments fail at every stage.

41. These “affordability” objections are premature on the Objectors’ own terms and do 

not render the Amended Plan patently unconfirmable. Initially, the objectors’ legal contentions 

are simply wrong and, tellingly, omit any mention that PROMESA § 201 grants the Oversight 

Board exclusive discretion to determine PREPA’s debt sustainability limits while providing in § 

106(e) that no district court has subject matter jurisdiction to challenge the Oversight Board’s 

certification of PREPA’s fiscal plan containing the mandatory debt sustainability analysis. The 

fair and equitable test under Bankruptcy Code § 1129(b), which only applies to rejecting classes, 

imposes the absolute priority rule on classes subordinate to the rejecting classes. It does not 

remotely provide the debtor must pay creditors the maximum it can afford. The best interest test 

in Title III requires the Court to consider what creditors would be paid outside Title III.15 That 

test says nothing about requiring the debtor to pay the maximum it can afford. That would be 

contrary to the requirement in PROMESA § 314(b)(7) that the Plan be consistent with the fiscal 

plan. 

15 Contrary to Syncora’s assertion otherwise (Syncora Obj. ¶ 31), the Oversight Board recognizes that the Plan must 

satisfy the best interests test and fair and equitable standard; it just disagrees with the Ad Hoc Group of PREPA 

Bondholders and Syncora’s contention that to satisfy those requirements PREPA must pay its creditors all it can 

afford. The Oversight Board believes the Plan satisfies these confirmation requirements and will submit its evidence 

establishing such satisfaction at the appropriate time in connection with the hearing to consider confirmation of the 

Plan. The Ad Hoc Group of PREPA Bondholders and Syncora will have the opportunity to assert that the proposed 

Plan fails to meet the best interests test and/or is not fair and equitable at the confirmation hearing. 

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42. Even assuming PROMESA did include an affordability test (which it does not), 

determining PREPA’s ability to afford debt would be a fact intensive inquiry that can only be 

resolved at confirmation. The Ad Hoc Group and Syncora essentially concede affordability is a 

fact issue by citing to macroeconomic data and other materials outside the four corners of the 

Amended Plan. AHG Obj. ¶¶ 3, 27, 69; Syncora Obj. ¶ 24. Absent an evidentiary record, the 

Court could not possibly determine what PREPA could afford (if there were any reason to do so 

in the first place, which there is not). Indeed, at the same time the Ad Hoc Group and Syncora 

argue PREPA must pay more, other parties in interest, such as UTIER, have asserted the Amended 

Plan pays too much and that the Legacy Charge is already too “onerous” and may render the Plan 

infeasible as drafted. See UTIER Obj. ¶ 14. The Oversight Board will show, at confirmation, that 

the Amended Plan satisfies all relevant confirmation requirements. What is clear at this time is 

that this issue simply cannot render the Amended Plan unconfirmable on its face.

16 For this reason, 

this Court has previously rejected attempts to litigate similar issues at the disclosure statement 

stage.17 It should do so again here.

43. The purpose of PROMESA is to ensure the provision of effective public services, 

not maximize creditors’ recoveries without regard to PREPA’s statutory mission and PROMESA’s 

16 Indeed, it would make no sense to even try to determine the amount that PREPA can afford today. PROMESA § 

314(b)(6) and the fair and equitable test (which are different than the affordability test applied by Objectors) must be 

satisfied at the time of confirmation. As we have seen just in this Title III case, through the devastating hurricanes 

Irma and Maria in 2017, which destroyed significant amounts of PREPA’s infrastructure, to the invasion of Ukraine 

by Russia in 2022, which sent fuel prices skyrocketing, PREPA’s financial situation can change materially in a short 

space of time. 

17 This Court overruled a similar objection in connection with the hearing to consider whether the Commonwealth 

disclosure statement contained adequate information. See Omnibus Objection of Official Committee of Unsecured 

Creditors to (I) Disclosure Statement for Third Amended Title III Joint Plan of Adjustment of Commonwealth of Puerto 

Rico et al. and (II) Related Motions [ECF No. 17017 in Case No. 17-bk-3283-LTS] at 39–40 (asserting the 

Commonwealth disclosure statement failed to include information about the value, availability, and allocation of the 

Commonwealth’s assets, making it impossible for creditors to determine if they believed the proposed plan represented 

“a reasonable effort by the [Commonwealth]” to repay its creditors, and that the proposed plan “affords all creditors 

the potential for the greatest economic return from [the Commonwealth’s] assets.”); see generally July 14, 2021 Hr’g 

Tr. 88:18–23.

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purposes. In re Fin. Oversight & Mgmt. Bd. for P.R., 432 F. Supp. 3d 25, 30 (D.P.R. 2020), aff'd, 

954 F.3d 1 (1st Cir. 2020) (“The goal of these PROMESA cases ... is not merely to maximize 

creditors’ recoveries. Rather, these restructuring cases require a more holistic approach that 

focuses on the continuation and future of a government and its instrumentalities and their ability 

to meet the needs of the Commonwealth’s residents as well as provide proper recompense of 

creditors.”) (emphasis added); see also Andalusian Glob. Designated Activity Co. v. Fin. Oversight 

& Mgmt. Bd. for P.R. (In re Fin. Oversight & Mgmt. Bd. for P.R.), 954 F.3d 1, 7 (1st Cir. 2020) 

(same); In re Fin. Oversight & Mgmt. Bd. for P.R., 478 F. Supp. 3d 190, 196 (D.P.R. 2020) (same); 

In re Fin. Oversight & Mgmt. Bd. for P.R., 621 B.R. 289, 303 (D.P.R. 2020), aff'd, 7 F.4th 31 (1st 

Cir. 2021) (“[T]he purposes of the Title III proceeding are not narrowly focused on operation of 

the debtors for the benefit of the creditors or any particular stakeholder constituency”) (quoting 

Ord. on Discovery at 6, Aug. 13, 2020, ECF No. 2140). As this Court has previously held, “unlike 

the commercial focus of bankruptcy cases of private entities, the ‘primary purpose’ of 

governmental insolvency proceedings ‘is not future profit, but rather continued provision of public 

services.’” In re Fin. Oversight & Mgmt. Bd. for P.R., 478 F. Supp. 3d at 196 (quoting In re Fin. 

Oversight & Mgmt. Bd. for P.R., 432 F. Supp.3d at 30). In line with this, the Oversight Board is 

tasked with developing a “holistic approach” that “balanc[es] and prioritiz[es] the relevant issues 

and concerns in developing fiscal arrangements and plans of adjustment.” Id. This Court has 

recognized that the Oversight Board is afforded substantial deference in developing this approach. 

Id. No provision of PROMESA creates an “affordability” test posited by the Objectors. On the 

contrary, the Oversight Board has exclusive discretion to determine PREPA’s debt sustainability 

in certified fiscal plans for PREPA, with which the Amended Plan must be consistent. PROMESA 

§§ 201(b)(1)(I), 314(b)(7).

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44. Congress knew how to include provisions requiring that a debtor use all its available 

funds to pay creditors. Congress did exactly that in chapter 13, where it included § 1325(b) as a 

confirmation requirement in a contested confirmation hearing, which requires the plan proposed 

by the debtor “provide[] that all of the debtor’s projected disposable income” be “applied to make 

payments to unsecured creditors . . . .” 11 U.S.C. § 1325(b). Yet Congress incorporated no 

provision with any similarity to 11 U.S.C. § 1325(b) in PROMESA Title III. 

45. Notably, the PROMESA best interests test18 neither requires PREPA to pay its 

creditors the maximum it can afford nor establishes a minimum that PREPA must pay its creditors. 

Findings of Fact and Conclusions of Law in Connection with Confirmation of the Modified Eighth 

Amended Title III Joint Plan of Adjustment of the Commonwealth of Puerto Rico, the Employees 

Retirement System of the Government of the Commonwealth of Puerto Rico, and the Puerto Rico 

Public Buildings Authority, January 18, 2022, ECF No. 19812 in Case No. 17-bk-03283 (the “CW 

FFCL”) at 135 (“[T]he PROMESA best interests test does not impose a litmus test or establish a 

floor for creditor recoveries.”) (emphasis added); Findings of Fact and Conclusions of Law in 

Connection with Confirmation of the Modified Fifth Amended Title III Plan of Adjustment of the 

Puerto Rico Highways and Transportation Authority, October 12, 2022, [ECF No. 1416 in Case 

No. 17-3567] (the “HTA FFCL”) (same). As articulated by this Court, “PROMESA’s best interests 

test requires the Court only to consider whether creditors of the Debtor in the aggregate receive 

an equal or greater recovery on their Claims pursuant to the [plan of adjustment] than they would 

18 PROMESA § 314(b)(6) provides: 

The court shall confirm the plan if—the plan is feasible and in the best interests of creditors, which 

shall require 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 by 

such plan.

48 U.S.C. § 2174(b)(6) (emphasis added).

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outside of the Title III if the [Title III case] were dismissed and creditors exercised their remedies.” 

CW FFCL at 135; HTA FFCL at 62–63 (emphasis original).

19 While the Ad Hoc Group and 

Syncora raise a number of arguments to assert that creditors would receive a better recovery 

outside of PREPA’s Title III case, see AHG Obj. ¶¶ 38–43; Syncora Obj. ¶¶ 39–44, these assertions 

are fact intensive and, even if they had merit, would not be dispositive of whether the best interests 

test is satisfied.

46. Chapter 9 and its jurisprudence support the foregoing conclusions. In chapter 9 

cases, chief factors in determining whether creditors receive all they can reasonably expect are 

whether the debtor (i) will retain sufficient funds necessary to operate, (ii) make necessary 

improvements, and (iii) maintain its facilities or services. Critically, it is not necessary that all 

taxes collected be used to pay creditors, or that taxes be increased. See Lorber v. Vista Irr. Dist., 

127 F.2d 628, 639 (9th Cir. 1942); see also Corcoran, 233 B.R.at 459.

47. Syncora relies on the 1940 Ninth Circuit decision of Fano v. Newport Heights 

Irrigation District (Syncora Obj. ¶ 25) to assert PREPA’s rates must be raised to pay creditors. 

114 F.2d 563 (9th Cir. 1940). In Fano, an irrigation district upgraded its irrigation system in lieu 

of making bond payments. These renovations ultimately reduced available cash flow and the 

district filed for bankruptcy. The Ninth Circuit considered the following question: “[a]t the time 

of the filing of the petition was the District insolvent or unable to pay its debts as they fall due, and 

if so, is the proposed plan fair?” Id. at 564. After reviewing the facts, the Ninth Circuit found the 

irrigation district was “far from insolvent in the bankruptcy sense,” and, in light of that, the court 

19 The Ad Hoc Group is wrong that bondholders are the only creditor group relevant to the best interests test (¶ 38). This 

self-serving assertion is clearly incorrect and has no support. While the bondholders are a substantial creditor group, 

there is no basis to say that how other creditors would fare outside of Title III is not relevant to the best interests test. 

And it is clear they would likely do worse, as the bondholder groups have made no secret of their intent to immediately 

seek appointment of a receiver that would run PREPA for the bondholders’ sole benefit, and resist paying other 

creditors. AHG Obj. ¶¶ 39–43.

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stated it was “unable to find any reason why the tax rate should not have been increased sufficiently 

to meet the [irrigation district’s] 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.” Id. at 565–66.

48. Fano’s facts are opposite to the facts here. Congress enacted PROMESA because 

essential services were not being provided to the residents of Puerto Rico by its government. See

PROMESA § 405(m)(2); see also Puerto Rico v. Franklin Cal. Tax-Free Tr., 579 U.S. 115, 118 

(2016) (“Puerto Rico and its instrumentalities are in the midst of a fiscal crisis.”). Congress gave 

the Oversight Board the duty to ensure such essential services were provided. See PROMESA §

201(b)(1)(B). Furthermore, Fano—a case from 1940—is today more often distinguished than 

applied. For example, in Corcoran, the committee of unsecured claimholders cited Fano to argue 

the plan was not fair and equitable because “the [debtor, a hospital district,] should be obligated to 

raise taxes or at least attempt to raise taxes to pay the unsecured creditors in full.” Corcoran, 233 

B.R. at 459. The court overruled that argument because the circumstances of the Corcoran case 

were different from Fano. Id. at 459–61 (explaining that in Fano the debtor’s assets “exceeded its 

indebtedness by a large margin” whereas in the present case the “the liabilities of the debtor far 

exceed the value of its assets.”). The facts of Corcoran are more similar to PREPA’s situation. 

PREPA operates an antiquated electric system with generation equipment that has sustained 

substantial damage from natural disasters, yet already charges among the highest rates in the U.S. 

PREPA will need to make substantial investments in its infrastructure during the lifetime of the 

Legacy Charge just to provide basic services. Just as the Court concluded the debtor in Corcoran 

was unable to raise taxes to pay more to unsecured creditors, PREPA cannot endure unconstrained 

rate increases. 

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49. Syncora also identifies In re Hardeman County Hospital District, 540 B.R. 229 

(N.D. Tex. 2015), as a case they think balances fairness, equity, and feasibility. There, however, 

the Court recognized “creditors cannot expect that, in making payments to Creditors under a plan,

the Debtor’s cash at any point in the future will go toward the additional payment of Claims

because . . . the Debtor must be allowed to retain sufficient funds with which to operate, make

necessary improvements, and maintain its facilities.” Id. at 239 (citation omitted). Importantly,

the Court noted it “will not second-guess the political discretion and governmental decisionmaking of the Debtor’s governing board” in balancing creditors’ recoveries and amounts needed 

for operation. Id. at 240. Similarly, here, the Oversight Board developed the Amended Plan, 

which it believes appropriately balances creditors’ recoveries with PREPA’s operational needs and 

satisfies the confirmation requirements under PROMESA. The Oversight Board considered 

multiple factors in sizing the Legacy Charge, including future needs of PREPA and risks. 

50. Moreover, even if any of these tests could be considered at this stage (it cannot, as 

discussed above), neither the Ad Hoc Group nor Syncora put forward any compelling evidence 

PREPA can afford more than what the Amended Plan provides. The Ad Hoc Group’s and 

Syncora’s citation to economic data and other materials outside the Amended Plan also do not help 

them, even if they could be considered now. While they cite Commonwealth economic data as if 

it were somehow dispositive of PREPA’s situation, AHG Obj. ¶¶ 3, 27, 69; Syncora Obj. ¶ 24, 

they completely ignore the antiquated state of PREPA’s infrastructure, the poor service and 

frequent outages that customers face, the fact that PREPA’s utilities use an expensive fuel mix, 

the fact PREPA’s entire system is in dire need of capital expenditure, the fact defection from the 

grid is accelerating due to PREPA’s condition and rates as well as the increasing affordability of 

alternatives, and the fact PREPA has one of the poorest customer bases in the country. PREPA’s 

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current rates, while among the highest in North America, do not produce excess revenue for debt 

service after payment of PREPA’s operating expenses. The average Puerto Rican household 

(whose median income is approximately $21,058)20 pays more for electricity relative to their 

income than consumers in any U.S. state, while experiencing a lower quality of electric service 

with frequent outages. None of the Commonwealth data the Ad Hoc Group and Syncora cites

recognize these facts about PREPA, which seriously limit the scope of any rate increases PREPA 

could impose.21 

51. The Ad Hoc Group and Syncora also may not rely on the Oversight Board’s 

proposal to bondholders in mediation (AHG Obj. ¶¶ 67–68; Syncora Obj. ¶ 24) to support their 

arguments regarding affordability. Moreover, it is misleading to refer to the bonds’ potential 

treatment without considering what that meant for other constituencies. The Official Committee 

might contend we offered the bonds too much at its constituencies’ expense. The Oversight Board 

has since endeavored to correct the imbalance. In any event, the parties cannot negotiate or 

mediate if proposals become evidence, as the objectors well know because those settlement offers 

were made in settlement negotiations, and cannot be used against the Oversight Board in litigation 

to establish recovery thresholds. See Fed. R. Evid. 408 (prohibiting reliance on settlement or 

conducts or statements made in negotiations as evidence against party).

52. Likewise, bondholder recoveries under the 2019 RSA do not support the Ad Hoc 

Group and Syncora’s assertions regarding affordability. Indeed, it contained termination rights for 

the Government and Oversight Board, and depended on legislation the Legislature declined to 

20 U.S. Census Bureau quickfacts: Puerto Rico, https://www.census.gov/quickfacts/fact/table/PR/PST045221 (last 

visited January 9, 2023). 

21 Even financial support from FEMA, which could facilitate needed capital improvements, comes with a matching 

funding obligation that would place enormous financial pressure on PREPA—unless it were waived.

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enact. Whatever these recoveries amounted to in 2019, they have manifestly no bearing on what 

PREPA is able pay creditors today.22 Moreover, at that time and not until recently did the 

Oversight Board have the benefit of information from LUMA and various advisors of the extent

of capital expenses required. In fact, as explained in the Disclosure Statement, AAFAF exercised 

its unilateral right to terminate the 2019 RSA because of concerns regarding, among other things, 

the affordability of the cost of electricity contemplated thereunder. It would make no sense for the 

2019 RSA to be terminated due to concerns about affordability, only to then offer the bondholders 

the same or more recovery in negotiations shortly thereafter.

D. The Bondholders’ Bad Faith Allegations are Inappropriate and Incorrect

53. Syncora and the Ad Hoc Group argue the Plan was not proposed in good faith. 

Specifically, Objectors allege: (a) in connection with mediation, the Oversight Board abused the 

mediation process by delaying proposing a lead negotiator, communicating with bondholders, and 

exchanging proposals and information, Syncora Obj. ¶ 48; AHG Obj. ¶¶ 29–32; (b) the Oversight 

Board’s proposal was less than the 2019 RSA but more than the Plan, AHG Obj. ¶ 28; (c) the 

Oversight Board failed to further engage with bondholders or modify its November 8, 2022 

proposal in light of bondholders’ feedback concerning data and assumptions, Syncora Obj. ¶¶ 49, 

50; (d) the Oversight Board improperly withdrew support for the 2019 RSA, Syncora Obj. ¶ 46; 

AHG Obj. ¶¶ 25–27; (e) the Plan does not account for all potential contingencies pursuant to the 

Court’s directive, AHG Obj. ¶¶ 33–35; and (f) the Oversight Board’s settlement with the Fuel Line 

Lenders was an attempt at impermissible settlement of intercreditor claims and “vote buying.” 

Syncora Obj. ¶ 51. These assertions do not state a valid disclosure statement objection or 

22 Bondholders mislead the Court by stating “PREPA [agreed it] would pay Bondholders and Monolines 77.5% of their 

claims” under the 2019 RSA. AHG Obj. ¶ 25. Under the 2019 RSA, PREPA agreed to pay RSA parties 67.5% in 

Tranche A Bonds and 10% in contingent Tranche B Bonds. 

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confirmation objection, and are contrary to fact. They fail on their face. If there was delay in 

naming a lead negotiator, what harm did it cause? All the parties knew Citibank was leading 

negotiations, and the Oversight Board’s members and their legal and other advisors did not change

and were available at all times. What is the consequence of the failure to assign a title earlier? 

There was none and the Objectors fail to identify any problem. The allegations about the Oversight 

Board not recreating the 2019 RSA and agreeing with the objectors’ analyses is just sour grapes 

that the Oversight Board determined PREPA should not pay more. The 2019 RSA provided the 

Oversight Board and Government termination rights. That is undisputed. As explained above, the 

settlement with the Fuel Line Lenders resolves their claims against PREPA and does not take 

anything from bondholders’ rights. In short, the Objectors’ have alleged nothing having any 

significance for the Disclosure Statement or confirmation hearings.

54. Whether a plan is proposed in good faith is determined by the plan proposal, not 

the history of negotiations.23 Moreover, the Ad Hoc Group (¶¶ 25–32) and Syncora (¶¶ 46–51) 

mischaracterize the facts. 24 

23 The Ad Hoc Group cites In re Genco Shipping & Trading Ltd., 513 B.R. 233, 261 (Bankr. S.D.N.Y. 2014), to argue 

that “the good faith requirement thus ‘speaks more to the process of plan development than the content of the plan,” 

AHG Obj. ¶ 23, but the court made clear that this requirement looked to all circumstances from before the bankruptcy 

was filed, including the debtor’s need for a restructuring of its debt, as well as the issue of whether the plan was “meant 

to achieve a result consistent with Chapter 11, that is, to preserve the business and avoid liquidation.” In re Genco 

Shipping & Trading Ltd., 513 B.R. at 262–63. Here, as the Oversight Board will show at confirmation, the good faith 

requirement is satisfied, including because PREPA’s debt clearly needs restructuring and the Amended Plan achieves 

a result consistent with PROMESA Title III. 

24 Courts should exercise caution when inquiring into accusations of bad faith in mediation. Inquiries into a party’s level 

of participation (i.e., the extent to which a party discusses issues, listens to opposing viewpoints and analyzes its 

liability) can imperil the confidentiality of mediation. In re A.T. Reynolds & Sons, Inc., 452 B.R. 374, 384 (S.D.N.Y. 

2011). Moreover, inquiring into a party’s mediation conduct, backed by a sanctions threat, may exact a coercive 

influence on the parties to settle. Procaps S.A. v. Patheon Inc., No. 12-24356-CIV, 2015 WL 3539737, at *8–9 (S.D. 

Fla. Jun. 4, 2015).

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The Plan Is Proposed in Good Faith

55. As explained in the Disclosure Statement, the Oversight Board formulated the 

Amended Plan to ensure sufficient electricity prices to maintain PREPA’s sustainability as a 

provider of reliable electric services at what it believes is an affordable rate to Puerto Ricans, that 

leaves adequate room for capital expenses, does not incentivize conversion to solar power so that 

fewer PREPA customers must absorb the total fixed costs, and does not render Puerto Rico 

uncompetitive with other venues for consumers and businesses who would otherwise reside in 

Puerto Rico. Although the Oversight Board could have determined all extra revenues are required 

for capital expenditures, it allocated substantial funds for debt service.

56. The Oversight Board has made deals in and outside mediation with a variety of 

creditor groups on behalf of five debtors under PROMESA Title III and various other public 

entities culminating in qualifying modifications under PROMESA Title VI—totaling tens of 

billions of dollars of debt. In PREPA’s Title III Case, the Oversight Board has already made deals 

with the Fuel Line Lenders, National, and Vitol, with the first two being aided by the mediation 

process. It has also negotiated with many other parties, some of which may still result in 

consensual arrangements.

57. The Objectors mistakenly conflate the Oversight Board’s actions and positions in 

furtherance of its statutory mandates, and its unwillingness to settle at levels the Oversight Board 

believes are beyond PREPA’s sustainable debt capacity, with an unwillingness to negotiate.25 The 

Oversight Board’s positions are the product of extensive deliberation, informed by advisors’

analyses into, among other things, PREPA’s financial and operational circumstances, the burden 

25 The Ad Hoc Group insinuates the Oversight Board “resisted [] scheduling mediation sessions” (AHG Obj. at 29). 

That is false. The Oversight Board may have not agreed to move from its numbers, but it has never refused to attend 

a mediation session or evaluate, in good faith, a counterproposal. 

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PREPA’s consumer and business ratepayers can tolerate, the state of the system, elasticity of 

demand, defection from the grid, and other considerations. 

Syncora and the Ad Hoc Group Target the Oversight Board, When 

the Plan Is at Issue, Not the Oversight Board

58. Syncora and the Ad Hoc Group trample on the mediation privilege and Rule 408 

of the Federal Rules of Evidence in arguing the Oversight Board proposed the Plan in bad faith—

a false allegation in any event. Largely on the basis of oral argument at recent omnibus hearings, 

they contend the Oversight Board “abused the mediation process to the detriment of Bondholders,” 

and as a result, the Plan was proposed in bad faith. AHG Obj. ¶¶ 23, 28–32; see also Syncora Obj.

¶¶ 47–50. The argument is defective on numerous levels and as stated above, wrongly focuses on 

the Oversight Board rather than the Plan. Above, we explained why all the Objectors’ allegations 

do not amount to any valid defense to approval of the Disclosure Statement or to Plan confirmation. 

In short, the objectors’ allegations fail to show any harm from the Objectors’ alleged actions of 

the Oversight Board other than their displeasure and anger that the Oversight Board did not 

continue to increase its offers.

59. First, the allegations of Syncora and the Ad Hoc Group plainly violate the 

mediation privilege, Rule 408, the Order Establishing the Terms and Conditions of Mediation (the 

“Terms and Conditions Order”) [ECF No. 2773], and this Court’s constant emphasis on 

maintaining the confidentiality of mediation. The Terms and Conditions Order specifically 

prohibits parties from disclosing “confidential Mediation exchanges, data or discussions regarding 

Settlement Proposals or responses thereto.” Terms and Conditions Order at 6. Separately, as noted 

above, Rule 408 prohibits the admissibility of offers to compromise, and conduct or statements 

made during compromise negotiations. The publication of such offers, conduct, or statements does 

not alter their inadmissibility under Rule 408. Similarly, the mediation privilege protects from 

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disclosure a broad swath of mediation-related communications. See ACQIS, LLC v. EMC Corp., 

No. 14-cv-13560, 2017 WL 2818984, at *2 (D. Mass. June 29, 2017). 

60. Consistent with the foregoing, this Court has repeatedly cautioned parties to “be 

careful not to breach mediation confidentiality.” Dec. 14, 2022 Hr’g Tr. 10:14–16. In fact, in 

response to the improper divulgence of confidential mediation information in the earlier mediation 

process, the Court entered a standing order prohibiting mediation parties from publicly disclosing 

any “information regarding events or actions in the mediation process . . . and positions taken by 

any participant in that confidential process.” Case No. 17-bk-3283, ECF No. 1841. The mediation 

privilege, Rule 408, and this Court’s orders each ensure that mediation confidentiality remains 

sacrosanct.

61. The Ad Hoc Group’s and Syncora’s extensive effort to characterize the Oversight 

Board’s “conduct” and repeated reliance on privileged, Rule 408-protected mediation 

communications to claim the Oversight Board mediated in bad faith (and that this somehow infects 

the Plan) openly violates the Terms and Conditions Order, Rule 408, the mediation privilege, and 

this Court’s orders and admonitions and should be rejected. See also In re A.T. Reynolds & Sons, 

Inc., 452 B.R. at 383–84 (“[C]onfidentiality considerations preclude a court from inquiring into

the level of a party’s participation in mandatory court-ordered mediation, i.e., the extent to which 

a party discusses the issues, listens to opposing viewpoints and analyzes its liability.”). Indeed, 

Syncora’s and the Ad Hoc Group’s briefs illustrate precisely why strict separation between 

mediation and litigation is necessary. Specifically, both parties know their allegations hew too 

close to the line of the mediation privilege to allow for a complete response, and the Oversight 

Board is therefore unable to fully defend itself from their unfounded assertions without violating 

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the mediation privilege, Rule 408, and this Court’s orders. Most regrettably, Syncora and the Ad 

Hoc Group’s allegations and protests can only chill further mediation. 

62. Second, Syncora and the Ad Hoc Group’s argument is logically flawed. They 

contend the Oversight Board supposedly behaved in bad faith in mediation and, on that basis, 

contend the Plan was proposed in bad faith. But there is no logical connection between the two. 

Procaps, 2015 WL 3539737 at *7 (whether a party mediated in good faith is “typically 

interpret[ed] narrowly”). There is no connection between good faith in mediation and the good 

faith of a proposed Plan, and therefore no basis to contend that a finding of bad faith in mediation 

(not justified here in any event) should lead to a finding the Plan was proposed in bad faith.

63. Third, the Ad Hoc Group’s and Syncora’s arguments are based almost entirely on 

citations to a colloquy at recent omnibus hearings. AHG Obj. at ¶ 29–31, Syncora Obj. ¶¶ 48–49. 

However, statements and arguments by attorneys are not facts, nor do they constitute competent 

evidence. Quint v. A.E. Staley Mfg. Co., 172 F.3d 1 (1st Cir. 1999) (“[S]tatements by counsel are 

not competent evidence.”). Suffice it to say, however, that the parties engaged in more than a 

dozen mediation sessions, including meetings the Oversight Board held separately with the 

Mediation Team to discuss its proposals or the Ad Hoc Group’s proposals, and over a million 

pages of documents were uploaded to the mediation data room used to share documents and 

information with creditors. In addition, the parties’ respective advisors held numerous additional 

meetings and exchanged analyses to further their understanding of the proposals. 

64. Simply put, the Oversight Board dedicated its time and energy for more than seven 

months to seek common ground. The fact that the Ad Hoc Group and Syncora ultimately declined 

the Oversight Board’s last offer and countered with a proposal the Oversight Board rejected does 

not mean the Oversight Board’s conduct was an “abuse” of the mediation process. Indeed, it 

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protected Puerto Rico. Regardless, under any analysis, the content and conduct of the mediation 

should have no bearing on whether the contents of the Disclosure Statement under consideration—

or the various procedures motions before the Court—should be approved.

Accusations of Bad Faith for Failing to Increase Offers Has Nothing 

to Do With Disclosure Statements and Confirmation

65. Syncora and the Ad Hoc Group fail to show how their anger that the Oversight 

Board did not offer them more in mediation translates into a valid disclosure statement of 

confirmation objection. Moreover, even in mediation, “courts typically interpret good faith 

requirements narrowly, and limit them to compliance with orders to attend mediation, to provide 

pre-mediation memoranda and produce representatives with sufficient settlement authority.” 

Procaps, 2015 WL 3539737 at *7.

26 Parties are given enormously wide latitude in mediation. For 

example, a negotiating party may enter mediation with the position that it would not make a 

settlement offer, as well as a pre-determined position about liability. In re A.T. Reynolds & Sons, 

Inc., 452 B.R. at 382. A party is within its rights to adopt a “no-pay” position or may determine 

that it is not liable and adhere to that position at mediation. Procaps, 2015 WL 3539737, at *8–9. 

A court cannot use “pressure tactics” designed to coerce a settlement. Kothe v. Smith, 771 F.2d 

667, 669 (2d Cir. 1985). Parties cannot be forced to settle or even to make settlement offers at 

mediation. Id.; AMC Demolition Specialists, Inc. v. Bechtel Jacobs Co., 2007 U.S. Dist. LEXIS 

7463, at *5 (E.D. Tenn. Feb. 1, 2007) (finding party did not fail to mediate in good faith where 

party did not make any settlement offer at mediation); see also Dawson v. United States, 68 F.3d 

886, 897 (5th Cir. 1995) (stating “there is no meaningful difference between coercion of an offer 

26 All of these requirements have been met. The Oversight Board supplied a mediation statement and had principals and 

persons with decision-making authority attend all virtual and in-person mediation sessions.

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and coercion of a settlement: if a party is forced to make a settlement offer because of the threat 

of sanctions, and the offer is accepted, a settlement has been achieved through coercion.”). 

66. Syncora and the Ad Hoc Group assert the Oversight Board’s alleged changes in the 

terms of its proposals and determinations to not further engage with bondholders or modify its 

proposals in light of bondholders’ feedback concerning data and assumptions amount to bad faith 

negotiations. Syncora Obj. ¶¶ 48–51; AHG Obj. ¶¶ 28–32. Their assertions, however, which the 

Oversight Board rejects as false, are a far cry from conduct courts have determined to be bad faith 

in the context of mediation. Bad faith conduct is typically only found in extraordinary 

circumstances where the negotiating party’s conduct is tantamount to total disengagement.27 

67. That the Oversight Board would not settle at levels higher than it believed was 

consistent with its responsibilities under PROMESA, reflective of PREPA’s condition, or 

appropriate for PREPA or its ratepayers (and at a level completely untethered from significant 

legal challenges to the bondholders’ rights) is not bad faith. Indeed, courts have declined to find 

bad faith in scenarios far more extreme than those alleged by Objectors. See In re A.T. Reynolds

& Sons, Inc., 452 B.R. at 382 (“[the creditor] was within its rights to enter the mediation with the 

position that it would not make a settlement offer. It was also within its rights to ‘predetermine[] 

that it was not liable and to ‘insist[] on being dissuaded of the supremacy of its legal position.”);

Hunter v. Prisbe, No. 12-cv-2013, 2013 WL 1246797 at *2 (M.D. Pa. 2013) (“[W]here a party’s 

conduct consists of simply adopting a fixed, inflexible position in an initial mediation session, and 

27 See e.g., Brooks v. Lincoln Nat’l Life Ins. Co., No. 8:05-cv-118, 2006 WL 2487937, at *4 (D. Neb. Aug. 25, 2006) 

(finding lack of good faith where counsel did not respond to the defendants’ initial offer, told the mediator the 

defendants had five minutes to put a serious settlement offer on the table or they were leaving, found the defendants’ 

offer “unacceptable and unworthy of response,” and refused to allow the mediator to explain the defendants’ offers, 

or to engage in dialogue with counsel for the defendants to correct the problems); Fisher v. SmithKline Beecham 

Corp., No. 07-cv-0347A(F), 2008 WL 4501860 (W.D.N.Y. Sept. 29, 2008) (finding lack of good faith where, on the 

eve of the mediation, while the plaintiffs and counsel were traveling to the mediation site, defendant filed a motion 

for summary judgment and then limited its mediation presentation to providing counsel with a copy of the 

memorandum of law supporting the summary judgment motion).

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that fixed position is timely communicated to others, sanctions often are not appropriate since 

sanctions cannot be used as a vehicle for pressing parties to surrender honestly held convictions 

on the merits of litigation.”).

68. The Oversight Board remained and remains willing to negotiate with all parties that 

have not yet settled inside or outside of mediation. Objectors’ incorrect accusations only serve to 

threaten the confidentiality of mediation, which in turn, may impair the level of parties’ 

participation.

Termination of the 2019 RSA Does Not Indicate Bad Faith

69. With respect to the termination of the 2019 RSA, objectors impute bad faith to the 

Oversight Board but concede the Governor, not the Oversight Board, terminated the RSA. See 

Syncora Obj. ¶ 13; AHG Obj. ¶ 14. The Government was within its contractual rights to execute 

the termination provision. Under the terms of the 2019 RSA, each party had rights to terminate 

the 2019 RSA. See 2019 RSA § 9 (identifying termination rights). The Oversight Board had an 

absolute right to terminate the 2019 RSA because an order approving certain of its settlements was 

not entered by an agreed date. Notwithstanding the bondholders’ requests, the Oversight Board 

never waived that right. It is thus stunning that objectors’ raise termination as an issue when it 

was part of the deal and well recognized.

70. It is unsurprising that Bondholders consider the 2019 RSA the model for success 

relative to the Plan since it provided a higher recovery to them at the expense of other stakeholders. 

AHG Obj. ¶ 25 (“[The Oversight Board] largely succeeded with the 2019 RSA, in which it agreed 

that PREPA would pay Bondholders and Monolines 77.5% of their claims, plus the continued 

accrual of postpetition interest and fees . . . .”). But over time the Government and the Oversight 

Board learned the Legislature would not enact the legislation the 2019 RSA required, and 

determined that deal was not affordable, with the bondholder parties accruing substantial interest 

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($2 billion), at the same time macroeconomic events, including a significant spike in fuel prices as 

well as the COVID-19 pandemic, reduced PREPA’s room to afford even larger price spikes. 

Absent legislation, PREPA would be deprived of some of the benefits of the 2019 RSA, such as 

the securitization structure and demand protections (that help PREPA slow down the defection of 

customers to solar). The Governor terminated the 2019 RSA shortly thereafter “because its 

implementation is neither feasible nor in the best interests of Puerto Rico.”28 The Government 

determined the 2019 RSA would overly burden the people of Puerto Rico as ratepayers and could 

not be achieved without the protections only available in legislation that the Government 

determined could not be obtained. The Oversight Board’s support for the Governor’s decision to 

terminate the 2019 RSA was logical.

The Oversight Board Did Not Violate the Court’s Directive to File a 

Confirmable Plan

71. When bondholders moved to compel the Oversight Board to file a toggle plan, the 

Court did not ask for a plan considering every possible outcome in litigation, but rather a plan that 

accounts for losses in litigation that are “realistic[]” Nov. 2, 2022 Tr. 16:8–16 (“[W]hat 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 is, we can move forward 

toward confirmation with alacrity.”) (emphasis added). The Amended Plan does precisely that.

72. The Amended Plan allocates $5.68 billion of New Bonds to creditors and is 

confirmable in most potential outcomes in the Amended Lien & Recourse Challenge through the 

Amended Plan’s built-in mechanisms to reallocate the New Bonds based on different litigation 

28 Governor of Puerto Rico announces termination of Electric Power Authority’s Restructuring Support Agreement, 

Thursday, March 10, 2022, https://www.bnamericas.com/en/news/governor-of-puerto-rico-announces-terminationof-electric-power-authoritys-restructuring-support-agreement. 

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outcomes. Yet the Oversight Board included a risk factor that if the Court were to (i) decide 

against the Oversight Board with respect to the Lien Scope Counts and Recourse Counts and (ii) 

then decide that the bondholders’ security interest is worth more than the value of the New Bonds, 

then the Amended Plan might not be confirmable without material amendment. Because of this 

risk factor, the Ad Hoc Group and Syncora assert the Amended Plan does not comply with the 

Court’s directive to propose a confirmable plan that takes into account plausible litigation 

possibilities. But that argument is wrong.29 

73. The Amended Plan contains numerous contingencies for various different results 

in litigation, and does so within the confines of the Oversight Board’s determinations with regard 

to PREPA’s debt sustainability. The Amended Plan is confirmable if the Oversight Board wins 

on both the Lien Scope Counts and Recourse Counts (in which event excess value is shared among 

creditors), wins on the Lien Scope Counts but loses on the Recourse Counts (in which event the 

Bondholders share in recovery with general unsecured claimholders), and even if the Oversight 

Board loses on both the Lien Scope Counts and Recourse Counts but Bondholders’ collateral is 

not held to exceed the value of the consideration allocated in the Amended Plan (in which case the 

Bondholders will receive most of the consideration under the Amended Plan). The Oversight 

Board believes the only scenario in which the Court can plausibly determine the Bondholders’ 

collateral is worth more than $5.68 billion is if the Court determines the Bondholders currently 

have a valid security interest in all future, unearned revenues, which the Oversight Board believes 

is not plausible. Given that the bondholders are now on record agreeing that any lien they do have 

is subordinate to Current Expenses either due to the Trust Agreement and/or Bankruptcy Code § 

29 The argument also is tautological. The Ad Hoc Group and Syncora effectively argue the Plan is unconfirmable now 

because they will prove the Plan to be unconfirmable later. Under their theory, a plan is only confirmable if it 

somehow accounts for all situations where it is unconfirmable. 

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928(b), Feb. 1, 2023 Hr’g Tr. 135:20–23, 136:18–137:8, and PREPA has barely been able to pay 

Current Expenses on time, let alone generate surplus to pay bondholders over the last decade, the 

Oversight Board anticipates it is highly unlikely that Bondholders’ collateral could possibly be 

held to extend to such property and be valued at such an amount as to derail the Amended Plan. 

The Amended Plan thus contemplates the realistic litigation outcomes and accounts for them. No 

plan could account for every possible ruling that could theoretically be issued—any plan is subject 

to the risk the relevant court rules against it in some unexpected way. 

74. This objection of the Ad Hoc Group and Syncora essentially amounts to a valuation 

fight with respect to their purported collateral. It is often the case that secured parties oppose the 

valuation and treatment of their secured claims in bankruptcy plans. Here, the Objectors are one 

step removed from that dispute, as they have not even established they have secured claims 

(beyond certain deposit accounts held with the Trustee). Regardless, the possibility of a valuation 

fight at confirmation does not render the Disclosure Statement patently unconfirmable.

The Fuel Line Lender Settlement Procures Accepting Votes Like 

Every Other Settlement

75. The assertions that the Oversight Board’s settlement with the Fuel Line Lenders 

was improper are without merit. Renaming a settlement as “vote buying” does not create a 

meritorious confirmation objection. Sections I.A and I.B above refute various arguments that the 

Fuel Line Lender PSA is an impermissible or unreasonable settlement of intercreditor claims. Yet 

Syncora throws another accusation at the Oversight Board in support of its bad faith argument—

that the Fuel Line Lender PSA amounts to “vote-buying.” Syncora Obj. ¶ 59. Virtually every 

confirmable reorganization plan contains settlements the plan proponent negotiated to procure 

votes and consensus. The single case Syncora cites in support of its “vote-buying” theory—In re 

Quigley Co., Inc., 437 B.R. 102 (Bankr. S.D.N.Y. 2010) assigned the “vote buying” moniker to a 

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scheme in which an interested third party paid some of a debtor’s creditors to accept the debtor’s 

plan. There, the debtor’s parent (Pfizer) entered into prepetition settlements with tort claimants of 

the debtor (Quigley). Pfizer “simply paid cash to the Settling Claimants, a subclass, outside of a 

Quigley plan, and promised a second payment if any Quigley plan was confirmed. The payments 

came from Pfizer, not Quigley, and were not ‘gifts’ of its collateral to a class of creditors.” Id. at 

131. Thus the “global strategy was designed to free Pfizer from derivative liability through a 

Quigley plan” by literally paying creditors to vote in favor of the plan. Id. No such allegations 

have been or could be made here. Here, the Oversight Board simply settled a disputed claim as 

between the Debtor and its creditors in a reduced amount. If that is vote buying, no plan containing 

a settlement could be confirmed (including any plan that would have been based on the 2019 RSA), 

or the settlements that were embedded in the plan of the other five Title III cases the Court has 

confirmed (with substantial similar creditors). In substance, Objectors are not complaining about 

vote buying. They are complaining their votes were not bought!

E. The Ad Hoc Group’s Feasibility Argument Fails

76. The Ad Hoc Group argues the Amended Plan is not feasible because “there is 

reason to expect that it will not result in the debtor collecting sufficient revenues to comply with 

the plans [sic] requirements to pay creditors.” AHG Obj. ¶ 44. The Ad Hoc Group contends this 

is the case because “the Plan offers no assurance that Series B bondholders can enforce payment 

of their bonds if PREB fails to approve total rates sufficient to pay all operating expenses and debt 

service.” Id. ¶ 45. 

77. As a preliminary matter, the Amended Plan includes additional protections for 

Series B Bondholders as negotiated by National. These include the ability to invoke the Interest 

Rate Covenant if Net Revenues are insufficient to pay interest on the New Bonds prior to the final 

maturity date. Amended Plan, Art. XIX.J, XIX.M. The terms of the New Bonds have also been 

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amended to provide that accrued and unpaid interest will still be paid following final maturity. 

The Oversight Board submits these additions moot this issue. The Plan already included covenants 

that protect bondholders, including a covenant to “levy and collect rates, fees, and charges, 

including, but not limited to, the Legacy Charge and the Remaining Legacy Charge and (b) deposit 

Net Revenues collected from such rates, fees, and charges into the Debt Service Fund in 

accordance with the Payment Waterfall.” Amended Plan, Art. XIX.H. In addition, Puerto Rico 

law provides that rates need to be set sufficiently to pay Bond issues under a Title III Plan. See

Act-17 §§ 6.3(q) and (p). PREB is also required by Puerto Rico law to implement PREPA rates 

sufficient to pay PREPA’s operating costs and debt. Act 57-2014, § 6.25(b). The Ad Hoc Group 

gives no reason for the Court to believe PREB will for some reason abandon its statutory mandate. 

In addition, when the New Master Indenture is drafted it will include additional covenants. Finally, 

the Oversight Board intends to include some these protections in the proposed Confirmation Order.

The Oversight Board submits these additions moot this issue.

78. In any event, the Ad Hoc Group’s plan objection fails. Issues of feasibility are 

highly-fact specific and cannot possibly be considered at the disclosure statement stage. See, e.g., 

In re Sunshine Precious Metals, Inc., 142 B.R. at 920 (refusing to adjudicate objections to 

feasibility at disclosure statement hearing, holding it is a “confirmation issue[].”). 

F. The Uninsured Bond Settlement Agreement Is Not an Improper Solicitation 

in Violation of Bankruptcy Code § 1125(b) and Does Not Constitute 

Unlawful Gerrymandering

79. The Ad Hoc Group and Syncora argue the Uninsured Bond Settlement Agreement, 

which allows holders of Uninsured PREPA Revenue Bond Claims to select whether the claims are 

classified in a settlement class (Class 1) or litigation class (Class 2), renders the Amended Plan 

patently unconfirmable because, they argue, it violates Bankruptcy Code § 1125(b) of the 

Bankruptcy Code as improper solicitation and is unduly coercive. See AHG Obj. ¶¶ 58–61; 

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Syncora Obj. ¶¶ 61–68. These objections fail for the simple reason that the claimholders’ decisions 

to have their claims classified in a particular class do not bind them to vote the claims to accept or 

reject. There can be no improper solicitation of a vote to accept or reject if the selection of 

classification does not include a commitment to vote.

80. The Oversight Board’s post-petition, pre-solicitation agreement is consistent with 

this Court’s ruling on the Commonwealth’s previous disclosure statement and plan of adjustment. 

CW FFCL ¶¶ 141, 143. Importantly, uninsured bondholders who accept the settlement retain the 

right to vote to accept or reject the Amended Plan.

81. Bankruptcy Code § 1125(b), incorporated into this Title III case through 

PROMESA § 301, provides acceptance or rejection of a plan of adjustment from holders of claims 

or interests may not be solicited unless a disclosure statement approved by the court is transmitted 

to such holder. 11 U.S.C. § 1125(b). Although the word “solicitation” is not defined in the Code, 

a majority of courts, including this Court, have held “solicitation” should be defined narrowly, 

holding that solicitation only occurs when there is an official vote for or against a plan.30 Postpetition agreements to support the terms of a claimholder’s treatment under a plan are 

commonplace, and do not run afoul of the requirements of Bankruptcy Code § 1125(b). Congress 

intended debtors and creditors be afforded flexibility to resolve disputes, and where possible, reach 

30 See Duff v. United States Tr. (In re Cal. Fidelity, Inc.), 198 B.R. 567, 571–72 (9th Cir. B.A.P. 1996) (recognizing that 

solicitation has been interpreted as a “specific request for an official vote” and that “most courts have reasoned that a 

broader construction of the term would curtail free and honest negotiations among creditors and, therefore, inhibit 

creditor participation in the debtor's reorganization.”) (citations omitted); In re Dow Corning Corp., 227 B.R. 111, 

118 (Bankr. E.D. Mich. 1999) (“Solicitation, then, is the process of seeking votes for or against a plan.”); In re Pleasant 

Hill Partners, L.P., 163 B.R. 388, 391 (Bankr. N.D. Ga. 1994) (holding that “[s]ection 1125 ‘solicitation’ is usually 

construed very narrowly”); In re Kellogg Square Partnership, 160 B.R. 336, 340 (Bankr. D. Minn. 1993) (“There is 

no . . . reason not to apply Century Glove’s rationale to the debtor in reorganization, so as to [describe] the concept of 

‘solicitation’ as [equivalent to] the formal polling process.”); In re Gilbert, 104 B.R. 206, 214 (Bankr. W.D. Mo. 1989) 

(agrees with Third Circuit that a broad definition of solicitation would tend to chill creditor negotiations); In re Rook 

Broad. of Idaho, Inc., 154 B.R. 970, 975 (Bankr. D. Idaho 1993) (“[S]ection 1125(b) . . . should be interpreted 

narrowly, to mean only a ‘specific request for an official vote.”) (citation omitted). 

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a consensual resolution of issues in contemplation of the development of a plan of adjustment. See 

In re Indianapolis Downs, LLC, 486 B.R. 286, 295 (Bankr. D. Del. 2013) (“[A] narrow 

construction of ‘solicitation’ affords [] parties the opportunity to memorialize their agreements in 

a way that allows a . . . case to move forward.”). 

82. In the Commonwealth Title III case, prior to approval of the disclosure statement, 

the Commonwealth proposed an exchange offer to all holders of uninsured bonds. The exchange 

offer proposed that in exchange for resolving outstanding disputes regarding the validity, priority, 

and asserted secured status of their bond claims, consenting bondholders would be deemed a party 

to the GO/PBA Plan Support Agreement (as defined in the CW FFCL), entitling them to a 

restriction fee, and allowing them to receive new general obligation bonds. See CW FFCL ¶ 142. 

The exchange offer was open to all holders of uninsured bonds, including retail bondholders. Id. 

For those that did not tender, they nonetheless remained eligible for a portion of the settlement 

distribution if their class voted to accept the Commonwealth plan of adjustment. Id. ¶ 143. 

83. Overruling objections that the commencement of the exchange offer prior to 

approval of the disclosure statement violated § 1125(b), the Title III Court found the 

commencement of the exchange offer was not a solicitation of votes to accept or reject the 

Commonwealth plan of adjustment because ballots were not distributed by the Solicitation Agent 

until after approval of the disclosure statement. Id. In so holding, the Title III Court relied on In 

re Heritage Organization, LLC, 376 B.R. 783, 793 (Bankr. N.D. Tex. 2007), where the court held 

an “agreement to accept the Debtor’s plan, made post-petition but before approval of the disclosure 

statement, remained executory until [the creditor] actually filed its accepting ballot . . . Neither the 

recitation in the disclosure statement, nor the parties’ execution of the written memorandum, 

constituted an acceptance of the plan as such.”

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84. As in Heritage, the Title III Court reasoned that the exchange offer was not a 

solicitation of votes in violation of § 1125(b), as ballots were not distributed until after disclosure 

statement approval, and “[t]he process of negotiation and solicitation of assent to the plan support 

agreements prior to the approval and distribution of the disclosure statement did not constitute 

improper solicitation of votes with respect to the Plan.” CW FFCL ¶ 141.

85. The Title III Court’s analysis is in accordance with the majority of courts that have 

construed the term “solicitation” to relate solely to the formal process of voting—i.e., where the 

ballot and disclosure statements are presented to the creditors in relation to a specific plan.31 The 

Ad Hoc Group and Syncora claim the Title III Court’s holding in connection with the 

Commonwealth plan of adjustment is inapplicable here because the GO/PBA Plan Support 

Agreement, unlike the Uninsured Bond Settlement Agreement, was the product of extensive 

negotiations by similarly situated bondholders. AHG Obj. ¶ 60 n.36; Syncora Obj. ¶¶ 67–68. But 

that is beside the point under the case law. Under the case law, including from this Court, the 

question is whether a formal vote is processed, not how “negotiated” the document distributed to 

creditors is or is not. This must be the case, because the bar is on “solicitation” and a solicitation 

either occurs or it does not—the extent of the negotiation that preceded the preparation of the 

materials sent to creditors cannot change whether a solicitation happens or not. Here, as no formal 

vote was processed, no solicitation occurred. Additionally, one of the main benefits of the 

Uninsured Bond Settlement Agreement is to provide entities who were not in the mediation the 

opportunity to settle. Thus, their lack of prior negotiations is precisely the condition being 

alleviated.

31 See supra n.29. 

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86. Syncora further asserts the Oversight Board justified the exchange offer in the 

Commonwealth’s Title III case as a procedural mechanism by which uninsured bondholders could 

tender and exchange their bonds, and that here, no such procedural mechanism exists. Syncora 

Obj. ¶ 68. In the Commonwealth’s Title III case, the Oversight Board explained that retail 

bondholders needed to tender their bonds in connection with the exchange offer as a procedural 

mechanism to track retail bondholders’ entitlement to certain fees; the exchange offer itself was 

not the procedural mechanism. See July 29, 2021 Hr’g Tr. 48:24–50:6. Here, the exchange offer 

is necessary to separate bondholders who have entered into the Uninsured Bond Settlement 

Agreement from those who have not by providing such settling bondholders a separate CUSIP. 

Doing so will allow the Debtor to track which bonds are subject to the Uninsured Bond Settlement 

Agreement, which would not be possible to do within the same CUSIP without restricting such 

holders from trading until the Effective Date. The exchange offer does not change the fact that no 

formal vote has taken place.

87. Moreover, the Uninsured Bond Settlement Agreement explicitly preserves 

signatories’ ability to accept or reject the Plan, while also retaining their rights under the 

settlement. Uninsured Bond Settlement Agreement at 4. The Uninsured Bond Settlement 

Agreement simply gives uninsured bondholders the opportunity to choose which class their claims 

should join, and provides a mechanism to differentiate between settling and non-settling 

bondholders for distribution purposes by issuing a separate CUSIP. Pursuant to the proposed

solicitation and tabulation procedures, any vote on the Plan cannot be made and recorded until 

after the Debtor has distributed the Court-approved disclosure statement. Objectors contend the 

requirement in the Uninsured Bond Settlement Offer’s provision requiring Settling Bondholders 

to “support, and not otherwise object to . . . confirmation of the Plan,” § 5.02, amounts to a “feebly 

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attempted jedi mind trick” that requires bondholders to vote in favor of the Amended Plan. 

Syncora Obj. ¶ 65. That is simply false. Nothing requires the claimholder to vote to accept. 

Nothing! The settlement provision barring the claimholder from objecting to the Plan is a standard 

provision in virtually any settlement in a Plan because the settlement cannot be implemented if the 

Plan is not confirmed. The settlement terms are not improper soliciations. As noted, the Uninsured 

Bond Settlement Offer expressly preserves the Settling Bondholders’ right to vote against the 

Amended Plan, Uninsured Bond Settlement Agreement at 4, and no formal vote has been 

processed. The Settling Bondholders’ agreement not to object to the Plan is no more an improper 

solicitation than any plan support agreement is, all of which (including, for example, the 2019 

RSA) contain terms requiring that the parties support a plan containing certain terms. 

II. THE DISCLOSURE STATEMENT PROVIDES ADEQUATE INFORMATION

88. Certain Objectors, including the Ad Hoc Group, the Committee, Syncora, Assured,

and the Bond Trustee contend the Disclosure Statement cannot be approved because it fails to 

incorporate adequate information for a variety of reasons. Most of these Objections have been 

addressed either by the amended Disclosure Statement’s inclusion of additional or amended 

language or are addressed in the attached Omnibus Reply Chart. Certain others are discussed 

substantively below. None support disapproval of the Disclosure Statement. As noted above, 

none of the objections asserting the need for more information are lodged by Objectors allowed to 

vote who do not already know exactly how they will vote.

A. The Disclosure Statement Adequately Apprises Creditors of their Recoveries 

in Various Scenarios.

89. The Committee objects that the Disclosure Statement is too complicated and 

contains too many contingencies to provide adequate information. UCC Obj. ¶¶ 38–43. In 

particular, the Committee believes (1) the document is too “complicated and convoluted” and 

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therefore incomprehensible to the average creditor, id. ¶ 39, and (2) the underlying recoveries are 

“premised on the outcome of multiple, inter-related contingencies that will determine creditor 

recoveries.” Id. ¶ 40. These objections are misplaced. 

90. First, precisely because the new bonds are allocated based on different litigation

outcomes, the Disclosure Statement includes a simple chart explaining the creditor’s return for 

each different outcome. See “Class Treatment Based on Litigation Outcomes” (at 38–41) and 

“Creditor Recovery Based on Litigation Resolution” (at 258–61). Second, because plans treat 

allowed claims and the $8 billion of bond claims are disputed and not allowed, there is no way to 

draft a plan without providing different plan treatments for different litigation outcomes for the 

disputed claims. That is likely why the Court required the Oversight Board to file a plan of 

adjustment “taking into account the litigation risk and economic issues that are in dispute” and 

permitting such a plan to “include alternative provisions addressing proposed resolutions 

contingent on different outcomes of the disputed issues.” ECF No. 3013 (the “Scheduling Order”) 

¶ 4. The Oversight Board has done just that, filing a plan providing different treatment to creditors 

dependent on, among other things, whether the Oversight Board prevails on (i) the Lien Scope 

Counts and (ii) the Recourse Counts. As these critical items of litigation are not resolved yet, these 

contingencies are simply unavoidable. And the Disclosure Statement explains, in plain language 

in two sections entitled “Class Treatment Based on Litigation Outcomes” (at 38–41) and “Creditor 

Recovery Based on Litigation Resolution” (at 258–61), how the outcomes of the Amended Lien 

& Recourse Challenge affect creditor recoveries.32 These explanations are contained in a variety 

of forms—both in the text in the aforementioned Disclosure Statement sections, and in flow charts 

32 The UCC requests the court delay confirmation of the Plan to allow for resolution of the Amended Lien & Recourse 

Challenge. UCC Obj. ¶ 41. The Court has already rejected this approach by requiring the Oversight Board to pursue 

confirmation and prosecution of the Amended Lien & Recourse Challenge simultaneously, Scheduling Order ¶ 4, and 

it should decline to adopt it here.

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and tables attached to the Disclosure Statement, illustrating the potential recovery for creditors 

based on key variables, such as the final number of Settling Bondholders and the result of the 

Amended Lien & Recourse Challenge. Disclosure Statement at 28. Such descriptions are more 

than adequate to satisfy the requirement, as articulated by the Committee itself, that the Disclosure 

Statement “clearly and succinctly inform the average unsecured creditor what it is going to get, 

when it is going to get it, and what contingencies there are to getting its distribution.” In re 

Ferretti, 128 B.R. 16, 19 (Bankr. D.N.H. 1991) (emphasis added); UCC Obj. ¶ 38. 

91. The Committee argues “[e]ven the most sophisticated general unsecured creditors 

are likely to find it extremely difficult to unpack the various defined terms, follow the complicated 

waterfall of plan currency under the various contingencies, and understand the numerous 

contingencies themselves and their impact on creditor recoveries.” UCC Obj. ¶ 40. Yet the 

Committee accomplishes this “extremely difficult” feat mere pages earlier, as the Committee

Objection provides a succinct explanation of the Plan’s “New Bonds Waterfall.” Id. ¶¶ 15–31. 

The variety of ways the Disclosure Statement explains the Amended Plan’s treatment give plenty 

of opportunity for unsecured claimholders to understand the contingencies that will affect their 

treatment and thus be able to make an informed decision of whether to vote in favor of the 

Amended Plan. PROMESA and the Bankruptcy Code require no more.

92. The Committee further objects that creditor recoveries cannot be known at this 

time. Id. ¶ 40. Given the potential all or nothing nature of the Amended Lien & Recourse 

Challenge, it is certainly true that recoveries for creditors—unsecured claimholders in particular—

can vary widely. But such contingencies are known and disclosed to creditors, and estimated 

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creditor recoveries are set forth succinctly on the chart of recoveries on page 28 of the Disclosure 

Statement.33

93. The contingent nature of creditor recovery or the complex terms of the underlying 

Plan do not constitute reasons to withhold approval of the Disclosure Statement. The Committee

does not, and cannot, point to any authority supporting such an assertion.34 Indeed, one of the 

authorities cited by the Committee notes that the Disclosure Statement must identify “what 

contingencies there are to getting [a creditor’s] distribution.” In re Ferretti, 128 B.R. at 19. The 

Bankruptcy Code itself contemplates the potential necessity for complex plans of adjustment and 

reorganization, as 11 U.S.C. § 1125(a)(1) requires a court to consider “the complexity of the case” 

in determining whether a disclosure statement includes “adequate information.” 11 U.S.C. § 

1125(a)(1). The Title III Court, the Committee, and all parties in interest are well aware of the 

complexity of PREPA’s Title III Case, a case spanning years of contentious litigation, in which 

33 The UCC observes that the results of the Settlement Offer Deadline shall be known by the Disclosure Statement 

hearing, and that the Oversight Board should update the illustrative recovery chart subsequent to such deadline. UCC 

Obj. ¶ 41. If indeed final results will be known prior to the Disclosure Statement hearing, the Oversight Board has no 

objection to providing such update, and will include an updated chart in the Court-approved version of the Disclosure 

Statement that will be distributed to creditors.

34 Beyond the boilerplate language quoted in the Committee Objection, the majority of the cases cited by them identify 

infirmities specific to the disclosure statements before the respective courts but not present here. See In re Ferretti, 

128 B.R. at 19–21 (listing 13 specific issues with the disclosure statement before the Court.); In re Worth, 29 B.R. 

220, 223–24 (Bankr. D. Colo. 1983) (identifying the additional information necessary for the debtor to satisfy the 

adequate information requirement under 11 U.S.C. § 1125(a) for that specific debtor); In re Forest Grove, LLC, 448 

B.R. 729, 734–38 (Bankr. D.S.C. 2011) (reviewing the adequacy of a debtor’s disclosures related to, among other 

things, (i) “Administrative Costs,” (ii) the “Debtor’s Future Income and Expenses,” and (iii) “appraisal values”). None 

of these cases take issue with contingent recoveries or complex plan structures. The remaining cases refused to 

approve disclosure statements that the relevant court found to be unclear, confusing, and unnecessarily complex. See 

In re Rodriguez Gas & Oil Servs., Inc., No. 08-50152, 2008 WL 4533687, at *1 (Bankr. S.D. Tex. Oct. 2, 2008) (“[The 

disclosure statement] is so tedious and so packed with unnecessary information that the Court was unable to dig out 

relevant, useful data without extraordinary effort.”); In re Copy Crafters Quickprint, Inc., 92 B.R. 973, 981 (Bankr. 

N.D.N.Y. 1988) (“The Court finds that the First Amended Disclosure Statement does not contain the kind of clarity 

nor realism required by the adequate information standard of [Bankruptcy] Code § 1125 with regard to this impaired 

class of unsecured creditors. Rather, it paints a positive and misleading picture unsupported by the Debtor's financial 

condition, the record or the Code.”). However, and as explained above, the Oversight Board went out of its way to 

include visual aids and plain language summaries of the potential recoveries contemplated in the Plan, as well as the 

Plan’s other key terms. See Disclosure Statement at 28, 37–42, 258–61. 

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time PREPA and the island of Puerto Rico suffered from (i) a global pandemic, (ii) two hurricanes, 

and (iii) many earthquakes, and in which important litigation remains unresolved. And any 

complexity left in the descriptions contained in the Disclosure Statement is not unnecessary, but 

rather an inevitable result of filing a plan before allowed claims are known.

B. The Disclosure Statement Adequately Apprises Creditors of the Risks of an 

Adverse Judgment in the Amended Lien & Recourse Challenge, Including 

that the Plan May Not Be Feasible in Certain Circumstances.

94. Multiple creditors, including the Committee (¶ 85), the Ad Hoc Group (¶¶ 33–36), 

and Syncora (¶¶ 22–23, 32–34) argue the Plan is an impermissible placeholder Plan that cannot be 

confirmed in every litigation scenario. Specifically, bondholders argue that if the Oversight Board 

loses on the Lien Scope Counts, the Plan does not provide enough consideration to bondholders to 

satisfy the fair and equitable requirement of Bankruptcy Code § 1129(b) with respect to cramming 

down dissenting secured claims and is infeasible, see, e.g., Syncora Obj. ¶ 35, and that that the 

Oversight Board did not adequately disclose the risk that the Plan may not be feasible in such a 

circumstance. See, e.g., UCC Obj. ¶ 85. The short answer is, if the Plan is not feasible or otherwise 

confirmable, it will not be confirmed and creditors will not be affected by it. As discussed above, 

supra Section I, these contentions do not come close to rendering the Amended Plan patently 

unconfirmable. They also fail to demonstrate flaws in the Disclosure Statement itself. The 

Disclosure Statement discloses—conspicuously—the risk the Plan might not be confirmable 

without material amendments if the Oversight Board loses the Amended Lien & Recourse 

Challenge in respect of future, unearned revenues. See, e.g., Disclosure Statement at 337–38 

(section explaining the risks given that “the Title III Court may determine, in connection with the 

Amended Lien & Recourse Challenge that the Bond Trustee possesses valid and perfected security 

interests in PREPA’s revenues or a portion thereof” such that confirmation of the Amended Plan 

may not be possible). The Objectors fail to recognize the lack of confirmation is not an issue for 

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voting. For voting, creditors need to know the risks if the Plan is confirmed, not if the Plan is not 

confirmed.

C. The Disclosure Statement Adequately Describes the Unsecured Claim Pool 

and the Range of Creditor Claims and Recoveries

95. The Committee asserts the Disclosure Statement cannot be approved because it 

does not provide sufficient information in support of the Oversight Board’s projection of $800 

million for the aggregate total of General Unsecured Claims. UCC Obj. ¶¶ 46–56. While the 

Oversight Board disagrees that the Disclosure Statement contains insufficient information on this 

issue, the Oversight Board has supplemented the Disclosure Statement to provide additional details 

in response to the Committee’s questions. Specifically, attached as Exhibit O to the Disclosure 

Statement is a table demonstrating the number of filed claims, their asserted amount, and the 

Oversight Board’s current low and high estimates for various categories of General Unsecured 

Claims, including trade claims, litigation claims, lease claims, PPOA claims, and more. The 

Oversight Board’s high and low estimates are based upon its ongoing review of the underlying 

factual and legal assertions made by each claimant. The Oversight Board believes its projected 

claim amount for General Unsecured Claims is well supported under the law and the facts 

presented in this Title III Case and is adequately explained in the Disclosure Statement. 

96. As an initial matter, the Debtor is not seeking Court approval to estimate claims for 

allowance, distribution, or voting purposes and is not seeking to impair the rights of any creditor. 

Rather, the Debtor is disclosing its reasonably best projection as to a mid-point regarding the 

ultimate potential quantum of allowed General Unsecured Claims for purposes of providing 

information to general unsecured claimholders regarding their potential recoveries under the Plan. 

Of course, as the Committee points out, the recovery for General Unsecured Creditors might be 

higher or lower depending on the ultimate amount of allowed unsecured claims. The uncertainty 

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is, again, unavoidable as the claim process is ongoing. This situation is not unusual in bankruptcy 

cases.

97. For purposes of the Disclosure Statement, the Oversight Board, in conjunction with 

its professional advisors, undertook an analysis and determination of claims within the class of 

General Unsecured Claims and, as a court would be required to do in any estimation proceeding, 

“evaluate[d] claims pursuant to the legal rules which may govern the ultimate value of the claim.” 

In re Perry, 425 B.R. 323, 342 (Bankr. S.D. Tex. 2010) (citing In re Brints Cotton Mktg., Inc., 737 

F.2d 1338, 1340–41 (5th Cir. 1984)). As demonstrated on Exhibit O to the Disclosure Statement, 

the Oversight Board estimates the amount of General Unsecured Claims to be approximately $800 

million, with a low estimated value of approximately $245 million and a high estimated value of 

approximately $4.86 billion. The large variance between the high and low estimates for the 

General Unsecured Claims values can generally be derived from three categories of General 

Unsecured Claims: (i) PPOA Claims, (ii) UTIER Employee Grievance Claims, and (iii) UITICE 

Litigation Claims. 

98. PPOA Claims: Almost $3 billion of the General Unsecured Claims pool has been 

asserted by 14 counterparties to terminated power purchase and operating agreements (“PPOAs”), 

each of whom alleges millions of dollars in damages relating to lost profits that such claimants 

believe they would have been entitled to pursuant to their underlying PPOAs. On the high end, 

the Oversight Board estimates that such claimants would hold General Unsecured Claims totaling 

approximately $2.78 billion. On the low end, based upon its analysis of the factual and legal bases 

for the claims, and in particular, the claimant’s entitlement to the damages asserted therein, the 

Oversight Board estimates the PPOA Claims to be valued at no more than $35 million. The 

Oversight Board expects to begin objecting to the PPOA Claims in the upcoming weeks. In the 

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meantime, however, the Oversight Board contends the holders of PPOA Claims are not entitled to 

claims asserted on account of lost profits because (i) each of the PPOAs was terminated in 

accordance with its terms and subject to provisions contained therein that prohibit the claimant 

from seeking additional damages upon termination, and (ii) under applicable law, lost profits 

claims are not compensable against governmental entities. Due to the infirmities with the PPOA 

Claims, which will be subject to further claims reconciliation in the ordinary course, the Oversight 

Board believes that these claims should be valued for purposes of the Disclosure Statement at no 

more than $35 million, rather than the asserted $2.78 billion.

99. UTIER Grievances: The UTIER Grievances Claim, which is asserted in Proof of 

Claim No. 52867, asserts approximately $1.1 billion in damages relating to the “impairment to the 

rights and benefits negotiated under the CBA” to UTIER’s employee base. Following the filing 

of the proof of claim, the Debtor requested additional information and supporting documentation 

from UTIER to support the asserted claim amount, and received approximately 50,000 physical 

documents relating to thousands of allegedly pending grievances, none of which included any 

valuation information or other supporting data. The Debtor’s professionals have been diligently 

reviewing the claims asserted in the documentation provided, with the assistance of Debtor 

employees with significant experience handling such claims. That review has identified 

approximately 26,000 individual claims, many of which may be duplicative of claims asserted in 

other contexts. On the basis of the historical claim valuation data for claims similar to the 

approximately 26,000 individual claims, the Debtor’s professionals estimate the UTIER 

Grievances may be allowed in an aggregate amount substantially lower than the asserted $1.1 

billion—indeed, likely a small fraction of this amount.

35

35 UTIER also filed a separate proof of claim in the amount of approximately $1.2 billion asserting damages it allegedly 

incurred as a result of the enactment of certain prepetition legislation by the Commonwealth, including Act 26-2017. 

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100. UITICE Litigation: The UITICE Litigation claim arises from proof of claim 

number 80187 filed against the Debtor by the Unión Insular de Trabajadores Industriales y de 

Construcción (“UITICE”), one of the Debtor’s previous employee unions. PREPA and UITICE 

were parties to a collective bargaining agreement that, among other things, provided that retired 

UITICE employees and their spouses “will receive the Comprehensive Health Program known as 

the AR Plan” and that the “rules and conditions” of the Health Benefits Program to be provided 

pursuant to the CBA “shall not be inferior to those currently in effect . . . or to the terms, conditions, 

and benefits negotiated in this agreement. The provider network will be materially similar to the 

current network in case of any change.” Collective Bargaining Agreement by and between PREPA 

and UITICE, Art. XXV, § 4. PREPA later altered the health insurance provider to provide similar 

coverage at a lower cost. UITICE challenged PREPA’s action, and PREPA was later ordered to 

compensate retired members of UITICE for any loss of benefits they suffered. Despite many 

requests, UITICE has failed to provide any documentation to support its asserted claim amount. 

PREPA intends to object to this claim and believes it should be reduced to $0 absent further 

documentary support for the alleged damages.

101. Finally, the Committee asserts the Disclosure Statement fails to provide sufficient 

information to creditors because it does not explicitly delineate the size of rejection damages 

claims related to the potential rejection of certain collective bargaining agreements (“CBAs”). As 

an initial matter, the Plan does not effectuate a rejection of any of its unions’ CBAs. The Oversight 

Board has not yet determined whether any such rejection will be necessary, and remains hopeful 

that a negotiated resolution on amended CBAs with each respective counterparty union may be 

This claim was effectively denied by this Court in its ruling in Adv. Pro. 17-ap-229, ECF No. 226. As any claim of 

UTIER based on legislation passed by the Commonwealth (and not PREPA), the Oversight Board has assigned a 

value of zero to this claim.

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reached through the ongoing mediation process. Moreover, as described in the Disclosure 

Statement, on January 24, 2022, the Oversight Board approved the Puerto Rico Thermal 

Generation Facilities Operation and Maintenance Agreement, signed by PREPA, the P3 Authority, 

and Genera PR LLC (the “Legacy Generation Asset O&M Agreement”). The Legacy Generation 

Asset O&M Agreement provides for Genera PR LLC to assume responsibilities for the 

management, operation, maintenance, management of fuel supply, and decommissioning, where 

applicable, of certain base-load generation plants and gas turbine peaking plants for PREPA. 

Among the significant benefits of the Legacy Generation Asset O&M Agreement is its benefits to 

PREPA’s employees by preserving existing jobs, as Genera PR LLC has pledged to interview and 

provide offers of employment to full-time PREPA plant generation employees in good standing 

and to give preference to non-plant PREPA employees in new roles. Accordingly, following 

implementation of the Legacy Generation Asset O&M Agreement, it is anticipated that PREPA 

would be left with very few union-represented employees, reducing the potential rejection 

damages to a de minimis amount. The most significant obligation under the CBAs is the 

requirement for PREPA to maintain a fully funded pension system for represented employees. 

This obligation is duplicative of the claim asserted by SREAEE and treated under the Plan in Class 

3. For these reasons, it is both premature to estimate any rejection damages claim, and the 

Oversight Board asserts that any such claim will likely be in a de minimis amount.

102. Adjusting the claims estimate table accordingly, PREPA reasonably estimates a 

low General Unsecured Claim value of approximately $245 million and a high General Unsecured 

Claim Value of approximately $916 million. Accordingly, PREPA asserts the projected allowed 

General Unsecured Claims estimate of approximately $800 million is a more than reasonable 

estimate within the low and high ranges of the spectrum.

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RESERVATION OF RIGHTS

103. The Oversight Board consented in advance to parties supplementing their 

objections to the Disclosure Statement following the filing of the First Amended Plan and First 

Amended Disclosure Statement. Accordingly, the Oversight Board reserves the right to amend or 

supplement this Reply based on supplemented objections filed to this Reply and the First Amended 

Plan and First Amended Disclosure Statement.

[Remainder of page intentionally left blank.]

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CONCLUSION

WHEREFORE the Debtor respectfully requests entry of an order, substantially in the form 

of the Revised Disclosure Statement Order attached hereto as Exhibit B, (i) overruling the 

Objections, (ii) granting the Disclosure Statement Motion and approving the adequacy of the 

information contained in the Disclosure Statement, and (iii) granting the Debtor such other and 

further relief as is just.

Dated: February 10, 2023

San Juan, Puerto Rico

Respectfully submitted,

/s/ Luis F. del Valle-Emmanuelli

Luis F. del Valle-Emmanuelli

USDC-PR No. 209514

P.O. Box 79897

Carolina, Puerto Rico 00984-9897

Tel. 787.647.3503

Fax. N/A

dvelawoffices@gmail.com

Of Counsel for A&S Legal Studio, PSC

434 Avenida Hostos

San Juan, PR 00918

Tel (787) 751-6764/763-0565

Fax (787) 763-8260

Co-Attorney for the Financial Oversight and 

Management Board as Representative for PREPA

/s/ Martin J. Bienenstock

Martin J. Bienenstock

Paul V. Possinger

Ehud Barak

Margaret A. Dale

Michael T. Mervis

Daniel S. Desatnik

Elliot R. Stevens

(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

mdale@proskauer.com

mmervis@proskauer.com

ddesatnik@proskauer.com

estevens@proskauer.com

Attorneys for the Financial 

Oversight and Management Board 

as representative for PREPA

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