Hearing Date: February 7, 2018 at 9:30 a.m. (Atlantic Standard Time)

Objection Deadline: February 1, 2018 at 5:00 p.m. (Eastern Standard Time)

UNITED STATES DISTRICT COURT

DISTRICT OF PUERTO RICO

-------------------------------------------------------------x

In re:

THE FINANCIAL OVERSIGHT AND 

MANAGEMENT BOARD FOR PUERTO RICO,

 as representative of 

THE COMMONWEALTH OF PUERTO RICO, et al.

 Debtors.1

-------------------------------------------------------------x

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 

(“PREPA”), 

 Debtor.

-------------------------------------------------------------x

PROMESA

Title III

No. 17 BK 4780-LTS

Court Filing Relates Only to PREPA 

and Shall Only be Filed in Case No. 

17-BK-4780 (LTS) 

URGENT JOINT MOTION OF THE FINANCIAL OVERSIGHT AND MANAGEMENT 

BOARD FOR PUERTO RICO AND THE PUERTO RICO FISCAL AGENCY AND 

FINANCIAL ADVISORY AUTHORITY FOR ENTRY OF INTERIM AND FINAL 

ORDERS (A) AUTHORIZING POSTPETITION SECURED FINANCING,

(B) GRANTING PRIMING LIENS AND PROVIDING SUPERPRIORITY 

ADMINISTRATIVE EXPENSE CLAIMS, (C) MODIFYING THE AUTOMATIC STAY, 

(D) SCHEDULING A FINAL HEARING, AND (E) GRANTING RELATED RELIEF 

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

The Puerto Rico Electric Power Authority (“PREPA” or the “Debtor”), by and through 

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

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

bankruptcy case number due to software limitations 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) 

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); (iv) Puerto Rico Highways and 

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

ID: 3808); and (v) Puerto Rico Electric Power Authority (“PREPA”) (Bankruptcy Case No. 17 BK 4780 (LTS)) 

(Last Four Digits of Federal Tax ID: 3747).

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ii

Debtor’s representative pursuant to section 315(b) of the Puerto Rico Oversight, Management, 

and Economic Stability Act (“PROMESA”),2 and the Puerto Rico Fiscal Agency and Financial 

Authority (“AAFAF”), as the entity authorized to act on behalf of PREPA pursuant to the 

authority granted to it under the Enabling Act of the Fiscal Agency and Financial Advisory 

Authority, Act 2-2017, respectfully submit this joint urgent motion (the “Urgent Motion”), 

pursuant to PROMESA section 207, sections 105(a), 361, 362, 364(c), 364(d), 503, 507, and 922

of title 11 of the United States Code (the “Bankruptcy Code”), made applicable to the Debtor’s

title III case pursuant to PROMESA section 301(a), rule 4001 of the Federal Rules of 

Bankruptcy Procedure (the “Bankruptcy Rules”), made applicable to this case pursuant to 

PROMESA section 310, and rule 4001-2 of the Local Bankruptcy Rules for the United States 

Bankruptcy Court for the District of Puerto Rico (the “Local Bankruptcy Rules”), made 

applicable to this case pursuant to the Order Further Amending Case Management Procedures

[Case No. 17-3283, Docket No. 1512] (the “Case Management Order”), for entry of an interim 

order substantially in the form attached hereto as Exhibit A (the “Interim Financing Order”) and 

a final order (the “Final Financing Order,”3 and together with the Interim Financing Order, the 

“Financing Orders”), (i) authorizing the Debtor to obtain postpetition financing on terms and 

conditions set forth herein and such other terms as are agreed to by the Debtor, the 

Commonwealth of Puerto Rico (“Puerto Rico” or the “Government of Puerto Rico” and in its 

capacity as lender, the “Lender”), as lender, and the Oversight Board and set forth in the credit 

agreement (as amended, supplemented or otherwise modified from time to time in accordance 

with the Financing Orders, the “Credit Agreement”) and the other agreements, documents, and 

instruments executed and delivered in connection therewith (each as hereafter amended, 

 2 PROMESA is codified at 48 U.S.C. §§ 2101-2241. 3 The Debtor will file the form of Final Financing Order prior to the Final Hearing (as defined herein).

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iii

supplemented, or otherwise modified from time to time in accordance with the Financing Orders,

and, together with the Credit Agreement, the “Credit Documents”), by and between the Debtor, 

as borrower, and the Lender,4 (ii) granting the Lender superpriority expense claims pursuant to 

Bankruptcy Code section 364(c)(1) and granting priming liens on the Collateral (defined below) 

pursuant to Bankruptcy Code section 364(d), each subject only to the Carve Out (as defined in 

the Interim Financing Order) (iii) granting stay relief, and (iv) prescribing the form and manner 

of notice and setting the time and date for the final hearing (the “Final Hearing”) on the Urgent 

Motion. In support of this Urgent Motion, the Debtor submits the declaration of Andrew Wolfe, 

attached hereto as Exhibit B (the “Wolfe Declaration”), the declaration of Todd W. Filsinger, 

attached hereto as Exhibit C (the “Filsinger Declaration”) and the declaration of Dustin 

Mondell, attached hereto as Exhibit D (the “Mondell Declaration”).

5

 In further support of this 

Urgent Motion, the Debtor respectfully represents as follows: 

 4 PREPA anticipates filing a substantially final form of the Credit Agreement with the Court on or prior to January 

31, 2018. 5 The Wolfe Declaration, the Filsinger Declaration and the Mondell Declaration have been filed simultaneously 

herewith.

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Table of Contents

Page

iv

Bankruptcy Rule 4001 Concise Statement.................................................................................................... 1

Jurisdiction and Venue.................................................................................................................................. 7

Background................................................................................................................................................... 8

I. General Background ........................................................................................................................ 8

II. The Debtor is Critical to the Recovery and Revitalization of Puerto Rico...................................... 9

III. The Debtor’s Historical Challenges............................................................................................... 11

IV. The Impact of Hurricanes Irma and Maria on the Debtor’s Liquidity........................................... 12

V. The Debtor Has an Immediate Need for Cash ............................................................................... 13

VI. The Structure of the Proposed Transaction Guarantees Adequate Protection ............................... 16

VII. Alternative Sources of Financing are Not Readily Available........................................................ 19

Relief Requested ............................................................................................................................21

Basis for Relief ..............................................................................................................................22

I. The Debtor Should be Authorized to Obtain Postpetition Financing through the Credit 

Documents .........................................................................................................................22

A. Entering into the Credit Documents Is an Exercise of the Debtor’s Sound 

Business Judgment................................................................................................ 22

B. The Debtor Should be Authorized to Grant Superpriority Claims and Priming 

Liens to the Lender ............................................................................................... 26

C. The Debtor Will Provide Substantial Information To the Creditors’ of PREPA and 

The Lender............................................................................................................ 34

D. No Comparable Alternative to the Facility is Reasonably Available ................... 34

II. The Lender Should be Afforded Good-Faith Protection under Bankruptcy Code Section 

364(e).................................................................................................................................37

III. The Automatic Stay Should be Modified on a Limited Basis...........................................38

IV. Failure to Obtain Immediate Interim Access to the Facility Would Cause Immediate and 

Irreparable Harm................................................................................................................40

Request for Final Hearing..............................................................................................................41

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v

TABLE OF AUTHORITIES

Page(s)

CASES

Anchor Savs. Bank FSB v. Sky Valley, Inc.,

99 B.R. 117 (N.D. Ga. 1989).............................................................................................40, 46

Bank of New England v. BWL, Inc.,

121 B.R. 413 (D. Me. 1990) ....................................................................................................44

Bray v. Shenandoah Fed. Sav. & Loan Ass’n (In re Snowshoe Co.),

789 F.2d 1085 (4th Cir. 1986) ...........................................................................................34, 46

Confederation Life Ins. Co. v. Beau Rivage Ltd.,

126 B.R. 632 (N.D. Ga. 1991).................................................................................................44

In re 495 Cent. Park Ave. Corp.,

136 B.R. 626 (Bankr. S.D.N.Y. 1992).....................................................................................44

In re Ames Dep’t Stores,

115 B.R. ...................................................................................................................................47

In re Ames Dep’t Stores, Inc.,

115 B.R. 34 (Bankr. S.D.N.Y. 1990).................................................................................34, 39

In re Autoseis, Inc.,

No. 14-20130 (RSS) (Bankr. S.D. Tex. Mar. 27, 2014)..........................................................51

In re Beker Indus. Corp.,

58 B.R. 725 (Bankr. S.D.N.Y. 1986).......................................................................................41

In re Broadway 401 LLC,

No. 10-10070 (KJC) (Bankr. D. Del. Feb. 16, 2010) ..............................................................51

In re Buckingham Oil Interests, Inc.,

No. 15-13441 (JNF) (Bankr. D. Mass. Dec. 2, 2015)..............................................................51

In re Campbell Sod, Inc.,

378 B.R. 647 (Bankr. D. Kan. 2007) .......................................................................................44

In re City of Detroit, Michigan,

No. 13-53846 (SWR), Docket No. 4108 (Bankr. E.D. Mich. Apr. 16, 2014).........................51

In re Crouse Grp., Inc.,

71 B.R. 544 (Bankr. E.D. Pa. 1987) ..................................................................................38, 39

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vi

In re Curlew Valley Assocs.,

14 B.R. 506 (Bankr. D. Utah 1981).........................................................................................35

In re Exide Techs.,

340 B.R. 222 (Bankr. D. Del. 2006)........................................................................................35

In re Farmland Indus., Inc.,

294 B.R. 855 (Bankr. W.D. Mo. 2003)....................................................................................35

In re Haights Cross Commc’ns, Inc.,

No. 10-10062 (BLS) (Bankr. D. Del. Feb. 8, 2010) ................................................................52

In re Hamilton Square Assocs.,

No. 91-14720S, 1992 WL 98294 (Bankr. E.D. Pa. May 5, 1992)...........................................44

In re Hubbard Power & Light,

202 B.R. 680 (Bankr. E.D.N.Y. 1996).....................................................................................45

In re Hudson,

No. 208-09480, 2011 WL 1004630 (Bankr. M.D. Tenn. Mar. 16, 2011) ...............................43

In re Jim Kelley Ford of Dundee, Ltd.,

14 B.R. 812 (N.D. Ill. 1981) ....................................................................................................42

In re L.A. Dodgers LLC,

457 B.R. 308 (Bankr. D. Del. 2011)........................................................................................34

In re Lagoon Breeze Dev. Corp.,

No. BR 10-15177-MM11, 2011 WL 939016 (Bankr. S.D. Cal. Mar. 14, 2011).....................43

In re Ledgemere Land Corp.,

125 B.R. 58 (Bankr. D. Mass. 1991) .......................................................................................44

In re Mosello,

195 B.R. 277 (Bankr. S.D.N.Y. 1996).....................................................................................41

In re Plabell Rubber Prods., Inc.,

137 B.R. 897 (Bankr. N.D. Ohio 1992)...................................................................................46

In re Ralar Distribs.,

166 B.R. 3 (Bankr. D. Mass. 1994) .........................................................................................44

In re Realty Sw. Assocs.,

140 B.R. 360 (Bankr. S.D.N.Y. 1992).....................................................................................41

In re Salem Plaza Assocs.,

135 B.R. 753 (Bankr. S.D.N.Y. 1992).....................................................................................42

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vii

In re Simasko Production Co.,

47 B.R. 444 (D. Colo. 1985)....................................................................................................35

In re St. Mary Hosp.,

86 B.R. 393 (Bankr. E.D. Pa. 1988) ........................................................................................39

In re Stanley Hotel, Inc.,

15 B.R. 660 (D. Colo. 1981)....................................................................................................46

In re TMP Directional Mktg., LLC,

No. 11-13835 (MFW) (Bankr. D. Del. Jan. 17, 2012).............................................................51

In re Trans World Airlines, Inc.,

163 B.R. 964 (Bankr. D. Del. 1994)........................................................................................34

In re Yellowstone Mountain Club, LLC,

No. 08-61570-11, 2008 WL 5875547 (Bankr. D. Mont. Dec. 17, 2008) ................................43

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

136 S. Ct. 1938 (2016).............................................................................................................21

Richmond Leasing Co. v. Capital Bank, NA.,

762 F.2d 1303 (5th Cir. 1985) .................................................................................................35

Unsecured Creditors’ Comm. Mobil Oil Corp. v. First Nat’l Bank & Trust Co. (In 

re Elingsen McLean Oil Co., Inc.),

65 B.R. 358 (W.D. Mich. 1986) ..........................................................................................35, 8

STATUTES

11 U.S.C. § 105..............................................................................................................................11

11 U.S.C. § 361..............................................................................................................................17

11 U.S.C. § 362...................................................................................................................... passim

11 U.S.C. § 363..............................................................................................................................34

11 U.S.C. § 364...................................................................................................................... passim

11 U.S.C. § 503....................................................................................................................4, 36, 37

11 U.S.C. § 507..............................................................................................................................11

11 U.S.C. § 922..............................................................................................................................31

28 U.S.C. § 1930............................................................................................................................10

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viii

Additional Supplemental Appropriations for Disaster Relief Requirements Act of 

2017, Pub. L. No. 115-27, 131 Stat. 1224 (enacted Oct. 26, 2017).........................................26

Clean Air Act .................................................................................................................................23

Stafford Act (42 U.S.C. § 5121 et seq.,)........................................................................................12

OTHER AUTHORITIES

Bankruptcy Rules 2002..................................................................................................................14

Bankruptcy Rule 4001 ........................................................................................................... passim

Bankruptcy Rule 6004 ...................................................................................................................14

Bankruptcy Rule 7052 .....................................................................................................................3

Bankruptcy Rule 7062 ...................................................................................................................14

Bankruptcy Rule 9014 ...................................................................................................................14

https://obamawhitehouse.archives.gov/blog/2016/06/07/puerto-ricos-fiscalcrisiswhat-you-need-know ...............................................................................................................21

Jeffrey Zients, Puerto Rico’s Fiscal Crisis: What You Need to Know..........................................20

Letter from Richard Blumenthal et al. to Charles Grassley, Chair, S. Judiciary 

Comm. (Sept. 30, 2015), http://www.puertoricoreport.com/wpcontent/uploads/2015/10/Letter-to-Grassley-re- Puerto-Rico-9-30-15.pdf.............................21

Local Bankruptcy Rule 4001-2......................................................................................................12

Local Bankruptcy Rule 4002-1......................................................................................................19

Local Bankruptcy Rule 9013-1......................................................................................................53

Opinion and Order Denying Motion for Preliminary Injunction and Motion for 

Relief from the Automatic Stay ................................................................................................42

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Bankruptcy Rule 4001 Concise Statement

1. In accordance with Bankruptcy Rule 4001(c)(1)(B) and Local Rule 4001-2, below 

is a summary of selected terms of the Facility (defined below), together with references to the 

applicable sections and provisions of the Interim Financing Order and the Credit Documents.

1

Material Term Summary

Borrower The Puerto Rico Electric Power Authority, Title III debtor

Lender The Commonwealth of Puerto Rico, Title III debtor

Revolving Facility Up to $1.3 billion revolver.

A senior secured priming super-priority revolving credit facility in an 

aggregate amount at any one time outstanding of not in excess of $1.3 

billion (the “Facility”), subject at any time to the then applicable 

Commitment of the Lender.

Commitment of the 

Lender

The Commitment of the Lender shall initially be $550 million (the 

“Commitment”, which Commitment may be increased (a) only if 

subsequently approved by the Lender and the Oversight Board (defined 

below), (b) only in increments of $250 million each, up to a maximum 

Commitment amount of $1.3 billion (each, a “Step Increase”), (c) only 

after entry of the Final Financing Order, and (d) to the extent approved 

by necessary governmental action of the Lender. For the avoidance of 

doubt, each Step Increase will require the approval of the Lender and 

the Oversight Board, but will not require the approval of the Title III 

Court.

Availability Prior to Final Hearing: up to $550 million

After Final Hearing: up to $1.3 billion

Until the Maturity Date (as defined below) and so long as no default or 

event of default exists under the Facility that has not been cured or 

waived, upon satisfaction or waiver of the conditions precedent to loans 

as set forth in the final documentation for the Facility, revolving loans 

under the Facility (“Loans”) shall be available to the Debtor; provided 

that the Loans in the aggregate at any one time outstanding shall not 

exceed the then applicable Commitment (the “Availability”) as 

 1 The summaries contained in this Urgent Motion are qualified in their entirety by the provisions of the documents 

referenced. To the extent anything in this Urgent Motion is inconsistent with such documents, the terms of the 

applicable documents shall control. Capitalized terms used in the summary chart but not otherwise defined have 

the meanings given to them in the Interim Financing Order or the Credit Documents, as applicable.

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2

Material Term Summary

approved by the Lender and the Oversight Board as set forth above 

(including any then-approved Step Increase); provided, however, upon 

60 days’ notice to the Debtor, if cash in the Puerto Rico Department of 

Treasury Treasury Single Account is projected to fall below $800 

million during such 60-day period and no third-party source of capital 

(e.g. a community disaster loan under the Stafford Act (42 U.S.C. § 

5121 et seq.,) (“CDL”)) is available to the Lender (a “Commonwealth 

Financing”), no further Loans shall be available under the Facility 

unless otherwise agreed to by the Lender with the consent of the 

Oversight Board. 

Subject to the terms and conditions of the final documentation for the 

Facility, the Loans may be borrowed, repaid and borrowed and shall be 

available as follows:

(i) upon entry of an the Interim Financing Order confirming the 

provisions set forth in “Security and Priority” below, including granting 

to the Lender a perfected first priority priming lien on all Revenues for 

the full amount of all obligations under the Facility and otherwise in 

form and substance satisfactory to the Lender, the Oversight Board, and 

the Debtor, the amounts available under the Facility shall not exceed 

$550 million; and 

(ii) upon entry of the Final Financing Order confirming the provisions 

set forth in “Security and Priority” below, including granting to the 

Lender a perfected first priority priming lien on all Revenues for the 

full amount of all obligations under the Facility and otherwise in form 

and substance satisfactory to the Lender, the Oversight Board, and the 

Debtor, the remaining Loans (the “Full Availability”) shall become 

available to the Debtor under the Facility subject to the then applicable 

Commitment as approved by the Oversight Board.

Existing Trust 

Agreement

That certain Trust Agreement, dated as of January 1, 1974, between the 

Debtor and State Street Bank and Trust Company, N.A., as amended, 

restated or otherwise modified from time to time (the “Trust 

Agreement”), pursuant to which, among other things, the Debtor issued 

certain bonds (the “Power Revenue Bonds”) secured by a lien on all the 

Debtor’s “Revenues” (as defined in the Trust Agreement).

Segregated Account Proceeds of the Loans shall be maintained in a segregated account (the 

“Segregated Account”) and the Financing Orders shall provide that 

such proceeds are not subject to any lien of any creditor other than the 

Lender and shall be used solely as permitted herein.

Security and Priority Superpriority claim

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3

Material Term Summary

First priming lien

All obligations under the Facility shall constitute a superpriority

administrative claim in the Title III Case pursuant to 11 U.S.C. § 

364(c)(1) and shall be secured by a perfected first priority priming 

security interest in all Revenues (as defined in the Trust Agreement) 

pursuant to 11 U.S.C. § 364(d). For the avoidance of doubt, the liens 

and security interests of the Lender in the Revenues shall prime the 

liens securing the Power Revenue Bonds.

All payments under the Facility shall be payable from the General Fund 

at the level of Current Expenses under the Trust Agreement and, upon 

confirmation of a plan of adjustment, as a superpriority administrative 

claim and, subject to the Carve Out (as defined below) before payment 

or distribution on other administrative claims and pre-petition claims 

(including those for Current Expenses) and senior to the repayment of 

the Power Revenue Bonds. 

The security interests, liens and superpriority administrative claim will 

be subject only to a carve-out for professional fees and costs of 

administration incurred during the Title III Case (defined below) of the 

Debtor (as approved by the Court), any state matching requirements of 

Federal grants and loans and certain fees due and owing to the Office of 

the United States Trustee as set forth in the Title III Order (collectively 

the “Carve Out”). 

Required Consents Prior to the Closing (defined below) and Interim Borrowing, the 

Facility shall have been approved (a) by (i) the Oversight Board (ii) the 

Puerto Rico Fiscal Agency & Financial Advisory Authority 

(“AAFAF”), and (iii) the PREPA Board of Directors and (b) through (i) 

appropriate governmental action of the Lender approving the making of 

the Loans and (ii) entry of the Financing Orders by the Court.

Use of Proceeds The proceeds of the Loans shall be used to make expenditures and 

disbursements: (i) for the Debtor’s operations including, without 

limitation, employee payroll and benefits, facilities maintenance costs 

that are not capital expenditures or infrastructure improvements, and 

normal operational materials, supplies, fuel and power supplies, vendor, 

and services payments (collectively, “Eligible Uses”) and (ii) for 

reimbursement of amounts expended for Eligible Uses from September 

6, 2017 until the funding of the Loans.

Ineligible Uses Unless otherwise specifically consented to in writing by the Lender and 

the Oversight Board, the proceeds of the Loans shall not be used for 

debt service; capital improvements; repair or restoration of damaged 

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4

Material Term Summary

public facilities; paying the non-federal share of any Federal program; 

tax refunds; lobbying; Title III costs including but not limited to 

judgments arising from Title III cases and related cases, and legal or 

advisory fees; deposits, transfers, or payments to accrual accounts, 

reserve funds, or contingency accounts that do not represent an actual, 

immediate cash disbursement to continue current government 

operations for essential services; administrative costs of Federal disaster 

assistance grants and loans; or disaster related expenditures eligible for 

reimbursement from the Federal Government; or any expense that is not 

a “Current Expense” under the Trust Agreement (collectively, the 

“Ineligible Uses”).

Budget Subject to the limitations on use of proceeds set forth herein, the Loans 

shall be available to fund disbursements consistent with the Debtor’s 

initial 13-week cash-flow budget setting forth all projected cash receipts 

and cash disbursements on a weekly basis for the Debtor as approved 

by the Lender and the Oversight Board (the “Initial 13-Week Budget,” 

attached hereto as Exhibit E2 and together with any updated 13-Week 

Budget approved by the Lender, the “13-Week Budget”) and thereafter 

the 13-Week Budget.

The 13-Week Budget shall separately identify disbursements for 

Eligible Uses (or permitted reimbursement thereof) and Ineligible Uses. 

The 13-Week Budget shall also identify the uncommitted balance in the 

Segregated Account.

Disbursements for Eligible Uses (other than disbursements that are to 

be paid from Federal funds that have been obligated, which shall not be 

subject to the test or limited by the 13-Week Budget) may exceed those 

set forth in the applicable 13-Week Budget for any cumulative fourweek period (beginning with the period ending after the first full fourweek period after the Facility is entered into) for Eligible Uses by 15% 

in the aggregate (the “Eligible Use Variance”). 

All disbursements for Ineligible Uses (other than Ineligible Uses that 

are subject to the Carve Out or any FEMA reimbursable expense for 

contracts that have been obligated by FEMA and approved by the 

Oversight Board, which uses shall not be subject to the test or limited 

by the 13-Week Budget) may exceed those set forth in the applicable 

13-Week Budget for any cumulative four week period (beginning with 

the period ending after the first full four week period after the Facility is 

entered into) for Ineligible Uses by 15% in the aggregate (the 

 2 Exhibit E, attached hereto, includes a proposed Initial 13-Week Budget. 

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5

Material Term Summary

“Ineligible Use Variance”). 

The Debtor shall update the Initial 13-Week Budget no later than the 

second week after the Initial Draw and every four weeks thereafter (the 

“Regular Updates”) and submit such updated 13-Week Budget to the 

Lender and the Oversight Board. Unless objected to by the Lender and 

the Oversight Board pursuant to the following provision, such updated 

13-Week Budget pursuant to a Regular Update shall be the 13-Week 

Budget for all purposes under the Facility commencing on the first day 

of the period set forth in such updated 13-Week Budget. The Lender

and the Oversight Board shall have 14 calendar days to approve or 

object to a Regular Update. If either the Lender or the Oversight Board 

objects, the prior 13-Week Budget shall remain in effect until the end of 

the 13-week period, or the Debtor submits a revised budget that is not 

objected to by the Lender or the Oversight Board. 

With the Regular Updates, and as otherwise reasonably requested by 

the Lender or the Oversight Board, the Debtor shall provide reasonable 

financial information and supporting data requested by Lender and the 

Oversight Board.

Voluntary 

Prepayments

The Loans shall be prepayable by the Debtor in whole or in part at any 

time without premium or penalty.

Mandatory 

Prepayments

Promptly upon the receipt of any Revenues, the Debtor shall apply such 

Revenues to the repayment of the outstanding Loans; provided, that the 

Debtor may retain Revenues sufficient to (i) pay budgeted expenses for 

Ineligible Uses provided for in the 13-Week Budget, expenses for 

Ineligible Uses that are subject to the Carve Out, or any FEMA 

reimbursable expense for contracts that have been obligated by FEMA 

and approved by the Oversight Board and (ii) maintain an operating 

reserve of up to $300 million (which funds can be used at the discretion 

of the Debtor for expenses for Eligible Uses provided for in the 13-

Week Budget or for expenses for Ineligible Uses provided for in the 13-

Week Budget, expenses for Ineligible Uses that are subject to the Carve 

Out, or any FEMA reimbursable expense for contracts that have been 

obligated by FEMA and approved by the Oversight Board).

Refinancing If CDLs become available directly to the Debtor (on the same or better 

terms) and under the definitive documentation of the CDL refinancing 

is permitted, the Debtor shall refinance the Facility with the CDL. 

In addition, after entry of the Interim Financing Order, the Debtor shall 

publicly post a term sheet setting forth the terms of the Facility on 

EMMA and the Debtor (through AAFAF) shall reasonably consider all 

proposals submitted to the Debtor to refinance the Facility. In 

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6

Material Term Summary

considering such proposals the Debtor shall take into account all 

economic terms and other terms and conditions of such proposal and 

shall consult with the Oversight Board with respect to any such 

proposals. Any alternative financing shall be subject to Oversight 

Board approval under PROMESA section 207.

Maturity Date The outstanding balance of the Loans will mature (in any event, the 

“Maturity Date”) on the earlier of (i) the 30th anniversary of the Closing 

Date (defined below) or (ii) the Termination Date (defined below).

Closing The date on which the closing occurs (the “Closing Date”).

Termination Date The Termination Date shall occur on the earliest of (i) the date on 

which all the Loans and other obligations thereunder have been 

indefeasibly repaid in full in cash (and the Commitment has been 

terminated), (ii) the effective date of a confirmed plan of adjustment in 

the Title III Case (unless an alternative treatment is agreed to by the 

Lender and consented to by the Oversight Board), and (iii) the date of 

termination of the Commitment and/or acceleration of any outstanding 

extensions of credit under the Facility following the occurrence and 

during the continuance of an Event of Default (as defined below).

Interest Rate Each Loan shall bear interest in the following amounts on the following 

schedule commencing for each Loan on the date of funding of such

loan:

Interest Period Interest Rate

First Semi-Annual Period 0.00%

Second Semi-Annual Period 0.50%

Third Semi-Annual Period 1.00%

Fourth Semi-Annual Period 1.50%

Fifth Semi-Annual Period 2.00%

Sixth Semi-Annual Period 2.50%

Thereafter 3.00%

In addition, in the event the Lender funds any Loans with proceeds of a 

Commonwealth Financing, the interest rate on such Loans shall 

automatically step-up to be equal to the interest rate on such 

Commonwealth Financing (the “Step-Up”). In the event of a Step-Up, 

interest shall be payable on the same interest payment dates provided

for in the Commonwealth Financing.

Loan Forgiveness If all or any portion of any Commonwealth Financing is forgiven by its 

lender from time to time, the Facility shall be forgiven in an amount 

equal to the amount of the third-party source of capital that is forgiven. 

Other Terms and The Facility will contain, in addition to those items set forth in this 

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Material Term Summary

Conditions Urgent Motion, representations and warranties, financial, affirmative 

and negative covenants, conditions precedent and such other terms and 

conditions as may be agreed to between the Lender, the Oversight 

Board, and the Debtor; provided, however, that there shall be no terms 

and conditions that provide for restrictions on the transformation of the 

energy sector or on the transfer of the Debtor’s assets.

Reporting Covenants The affirmative covenants shall include that the Debtor shall provide 

the following reporting to the Lender and the Oversight Board (with 

copies provided to the creditors of the Lender and Debtor who are party 

to the mediation agreement) updated on a weekly basis:

(i) Cash balance; 

(ii) Statement of cash flows; 

(iii) Total accounts payable and, if available, accounts payable 

aging schedule; 

(iv) Total accounts receivable and, if available, accounts 

receivable aging schedule; 

(v) Grid restoration report while the restoration activities are 

ongoing; and 

(vi) Generation status report while the restoration activities are 

ongoing.

Event of Default “Events of Default” under the Loan Documents shall include (i) the 

failure by the Debtor to pay, when due and payable, all or any portion 

of the obligations consisting of principal, interest, fees, or charges due 

to the Lender under the Facility, and (ii) after 30-days’ written notice, 

any breach of material covenants that have not been cured or waived. 

Upon an Event of Default, the Lender shall have the right to declare the 

Commitment terminated and/or to accelerate the repayment obligations 

under the Facility (the “Acceleration”). 

The loan documents shall provide that, upon Acceleration, Revenues 

shall be applied on an ongoing basis first, to the payment of expenses 

that constitute the Carve Out; second, to the payment of Eligible Uses 

in accordance with the 13 Week Budget; third, unless consented to by 

the Lender and the Oversight Board, to the repayment of any 

outstanding Loans under the Facility; forth, to the payment of any 

Current Expenses or necessary operating expenses that do not constitute 

Eligible Uses, and fifth, to the extent not covered by one of the 

proceeding categories, in accordance with Article 5 of the Trust 

Agreement. 

 

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Jurisdiction and Venue

2. The Court has subject matter jurisdiction over this Urgent Motion pursuant to 

PROMESA section 306(a).

3. Venue is proper in this district pursuant to PROMESA section 307(a).

4. The statutory bases for the relief requested herein are PROMESA section 207,

Bankruptcy Code sections 105(a), 361, 362, 364(c), 364(d), 503, 507, and 922 made applicable 

to this case pursuant to PROMESA section 301(a), Bankruptcy Rule 4001, made applicable to 

this case pursuant to PROMESA section 310, and Local Bankruptcy Rule 4002-1, made 

applicable to this case pursuant to the Case Management Order.

5. Prior to filing this Urgent Motion, certain holders of general obligation (“GO”) 

debt of Puerto Rico advised the Oversight Board in writing that they oppose any lending from 

the Government of Puerto Rico to the Debtor without court approval, and that they oppose the 

concept of the Government of Puerto Rico borrowing from the federal government to lend to the 

Debtor. While the Government of Puerto Rico and the Debtor never intended to enter into this 

loan transaction without court approval in the PREPA Title III case, the Government of Puerto 

Rico cannot necessarily assuage the GO debtholders’ general opposition or their statements that

they might seek stay relief and oppose any plan of adjustment. The terms of the Facility provide 

Puerto Rico with the best protections allowed under the statutes. Additionally, Puerto Rico and 

the Debtor must be recognized as integral components of one economy where they must act in 

the best interests of the territory, and not act as lone rangers. The Government of Puerto Rico

created the Debtor for the benefit of the territory and they rely on each other to safeguard and 

foster health, safety, and commerce for the benefit of all the people, businesses, and creditors. 

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Background

I. General Background

6. On June 30, 2016, the Oversight Board was established under PROMESA section 

101(b). On August 31, 2016, President Obama appointed the Oversight Board’s seven voting 

members.

7. Pursuant to PROMESA section 315, “[t]he Oversight Board in a case under this 

title is the representative of the debtor” and “may take any action necessary on behalf of the 

debtor to prosecute the case of the debtor, including filing a petition under section 304 of

[PROMESA] . . . or otherwise generally submitting filings in relation to the case with the court.”

8. On September 30, 2016, the Oversight Board designated the Debtor as a covered 

entity under PROMESA section 101(d).

9. On June 29, 2017, the Oversight Board issued a restructuring certification 

pursuant to PROMESA sections 104(j) and 206. On July 2, 2017 (the “Petition Date”), the 

Oversight Board filed a voluntary petition for relief for the Debtor pursuant to section 304(a) of 

PROMESA, commencing a case under title III thereof (the “Title III Case”).

10. Background information regarding the Debtor and the commencement of the 

Debtor’s Title III Case is contained in the Notice of Statement of Oversight Board Regarding 

PREPA’s Title III Case [Case No. 17-4780, Docket No. 2].

II. The Debtor is Critical to the Recovery and Revitalization of Puerto Rico

11. Puerto Rico is in the midst of an unprecedented economic and humanitarian 

crisis3 exacerbated by Hurricanes Irma and Maria. Complicating Puerto Rico’s ability to service 

 3 Before Congress enacted PROMESA, the Obama Administration and a dozen U.S. Senators concluded Puerto 

Rico faced a humanitarian crisis. See Jeffrey Zients, Puerto Rico’s Fiscal Crisis: What You Need to Know, THE 

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its debt is the reality that, prior to the passage of Hurricanes Irma and Maria, Puerto Rico was 

already on the verge of being unable to provide its citizens with the most basic services, such as 

police and fire protection, education, sewer and water services, medical care, and critically, 

electricity.

4

 Indeed, Puerto Rico has declared a state of fiscal emergency in which it has 

acknowledged that it does not have sufficient resources to protect the health, safety, and welfare 

of the people of Puerto Rico.5

12. As was true before Hurricanes Irma and Maria, and what has become more 

evident after them, the Debtor is the linchpin in Puerto Rico’s overall recovery and revitalization. 

The Debtor was created in 1941 as a public corporation and governmental instrumentality of 

Puerto Rico by Act No. 83 of the Legislative Assembly of Puerto Rico, approved May 2, 1941 

(the “Authority Act”). Pursuant to the Authority Act, the Debtor is charged with the 

conservation, development, and utilization of the energy resources of Puerto Rico to promote the 

general welfare of Puerto Rico’s inhabitants and to increase commerce and prosperity. Authority 

Act § 6. The Debtor generates, transmits, and distributes substantially all the electric power used 

in Puerto Rico. See Docket No. 1, at 7. The Debtor is one of the largest municipal utilities in the 

United States, ranking first in number of clients and revenues.6 See Debtor’s Fiscal Plan at 8. 

The Debtor has issued approximately $8.3 billion in Power Revenue Bonds under the Trust 

 

WHITE HOUSE (June 7, 2016, 1:40 PM), https://obamawhitehouse.archives.gov/blog/2016/06/07/puerto-ricosfiscalcrisis-what-you-need-know; Letter from Richard Blumenthal et al. to Charles Grassley, Chair, S. Judiciary 

Comm. (Sept. 30, 2015), http://www.puertoricoreport.com/wp-content/uploads/2015/10/Letter-to-Grassley-rePuerto-Rico-9-30-15.pdf. See, e.g, Puerto Rico v. Franklin Cal. Tax-Free Tr., 136 S. Ct. 1938, 1942 (2016). 4 See PROMESA § 405(m). 5 See Act No. 21-2016 and Act No. 3-2017. 6 Puerto Rico Electric Power Authority Fiscal Plan at 8, Apr. 28, 2017, available at

https://juntasupervision.pr.gov/wp-content/uploads/wpfd/50/590a2c5d7d41d.pdf (hereinafter, the “Debtor’s 

Fiscal Plan”).

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Agreement, which are purportedly secured by security interests on the Debtor’s Revenues (as 

defined in the Trust Agreement)

13. Because economic growth in Puerto Rico is highly sensitive to electricity prices,

the Debtor’s reconstruction and ultimate ability to provide reliable power at reasonable rates is 

essential not only to the Debtor’s recovery, but also to that of Puerto Rico and its other 

instrumentalities.

7 The Debtor’s recovery efforts in the coming months will set the stage for 

providing reliable and safe electrical service to Puerto Rico at rates consistent with the Debtor’s 

and Puerto Rico’s economic recovery and revitalization efforts.

III. The Debtor’s Historical Challenges

14. Prior to the devastation of Hurricanes Irma and Maria and over the past several 

decades, the Debtor faced challenges that have degraded its financial and operating condition.8

Those challenges include: a prolonged recession leading to a significant drop in energy sales; 

inadequate reinvestment leading to old, inefficient, and unreliable transmission, distribution, and 

generation facilities and outdated information and technology systems; a high dependence on 

expensive fuel oil; relatively high levels of electricity theft and non-technical losses; and a 

disorganized customer service infrastructure.9 Those challenges were compounded by the fact 

that the Debtor operates in a challenging terrain and in an environment prone to natural 

 7 See Declaration of Andrew Wolfe in Support of Opposition of the Financial Oversight and Management Board 

for Puerto Rico to the Motion of the Ad Hoc Group of PREPA Bondholders, National Public Finance Guaranty 

Municipal Corp., Assured Guaranty Corp., Assured Guaranty Municipal Corp., and Syncora Guarantee Inc. for 

Relief from the Automatic Stay to Allow Movants to Enforce their Statutory Right to Have a Receiver Appointed

[Case No. 17-4780, Docket No. 149-2] (the “Wolfe Receiver Declaration”) at ¶¶ 48–59. 8 Debtor’s Fiscal Plan at 9. 9 Id.

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disasters.10 Lower demand due to outmigration was a challenge even before Hurricane Maria 

exacerbated the situation.11

15. As a result of those challenges, the condition of the Debtor’s facilities has fallen

significantly below industry standards.12 It has been estimated that, prior to the devastation of 

Hurricanes Irma and Maria, it would take approximately $6 billion in infrastructure 

improvements to stabilize and improve the Debtor’s operational efficiency, safety, reliability, 

environmental compliance, and conversion to clean energy.13 Further, the Debtor historically 

has suffered from above-industry-average outages, which significantly affect the energy grid, the 

economy, and its residents.14 The environmental health cliff facing the Debtor under revised 

federal Clean Air Act emission standards is an additional fiscal challenge.15 Moreover, the 

Debtor has historically had difficulty meeting its operating expenses and has been forced to use 

proceeds from bond issuances to cover operational shortfalls.16 All of these factors have resulted 

in years of underinvestment, infrastructure that is unsafe and unreliable, and an unsustainable 

debt structure.

16. In 2014, the Debtor’s financial situation became so dire that the capital markets 

were no longer available.

17 With no access to liquidity and insufficient revenues to cover both 

operating costs and debt service, the Debtor faced a serious likelihood of default.18 The Debtor’s 

 10 Id. at 10. 11 Id. at 26. 12 Id. 13 Id. at 9. 14 Id. at 14. 15 Id. at 19. 16 Id. at 15. 17 Id. at 9. 18 Id. at 16.

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liabilities currently exceed $14 billion,19 which, in addition to rebuilding its infrastructure 

damaged by Hurricanes Irma and Maria, it must restructure to remain a viable business entity.

20

IV. The Impact of Hurricanes Irma and Maria on the Debtor’s Liquidity

17. The Debtor’s already fragile infrastructure was devastated by the combined 

impacts of Hurricanes Irma and Maria. Filsinger Declaration ¶ 7. The hurricanes caused 

catastrophic damage to the transmission and distribution system, impacted certain of the 

generation assets, and took down critical communications and control infrastructure. Id. The 

Debtor’s generation plants, though still standing, suffered structural and water damage. Damage 

from the hurricanes resulted in the longest power outage in U.S. history, and the power outage 

continues to this day for a material number of the Debtor’s customers. Id. Repairs to Puerto 

Rico’s electric system and infrastructure are ongoing. At this time, approximately 60-70% of 

customers have access to lines that have been energized. Filsinger Declaration ¶ 8. 

18. Ancillary to the devastation to the island’s power grid was the Debtor’s inability 

to continue pre-storm cash collection levels. In the immediate aftermath of Hurricane Maria, the 

Debtor’s collections ground to a trickle, and they have remained low because the Debtor is still 

transmitting electricity at levels that are materially less than full capacity and critical equipment 

has not yet been repaired. Id. ¶ 9. Moreover, beyond the physical damage to transmission and 

distribution lines, customers’ metering equipment and the accompanying communication 

pathways that utilize fiber optic cable or repeating stations were also damaged. Id. The process 

of converting customer power usage into billings relies on these communication pathways, and 

the repairs to the communications systems continue to this day. Id. Numerous customers also 

 19 Id. at 8, 20. 20 Id. at 8, 20.

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suffered damaged “weatherheads,” which prevent customers from drawing from the grid even if 

power has been restored to the distribution lines servicing their homes. Id.

19. Currently, the Debtor has restored the capability of billing approximately 35–40% 

of its customers. Based on its regular collection cycle, the Debtor expects to resume collections 

before March 31, 2018, but does not expect to achieve a pre-hurricanes level of collections until 

power is fully restored to customers in mid-2018. Id. ¶ 10. Further, the Debtor estimates that the 

total loss of revenues collected (measured as budgeted revenue collections less actual and 

projected cash collections) for the first six months after the hurricanes will be approximately 

$1.2 billion. Id. ¶ 14. In addition to the loss of revenue, the Debtor has made substantial 

emergency expenditures necessitated by the storms. Id. While some of the emergency 

expenditures already incurred by the Debtor are being reimbursed by the FEMA, the timing and 

amount of the reimbursements remain uncertain. Id.

V. The Debtor Has an Immediate Need for Cash

20. The devastation wrought by Hurricanes Irma and Maria exponentially worsened 

the Debtor’s already difficult financial situation. The Debtor’s General Fund cash balance as of 

January 19, 2018 had fallen to approximately $187 million and is projected to be negative by the 

week ending February 16, 2018. Id. ¶ 11. Taking into account a sixty-day operating reserve, by 

April 6, 2018, the Debtor projects a funding gap of approximately $1 billion. Id ¶ 14. Indeed, 

without implementing cash conservation measures, the General Fund cash balance would already 

be negative. Id. ¶ 11. Without an immediate infusion of liquidity, the Debtor may be forced to 

cease operations within the coming month. Id. This setback would further weaken and 

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destabilize Puerto Rico’s economy and compound the problem of demonstrating to its residents 

and industry that Puerto Rico has a reliable energy source. Wolfe Declaration ¶ 26.

21. The Government of Puerto Rico has agreed to provide the Facility to the Debtor 

to ensure that the Debtor can continue to operate.21 Further, the Oversight Board has authorized 

and approved the Commitment pursuant to PROMESA section 207. The impact of a Debtor 

shutdown would be catastrophic, leaving substantially all of the Island without access to 

electricity.22 The shutdown would have a cascading effect on infrastructure and services that 

rely on electric power to operate (such as airports, seaports, hospitals, water systems, 

communication networks, hotels, traffic and street lights, etc.), plunge homes and businesses 

across the island into darkness, impair residents in need of power for medical operations, 

dialysis, and other patient needs, and impair Puerto Rico’s fragile economy. The shutdown 

would also cause incalculable damage to Puerto Rico’s ongoing restructuring efforts and 

jeopardize creditor recoveries across all Puerto Rico agencies and instrumentalities.

22. The requested relief for the use of funds from the Government of Puerto Rico to 

fund the Facility is intended to be an interim, stop-gap funding measure pending availability of 

federal loan proceeds the Government of Puerto Rico is attempting to negotiate. A portion of 

such proceeds would be lent by the Government of Puerto Rico to the Debtor through the 

Facility. In that regard, on October 26, 2017, Congress enacted the Additional Supplemental 

Appropriations for Disaster Relief Requirements Act, which authorized $36.5 billion of disaster 

 21 On January 26, 2018, the Puerto Rico Legislature passed a joint resolution authorizing the Government of Puerto 

Rico to provide financing for PREPA (the “Joint Resolution”). The Joint Resolution provides that the Facility 

must be approved by the Puerto Rico Secretary of the Treasury. In addition, without further legislative authority, 

the Facility is capped at $550 million and does not authorize loans to be drawn after June 30, 2018. 22 Filsinger Declaration ¶ 21.

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relief funds to support recovery efforts in the aftermath of Hurricanes Harvey, Irma, and Maria.23 

The disaster relief package included approximately $4.9 billion in loans under the Community 

Disaster Loan (“CDL”) Program, for which Puerto Rico, the U.S. Virgin Islands, and local 

governments of Florida and Texas are eligible. AAFAF and the Debtor have been actively 

engaged in discussions with the United States Department of the Treasury and FEMA about the 

possibility of a CDL loan directly to the Debtor or for the central government of Puerto Rico. 

23. While AAFAF, the Oversight Board, and the Debtor strongly believe that a CDL 

loan is necessary to provide the needed level of funding for the Debtor, there is little confidence 

that a CDL loan will be forthcoming in time to address the Debtor’s immediate liquidity needs. 

The Facility, however, is structured to allow for it to be refinanced by a future CDL loan or, 

more likely, to allow the Government of Puerto Rico to downstream CDL loan proceeds

advanced to it under a Commonwealth Financing to the Debtor through the Facility. While the 

Oversight Board, AAFAF, the Government of Puerto Rico, and the Debtor would prefer a loan 

be made directly from the U.S. Treasury to the Debtor (and have made that preference clear in 

discussions with the U.S. Treasury), the current position of the U.S. Treasury is that any CDL 

provided to the public corporations, like the Debtor, will be done through the Government of 

Puerto Rico.

24 

24. The Debtor’s cash on hand and projected revenues are simply insufficient to cover 

the utility’s upcoming operational expenses.25 Without the requested postpetition financing from 

the Lender, the Debtor will soon have insufficient funds to maintain its operations, which will 

 23 See Additional Supplemental Appropriations for Disaster Relief Requirements Act of 2017, Pub. L. No. 115-27, 

131 Stat. 1224 (enacted Oct. 26, 2017). 24 FEMA letter to AAFAF, dated January 9, 2018, a copy of which is attached hereto as Exhibit F. 25 Filsinger Declaration ¶ 22.

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lead to a reduction or even the elimination of electricity services altogether for the island of 

Puerto Rico.26 As described above, the consequences of the Debtor’s shutdown to the population 

of Puerto Rico and restructuring efforts would obviously be dire and must be avoided.

VI. The Structure of the Proposed Transaction Guarantees Adequate Protection

25. As explained below, the existing lien securing bonds under the Trust Agreement 

already provides for “Current Expenses” (including a sixty-day operating reserve) to be paid 

from revenues. Because the Lender’s loan to the Debtor can only be used to pay Current 

Expenses, the existing lien is not diminished or impaired by the first lien to be granted to the 

Lender because Current Expenses already have a prior right to be paid from the Debtor’s 

revenues before any positive net revenues exist that could go to creditors. This situation is 

unique because the priming lien the Lender is requesting, does not subordinate the existing 

creditors’ lien to anything to which it is not already subordinated. For example, in the ordinary 

course, if the Debtor had $1 billion of revenue and $1 billion of current expenses, the revenues 

would pay the Current Expenses, not creditors. If instead, the Debtor has $200 million of 

revenues and $1 billion of Current Expenses, the $200 million of revenues and the next $800 

million of revenues would be paid to cover Current Expenses before there would be collateral 

available to creditors. The instant loan is simply bridging the gap and supplying temporary funds 

to pay the Current Expenses before additional revenues are collected. 

26. All amounts borrowed under the Facility will be senior in right of payment to the 

Power Revenue Bonds issued by the Debtor under the Trust Agreement. Specifically, the 

Debtor’s repayment obligations for the amounts borrowed under the Facility will be (i) secured 

by a perfected first priority priming lien on all the Debtor’s revenues and (ii) treated as a 

 26 Filsinger Declaration ¶¶ 15, 22.

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superpriority administrative claim in the Debtor’s Title III Case, in each case subject only to the 

Carve Out.

27. The Lender’s priming lien, which can be granted pursuant to Bankruptcy Code 

section 364(d), as incorporated by PROMESA, which lien would be senior in all respects to the 

existing liens securing the Power Revenue Bonds and any other existing secured claims against 

the Debtor (and subordinate only to the Carve Out). The secured claims under the Power 

Revenue Bonds, as required under Bankruptcy Code section 364, will be adequately protected 

because, among other things, (a) all loan proceeds will be used only for Current Expenses that 

under the Trust Agreement are already allowed to be paid out of the revenues that secure the 

bonds, (b) without the loans the Debtor would have to shut down, creating extra expenses of 

bringing it back up, (c) a further shutdown can only increase outmigration which would diminish 

the Debtor’s future revenue stream, and (d) the collateral for the secured claims is a pledge of the 

net revenues (revenues minus expenses) and there can be no positive net revenues in the near and 

medium terms so there is no collateral value to protect in the near and medium terms. Indeed, 

without the Facility, the Debtor will not be able to generate positive net revenues.

28. As mentioned above, the Debtor’s use of funds borrowed under the Facility will 

be limited to payment of essential operating costs of the utility, including payroll, benefits, 

facility maintenance expenses that are not capital expenditures or infrastructure improvements, 

and normal operational materials, supplies, vendor, and services payments that fall squarely 

within the definition of “Current Expenses” under the Trust Agreement (indeed, there are several 

categories of “Current Expenses” that are not even included as Eligible Uses for the loan, such as 

the Debtor’s professional fees). As such, all expenses to be paid with advances under the 

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Facility would otherwise have been prioritized and paid from the Debtor’s “Revenues” ahead of 

debt service payments on the Power Revenue Bonds. Specifically, pursuant to the Trust 

Agreement, the holders of the Power Revenue Bonds are entitled to payment of “Net Revenues” 

after the payment of “Current Expenses.”27 “Net Revenues” are defined as the difference 

between the Debtor’s revenues and its “Current Expenses.”28 The term “Current Expenses” is 

defined as:

[The Debtor’s] reasonable and necessary current expenses of maintaining, 

repairing and operating the System and shall include, without limiting the 

generality of the foregoing, all administrative expenses, insurance 

premiums, expenses of preliminary surveys not chargeable to Capital 

Expenditures, engineering expenses relating to operation and maintenance, 

fees and expenses of the Trustee, the 1947 Trustee, the Paying Agents and 

of the paying agents under the 1947 Indenture, legal expenses, any 

payment to pension or retirement funds, and all other expenses required to 

be paid by the Authority under the provisions of the 1947 Indenture, this 

Agreement or by law, or permitted by standard practices for public utility 

systems, similar to the properties and business of the Authority and 

applicable in the circumstances but shall not include any deposits to the 

credit of the Sinking Fund, the Reserve Maintenance Fund, the 

Subordinate Obligations Fund, the Self-insurance Fund and the Capital 

Improvement Fund or the 1947 Sinking Fund or deposits under the 

provisions of Sections 511, 512 and 513 of the 1947 Indenture.

Trust Agreement, at 18. As the Debtor’s “Revenues” are presently insufficient, these expenses 

will be paid from advances from the Facility. Thus, neither the holders of the Power Revenue 

Bonds nor their asserted security interests in the “Revenues” under the Trust Agreement will be 

diminished by the Facility.

29. Importantly, in light of the Lender’s own financial situation, the Lender expects 

that the net amount of the advances under the Facility from its funds on hand will not exceed 

$550 million, and that the balance of the Commitment amount of $1.3 billion will be funded, if 

 27 Trust Agreement § 505. 28 Trust Agreement § 505.

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required, from proceeds of CDLs to be provided by the federal government to the Government of 

Puerto Rico.

29 All advances to the Debtor under the Facility that are made by the Lender from 

proceeds of CDLs will bear the same interest rate as the CDLs. Moreover, in the event that any 

or all of the CDLs are subsequently forgiven by the federal government, the amount of CDLs 

that were subsequently advanced to the Debtor under the Facility will also be forgiven by the 

Lender. In essence, the Lender expects that a significant portion, if not the majority, of the 

Facility will be a pass-through of CDLs to the Debtor. 

VII. Alternative Sources of Financing are Not Readily Available

30. Congress established the Oversight Board with the purpose of providing Puerto 

Rico with a method to achieve fiscal responsibility and access to the capital markets. 

PROMESA § 101(a). By doing so, Congress recognized that Puerto Rico and its 

instrumentalities have been cut off from normal market access. See PROMESA § 405(m)(6) 

(“the ability of the Government of Puerto Rico to obtain funds from capital markets in the future 

will be severely diminished without congressional action to restore its financial accountability 

and stability.”); see also ANNE O. KRUEGER ET AL., PUERTO RICO – AWAY FORWARD (2015) (the 

“Krueger Report”) at 1 (“Structural problems, economic shocks and weak public finances have 

yielded a decade of stagnation, outmigration and debt. Financial markets once looked past these 

realities but have since cut off the Commonwealth from normal market access.”).

31. That Puerto Rico and its instrumentalities lack access to the capital markets is 

uncontroversial. 

 29 As noted above, at present, the Debtor and the Commonwealth believe the federal government will not lend 

CDLs directly to the Debtor, and thus the Facility will need to be kept in place to advance CDL proceeds to the 

Debtor.

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32. Despite the Debtor’s publicly-disclosed liquidity crisis, no financing of the 

magnitude required is readily available and committed other than the attractive financing offered 

by Puerto Rico. Shortly after Hurricanes Irma and Maria, the Debtor received an unsolicited, 

publicly announced offer for financing from a group of holders of its Power Revenue Bonds. 

Mondell Declaration ¶ 7. That offer was for $1 billion of financing, but was tied to a roll-up of 

$1 billion in existing bonds into an additional $850 million of post-petition financing (which 

would have resulted in a senior credit facility of $1.85 billion, out of which $1 billion of cash 

would have been available for advancement to the Debtor). Id. The offer carried a stated per 

annum interest rate of LIBOR plus 4.5% and a two-year maturity date. Id. In addition, the 

interest rate would have increased to LIBOR plus 6.5% upon the one year anniversary of initial 

borrowing. Id. The roll-up feature also provided investors in the loan facility with enhanced 

security provisions on a portion of their pre-petition claims. Id. The proposal also required the 

appointment of a receiver and had the potential to limit the future transformation of the electric 

grid. Id. For reasons that were publicly stated by AAFAF at the time, the proposal therefore was 

turned down.

33. Beginning on January 21, 2018, the Debtor, through Rothschild, initiated a 

marketing effort to obtain alternative financing. Mondell Declaration ¶ 11. As part of that 

process, Rothschild, with the assistance of advisors for the Debtor and AAFAF, prepared 

marketing materials and assembled a data room populated with relevant diligence information. 

Id. In consultation with the advisors to the Oversight Board, professionals from Rothschild have 

been in contact with ten potential funding providers, which consisted of four existing PREPA, 

Commonwealth, and COFINA bondholders and bondholder groups, and six third-parties capable 

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of providing financing of this magnitude. Id. As set forth in the Mondell Declaration, the 

contacted parties included all of parties that had previously expressed to either Rothschild or the 

Oversight Board’s financial advisor interest in providing such financing to the Debtor. Id. ¶ 12. 

To date, seven of these prospective lenders have signed non-disclosure agreements (“NDAs”) (or 

are operating under existing NDAs) and have been provided access to the data room maintained 

by Rothschild containing relevant information on the current financial conditions of the Debtor. 

Id. Rothschild has requested interested parties to submit initial indications of interest by 

February 2, 2018. The Debtor will submit an updated Mondell Declaration to the Court after 

proposals have been submitted and reviewed.

34. The Debtor, through Rothschild, will continue the solicitation process until the 

Final Hearing to determine whether a superior financing proposal can be obtained. Mondell

Declaration ¶ 13. Importantly, because the terms of the financing contemplated in the Urgent 

Motion include a zero percent interest rate for the first six months, no closing fees, and no 

prepayment penalty, the Debtor can refinance the Facility if desired (to the extent of available 

financing in the future), without the Debtor having incurred costs on the Facility even following 

approval of the Urgent Motion. Id.

35. Further, despite the efforts of the Debtor’s advisors, the Debtor could not obtain a 

commitment for the financing sought through this Urgent Motion on an unsecured basis, on a 

junior lien basis, or on a pari passu lien basis. Mondell Declaration ¶ 15. Lastly, and critically, 

no party has offered to extend a loan that has the potential to be cancelled or forgiven. 

Relief Requested

36. The Debtor requests that the Court:

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a. authorize the Debtor to obtain the Facility consisting of $1.3 billion in the form of 

a senior secured priming super-priority revolving credit facility, with authority to 

borrow up to $550 million available on an interim basis pending entry of the Final 

Financing Order (the “Initial Borrowing”), subject to and pursuant to the terms 

and conditions set forth in the Interim Financing Order, the Final Financing 

Order, and the Credit Documents;

b. grant first priority priming liens on the Collateral to the Lender, and grant

superpriority administrative expense claims to the Lender, in each case subject to 

the Carve Out;

c. schedule the Final Hearing to consider entry of the Final Financing Order 

authorizing the borrowings under, and the Debtor’s entry into, the Credit

Documents on a final basis; and

d. modify the automatic stay imposed by Bankruptcy Code sections 362 and 922 to 

the extent necessary to implement and effectuate the terms of the Financing

Orders. 

Basis for Relief

I. The Debtor Should be Authorized to Obtain Postpetition Financing through the Credit

Documents

A. Entering into the Credit Documents Is an Exercise of the Debtor’s Sound Business 

Judgment

37. The Debtor seeks authority to obtain access to the Facility immediately because a 

cash shortage may arise at any time. Bankruptcy Code sections 364(c) and (d)30 authorize a 

debtor to obtain secured financing under certain circumstances discussed in detail below. Courts 

grant a debtor considerable deference in acting in accordance with its business judgment in 

obtaining postpetition secured credit, so long as the agreement to obtain such credit does not run 

afoul of the provisions of, and policies underlying, the Bankruptcy Code. See, e.g., Bray v. 

 30 Pursuant to PROMESA section 301(a), subsections (c), (d), and (e) of Bankruptcy Code section 364 are 

incorporated into PROMESA but subsections (a) and (b) (authorizing the incurrence of administrative priority, 

unsecured debt) are not. As the Facility will be secured by priming liens on the Debtor’s “Revenues” (as defined 

in the Trust Agreement), subsections (a) and (b) are not implicated by this Urgent Motion. Further, section 363

of the Bankruptcy Code is not incorporated into PROMESA. Thus, the Urgent Motion is predicated on sections 

364(c) and (d) alone.

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Shenandoah Fed. Sav. & Loan Ass’n (In re Snowshoe Co.), 789 F.2d 1085, 1088 (4th Cir. 1986); 

In re L.A. Dodgers LLC, 457 B.R. 308, 313 (Bankr. D. Del. 2011) (“[C]ourts will almost always 

defer to the business judgment of a debtor in the selection of the lender.”); In re Trans World 

Airlines, Inc., 163 B.R. 964, 974 (Bankr. D. Del. 1994) (noting that interim financing was 

approved because it “[r]eflected sound and prudent business judgment on the part of [the debtor] 

. . . reasonable under the circumstances and in the best interest of [the debtor] and its creditors.”); 

In re Ames Dep’t Stores, Inc., 115 B.R. 34, 40 (Bankr. S.D.N.Y. 1990) (“[C]ases consistently 

reflect that the court’s discretion under section 364 is to be utilized on grounds that permit 

reasonable business judgment to be exercised so long as the financing agreement does not 

contain terms that leverage the bankruptcy process and powers or its purpose is not so much to 

benefit the estate as it is to benefit a party-in-interest.”); In re Simasko Production Co., 47 B.R. 

444, 448–49 (D. Colo. 1985) (authorizing interim financing where debtor’s best business 

judgment indicated financing was necessary and reasonable for benefit of estate).

38. To determine whether the business judgment standard is met, a court need only 

“examine whether a reasonable business person would make a similar decision under similar 

circumstances.” In re Exide Techs., 340 B.R. 222, 239 (Bankr. D. Del. 2006); see also In re 

Curlew Valley Assocs., 14 B.R. 506, 513–14 (Bankr. D. Utah 1981) (noting that courts should 

not second guess a debtor’s business decision when that decision involves “a business judgment 

made in good faith, upon a reasonable basis, and within the scope of [the debtor’s] authority 

under the [Bankruptcy] Code”).

39. Furthermore, in considering whether the terms of postpetition financing are fair 

and reasonable, courts consider the terms in light of the relative circumstances of both the debtor 

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and the potential lender. In re Farmland Indus., Inc., 294 B.R. 855, 886 (Bankr. W.D. Mo. 

2003); see also Unsecured Creditors’ Comm. Mobil Oil Corp. v. First Nat’l Bank & Trust Co. 

(In re Elingsen McLean Oil Co., Inc.), 65 B.R. 358, 365 n.7 (W.D. Mich. 1986) (recognizing a 

debtor may have to enter into “hard bargains” to acquire funds for its reorganization); Richmond 

Leasing Co. v. Capital Bank, NA., 762 F.2d 1303, 1311 (5th Cir. 1985) (“More exacting scrutiny 

[of the debtor’s business decisions] would slow the administration of the debtor’s estate and 

increase its cost, interfere with the Bankruptcy Code’s provision for private control of 

administration of the estate, and threaten the court’s ability to control a case impartially.”); In re 

Farmland Indus., Inc., 294 B.R. 855, 881 (Bankr. W.D. Mo. 2003) (noting that approval of 

postpetition financing requires, inter alia, an exercise of “sound and reasonable business 

judgment.”):

The Court should interfere with the Debtor’s management decisions only if 

it is made clear that those decisions are, inter alia, clearly erroneous, made 

arbitrarily, are in breach of the officers’ and directors’ fiduciary duty to the 

corporation, are made on the basis of inadequate information or study, are 

made in bad faith, or are in violation of the Bankruptcy Code. See In re 

United Artists Theatre Co., 315 F.3d 217, 233 (3rd Cir. 2003); Richmond 

Leasing Co. v. Capital Bank, N.A., 762 F.2d 1303, 1309 (5th Cir. 1985); In 

re Defender Drug Stores, Inc., 145 B.R. 312 at 317 (B.A.P. 9th Cir. 1992).

40. The Debtor’s determination to move forward with the Facility is an exercise of its 

sound business judgment following a careful evaluation of alternatives. Given the Debtor’s 

nearly-exhausted cash reserves exacerbated by the passage of Hurricanes Irma and Maria and 

resulting delay in collection of “Revenues,” the Debtor and its advisors, together with the 

Oversight Board, determined that the Debtor would require significant postpetition financing to 

continue operations (including addressing its post-hurricane recovery efforts) and to fully 

reestablish, maintain, and improve electricity services for the citizens of Puerto Rico. 

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41. More specifically, the Debtor’s General Fund cash balance as of January 19, 2018 

had fallen to approximately $187 million and is projected to be negative by the week ending 

February 16, 2018. Filsinger Declaration ¶11. Without an immediate infusion of liquidity, the 

Debtor may be forced to cease operations within the coming month. As described further above, 

the impact of a Debtor shutdown would be catastrophic, leaving the entire Island without access 

to electricity. Without power, Puerto Rico’s businesses cannot operate, citizens who have 

evacuated the Island have little reason to return, and those who have remained have greater 

reason to leave—exacerbating the loss of the Government of Puerto Rico’s and the Debtor’s

revenues. As a consequence, the Government of Puerto Rico’s ability to actually collect, and its 

citizens’ ability to actually pay, taxes will be hampered. Wolfe Declaration ¶ 28. Absent an 

infusion of additional funds into the Debtor, the Government of Puerto Rico cannot realistically 

continue to operate, recover, and rebuild the Island’s basic infrastructure and stabilize the 

economy. 

42. Given the devastation caused by Hurricanes Irma and Maria, the Debtor’s 

projected near-term liquidity shortfall, the delays in obtaining federal funding, and the 

devastating impact of any interruption to Puerto Rico’s power supply or delay in restoration 

efforts, the Debtor believes the Facility is amply justified and should be approved. Moreover,

the Facility is being provided at a highly competitive interest rate (subject to step-up in certain 

circumstances), and as shown in the Mondell Declaration, it is superior to any similar financing 

for which the Debtor has yet received a proposal from a third-party lender, though the Debtor 

continues to diligently seek competing offers. Mondell Declaration ¶ 13, 15. 

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43. As described further below, from the standpoint of the Lender (itself a Title III 

debtor), it reasonably requires the protections of a superpriority administrative claim pursuant to 

Bankruptcy Code section 364(c)(1) and priming liens on the Debtor’s “Revenues” pursuant to 

section 364(d). Without such protections, the Lender would be placing a significant amount of 

its own liquidity at material risk of not being repaid to the obvious detriment of its restructuring 

effort and its mission to serve the population of Puerto Rico and interests of its creditors. The 

Lender has agreed to provide the Facility at minimal interest cost to the Debtor (and no interest 

for the first six months), and with the possibility of forgiving some or all of the Facility 

indebtedness based on future circumstances (subject to the forgiveness of the CDLs), but in the 

interest of preserving its own liquidity, it has required the superpriority claims and priming liens 

sought hereby. The Lender is providing the only lifeline reasonably available to save its primary 

power utility and with it Puerto Rico’s own prospects for financial recovery. The Debtor, the 

Lender, and the Oversight Board assert and agree that the Facility appropriately balances the 

interests of the Debtor and Puerto Rico.

44. The Facility will enable the Debtor to continue the long road back to viability and 

prosperity. To this end, the Debtor negotiated the Credit Documents with the Commonwealth in 

good faith and with the assistance of its advisors and the Oversight Board, and the Debtor

believes it has obtained the best financing available. Further, after conducting a rigorous

diligence process, the Oversight Board has authorized and approved the Commitment pursuant to 

PROMESA section 207. Accordingly, the Court should authorize the Debtor’s entry into the 

Credit Documents as it is a reasonable exercise of the Debtor’s business judgment.

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B. The Debtor Should be Authorized to Grant Superpriority Claims and Priming 

Liens to the Lender

45. The Debtor proposes to obtain financing under the Facility by providing 

superpriority expense claims and first priority priming liens on the Collateral as set forth in the 

Credit Documents pursuant to Bankruptcy Code subsections 364(c) and (d). 

i. Bankruptcy Code Section 364(c)

46. The statutory requirement for obtaining postpetition credit under Bankruptcy 

Code section 364(c) is that a debtor is “unable to obtain unsecured credit allowable under 

Section 503(b)(1) of [the Bankruptcy Code].” 11 U.S.C. § 364(c). See In re Crouse Grp., Inc., 

71 B.R. 544, 549 (Bankr. E.D. Pa. 1987) (secured credit under section 364(c) of the Bankruptcy 

Code is authorized, after notice and hearing, upon showing that unsecured credit cannot be 

obtained). Courts have articulated a three-part test to determine whether a debtor is entitled to 

financing under section 364(c) of the Bankruptcy Code. Specifically, courts look to whether:

a) the debtor is unable to obtain unsecured credit under section 364(b) of the 

Bankruptcy Code, i.e., by allowing a lender only an administrative claim;

b) the credit transaction is necessary to preserve the assets of the estate; and

c) the terms of the transaction are fair, reasonable, and adequate, given the 

circumstances of the debtor-borrower and proposed lenders.

See In re Ames Dep’t Stores, 115 B.R. 34, 37–40 (Bankr. S.D.N.Y. 1990); see also In re St. Mary 

Hosp., 86 B.R. 393, 401–02 (Bankr. E.D. Pa. 1988); Crouse Grp., 71 B.R. at 549.

47. Regarding the first Ames factor, if a debtor is unable to obtain unsecured credit 

allowable as an administrative expense under section 503(b)(1) of the Bankruptcy Code, section 

364(c) provides a court “may authorize the obtaining of credit or the incurring of debt (1) with 

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priority over any or all administrative expenses of the kind specified in section 503(b) or 507(b) 

of [the Bankruptcy Code]; (2) secured by a lien on property of the estate that is not otherwise 

subject to a lien; or (3) secured by a junior lien on property of the estate that is subject to a 

lien.”31 As described further in the Mondell Declaration and the Background Section of this 

Urgent Motion, the Debtor is unable to obtain unsecured credit. 

48. Regarding the second and third Ames factors, as described above and as set forth 

in the Filsinger Declaration, the Debtor is in need of an immediate capital infusion to stem the 

devastating effects of Hurricane Maria on the Debtor’s existing dire economic situation. Absent 

the availability of such funds being used for the Debtor’s recovery, the Debtor may be forced to 

cease operations within the coming month. Filsinger Declaration ¶ 15. Should the Debtor cease 

operations for three to six months, the impact on Puerto Rico’s economy would be 

catastrophic—resulting in an estimated decline in real economic growth of 15-20% and 

outmigration of 300,000 to 365,000 individuals in fiscal year 2018 alone. See Wolfe 

Declaration ¶ 25. The outmigration, in turn, would lead to a substantially lower tax base, loss of 

customers for existing businesses, and an erosion of faith in Puerto Rico as a stable environment 

to conduct business. Id. ¶ 26. With such a loss, the Government of Puerto Rico would not have 

sufficient funds to provide the most basic services to its people, let alone service any debt. 

Without the reestablishment of basic services, Puerto Rico’s outmigration will accelerate, further 

depressing the Government of Puerto Rico’s and the Debtor’s revenues. Id. ¶ 26.

49. Accordingly, approving a superpriority claim in favor of the Lender is reasonable 

and appropriate. Indeed, this Court has recently granted similar relief for the United States in the 

event any federal funding becomes de-obligated. See FEMA Order ¶ 9.

 31 11 U.S.C. § 364(c).

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ii. Bankruptcy Code Section 364(d)

50. Bankruptcy Code section 364(d) provides a debtor may obtain credit secured by a 

senior or equal lien on property of the estate already subject to a lien, after notice and a hearing, 

where the debtor is “unable to obtain such credit otherwise” and “there is adequate protection of 

the interest of the holder of the lien on the property of the estate on which such senior or equal 

lien is proposed to be granted.” 11 U.S.C. § 364(d)(1). Consent by the secured claimholders to 

priming obviates the need to show adequate protection. See Anchor Savs. Bank FSB v. Sky 

Valley, Inc., 99 B.R. 117, 122 (N.D. Ga. 1989) (“[B]y tacitly consenting to the superpriority lien, 

those [undersecured] creditors relieved the debtor of having to demonstrate that they were 

adequately protected.”). Accordingly, the Debtor may incur priming liens under the Facility if it

is unable to obtain unsecured or junior secured credit and either (a) the Debtor’s secured 

claimholders have consented or (b) such secured claimholders’ interests in the Collateral are 

adequately protected. 

51. Here, adequate protection is objectively demonstrated in Section VI above 

because the Trust Agreement already provides the bondholders’ lien is subordinate to payment of 

Current Expenses, and the Facility can only be used for Current Expenses. Thus, while what 

constitutes adequate protection is decided on a case-by-case basis, see, e.g., In re Mosello, 195 

B.R. 277, 289 (Bankr. S.D.N.Y. 1996) (“The determination of adequate protection is a factspecific inquiry . . . left to the vagaries of each case . . . .”); In re Realty Sw. Assocs., 140 B.R. 

360 (Bankr. S.D.N.Y. 1992); In re Beker Indus. Corp., 58 B.R. 725, 736 (Bankr. S.D.N.Y. 1986) 

(the application of adequate protection “is left to the vagaries of each case, but its focus is 

protection of the secured creditor from diminution in the value of its collateral during the 

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reorganization process” (citations omitted)), the determination of adequate protection in this case 

is clear and straight forward. Moreover, “adequate protection, not absolute protection, is the 

statutory standard.” In re Beker Indus. Corp., 58 B.R. 725, 741 (Bankr. S.D.N.Y. 1986) (citing In 

re Natco Indus., Inc., 54 B.R. 436, 440 (Bankr. S.D.N.Y. 1985)).

52. Here, the interests of the secured claimholders’ (i.e., the holders of the Power 

Revenue Bonds) in the Collateral are adequately protected. Significant outmigration exacerbated 

by Hurricane Maria is projected to be on the magnitude of 300,000 to 365,000 individuals in 

fiscal year 2018 if the current conditions on the island are left unabated and the Debtor is forced 

to cease operations for three to six months.

32 Absent a material improvement in the Debtor’s 

current operations, its “Revenues” would suffer immense depletion from the loss of its customer 

base even if it does not shut down entirely, and would be insufficient to cover operating expenses 

in the long term.33 The Facility thus represents the bondholders’ best chance of realizing any 

value from their collateral, which may have no value at present.

53. This Court has held maintenance of infrastructure and assets generating revenue is 

sufficient adequate protection to ensure that any encumbered revenues will be available in the 

future (i.e., that there will be no diminution in the value of the collateral).

34 Other courts have 

also recognized that a debtor’s ability to maintain business value by operating in the ordinary 

course is itself a significant source of adequate protection. See In re Salem Plaza Assocs., 135 

B.R. 753, 758 (Bankr. S.D.N.Y. 1992) (holding a debtor’s use of cash collateral to pay operating 

expenses, thereby “preserv[ing] the base that generates the income stream,” provided adequate 

 32 See Wolfe Declaration ¶ 25. 33 See Filsinger Declaration ¶ 11, 20. 34 See Opinion and Order Denying Motion for Preliminary Injunction and Motion for Relief from the Automatic 

Stay at 15–16, Sept. 8, 2017, Case No. 17-03567, Docket No. 260.

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protection to the secured claimholder). As a general matter, continued operations are far more 

likely to maintain or increase underlying collateral values compared with the catastrophic loss of 

value that could result from a debtor’s inability to operate in the ordinary course. See, e.g., In re 

Jim Kelley Ford of Dundee, Ltd., 14 B.R. 812 (N.D. Ill. 1981) (finding lender was adequately 

protected and debtor was authorized to use cash collateral to fund operations where lender 

benefited from the difference between the average sale price of a car sold at retail and the 

average sale price if the same vehicle were sold at a wholesale auction).

54. Here, the critical funds the Debtor will receive under the Facility will be used for 

funding the Debtor’s functions under its 2018-2019 budgets, and will thereby make all parties, 

including its bondholders, better off. The Debtor estimates such funds will help stem the 

outmigration experienced by Puerto Rico to approximately 255,000 in fiscal year 2018 and 

62,000 in fiscal year 2019.35 Specifically, the Facility is designed to give the Debtor the ability 

to: (a) provide and improve electricity services to the people of Puerto Rico; (b) reestablish the 

necessary conditions in Puerto Rico to maximize the collection of taxes and fees; and (c) allow 

for larger creditor recoveries under the Debtor’s plan of adjustment. Without covering the 

Debtor’s operational needs in the wake of Hurricanes Irma and Maria, the Debtor’s and Puerto 

Rico’s recovery and, ultimately their revitalization, are not possible. Fully reestablishing the 

Debtor’s electricity services and funding its 2018-2019 budgets are a critical first step in 

rebuilding the Debtor and Puerto Rico. 

55. Because the value of the secured claimholders’ Collateral is tied to the Revenues 

of the Debtor, if the Debtor were to cease operating, the value of the Collateral would 

 35 Wolfe Declaration ¶ 19.

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evaporate.36 Even if the Debtor were eventually to come back online, the shuttering of 

businesses and outmigration that would have taken place in the intervening period would cut 

significantly into the Debtor’s customer base and thereby diminish its future revenue streams.37 

Therefore, the Debtor’s secured claimholders’ interests in their Collateral are adequately 

protected because the value of the Collateral would be preserved or increase by granting Debtor 

access to funding under the Facility. See In re Lagoon Breeze Dev. Corp., No. BR 10-15177-

MM11, 2011 WL 939016, at *1 (Bankr. S.D. Cal. Mar. 14, 2011) (finding that prepetition lender 

was adequately protected because “the value of [its] collateral [would] increase by approximately 

$4 million . . . double the amount of the approximately $2 million priming loan”); In re Hudson, 

No. 208-09480, 2011 WL 1004630, at *9-10 (Bankr. M.D. Tenn. Mar. 16, 2011); In re 

Yellowstone Mountain Club, LLC, No. 08-61570-11, 2008 WL 5875547, at *17 (Bankr. D. 

Mont. Dec. 17, 2008) (approving priming loan that would maximize the going concern value of 

the debtor to the benefit of the creditor and maximize the overall return to the lender); In re 

Campbell Sod, Inc., 378 B.R. 647, 655 (Bankr. D. Kan. 2007) (“The record supports a 

conclusion that the working capital infusion will result in increased asset value that will 

adequately protect the [prepetition lender]”); In re Hamilton Square Assocs., No. 91-14720S, 

1992 WL 98294, at *1 (Bankr. E.D. Pa. May 5, 1992) (finding the improvement of the debtor’s 

financial condition as a result of the postpetition loan and the replacement of the debtor’s anchor 

tenant constituted adequate protection for the priming of the creditor’s lien); Bank of New 

England v. BWL, Inc., 121 B.R. 413, 418 (D. Me. 1990); In re 495 Cent. Park Ave. Corp., 136 

B.R. 626, 631 (Bankr. S.D.N.Y. 1992) (in the context of a Bankruptcy Code section 364(d) 

 36 Wolfe Declaration ¶ 27. 37 Id. 

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priming lien, “there is no question that the property would be improved by the proposed 

renovations and that an increase in value will result. In effect, a substitution occurs in that the 

money spent for improvements will be transferred into value. This value will serve as adequate 

protection for [the creditor’s] secured claim.”); In re Ralar Distribs., 166 B.R. 3, 6 (Bankr. D. 

Mass. 1994) (“[a]ctivities of a debtor can enhance collateral value and thereby provide adequate 

protection”); In re Ledgemere Land Corp., 125 B.R. 58, 62 (Bankr. D. Mass. 1991) (holding 

“chance of a decline in the value of the property is more than offset by the likelihood of 

enhancement in value due to the Debtor's construction and marketing plans. Completion of the 

building will increase its value by more than the requested $500,000” of priming indebtedness to 

complete the construction); see also Confederation Life Ins. Co. v. Beau Rivage Ltd., 126 B.R. 

632, 639 (N.D. Ga. 1991) (in the context of a debtor’s use of cash collateral, “[s]ince the rents 

were used for structural and cosmetic repairs, thereby increasing the occupancy and income of 

the apartments and making the property more valuable, [the creditor’s] security was not 

depleted.”); In re Hubbard Power & Light, 202 B.R. 680, 685 (Bankr. E.D.N.Y. 1996) (holding 

county’s lien on debtor’s property would be adequately protected as substantial portion of 

postpetition priming loan funds would go to cleaning up environmental damage on the

encumbered property):

There is no question in this Court’s mind that the property will be 

improved by the clean-up since it is presently either unsaleable or has a 

nominal value at best, because of the restraint imposed by the DEC 

regulations. Without this investment and improvement to Debtor’s 

property, the County itself may have to invest the cost of the clean-up if it 

wishes to have any benefit from its collateral. It is further clear to this 

Court that the investment made to clean-up the property will result in a 

benefit not only to the Debtor and its estate, but to all secured creditors 

and parties-in-interest.

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56. As supported by the Wolfe Declaration, the use of the funds sought by this Urgent 

Motion will ensure that the Collateral (i.e., the Debtor’s “Revenues” net of “Current Expenses” 

under the Trust Agreement) does not decrease in value by preventing the catastrophic 

consequences that would result from a shutdown of the Debtor. All stakeholders will have a far 

better chance of recovery on account of claims against the Debtor if the postpetition financing

sought pursuant to this Urgent Motion is expeditiously authorized.38 Indeed, all stakeholders 

will fare better in a scenario where electricity services are fully restored as “a rising tide lifts all 

boats.” Further, the use of the funds advanced under the Facility will be limited to Eligible Uses 

(all of which are “Current Expenses” under the Trust Agreement) and restricted by the 13-Week 

Budget which will require the approval of the Oversight Board pursuant to its authority under 

PROMESA section 207 and the Credit Documents. Therefore, the relief requested pursuant to 

Bankruptcy Code section 364(d)(1) is appropriate.

C. The Debtor Will Provide Substantial Information To the Creditors’ of PREPA and 

The Lender

57. Prior to the filing of this Motion, the Debtor began providing periodic reporting to 

its creditors who are party to the Mediation Agreement. Likewise, the Credit Documents require 

substantial information be provided to these creditors, including the Debtor’s: (i) cash balance; 

(ii) statement of cash flows; (iii) total accounts payable and, if available, accounts payable aging 

schedule; (iv) total accounts receivable and, if available, accounts receivable aging schedule; (v) 

grid restoration report while the restoration activities are ongoing; and (vi) generation status 

report while the restoration activities are ongoing.

 38 See Wolfe Declaration ¶ 27-28.

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D. No Comparable Alternative to the Facility is Reasonably Available

58. A debtor need only demonstrate “by a good faith effort that credit was not 

available without” the protections afforded to potential lenders by sections 364(c) and 364(d) of 

the Bankruptcy Code. In re Snowshoe Co., Inc., 789 F.2d 1085, 1088 (4th Cir. 1986); see also In 

re Plabell Rubber Prods., Inc., 137 B.R. 897, 900 (Bankr. N.D. Ohio 1992). Moreover, in 

circumstances where only a few lenders likely can or will extend the necessary credit to a debtor, 

“it would be unrealistic and unnecessary to require [the debtor] to conduct such an exhaustive 

search for financing.” Sky Valley, Inc., 100 B.R. at 113; see also In re Snowshoe Co., 789 F.2d 

1085, 1088 (4th Cir. 1986) (demonstrating that credit was unavailable absent the senior lien by 

establishment of unsuccessful contact with other financial institutions in the geographic area); In 

re Stanley Hotel, Inc., 15 B.R. 660, 663 (D. Colo. 1981) (bankruptcy court’s finding that two 

national banks refused to grant unsecured loans was sufficient to support conclusion that section 

364 requirement was met); In re Ames Dep’t Stores, 115 B.R. at 37–39 (debtor must show that it 

made reasonable efforts to seek other sources of financing under section 364(a) and (b)).

59. Despite the Debtor’s very public need for emergency financing, no financing of 

the magnitude required to address the Debtor’s pending liquidity crisis has been earnestly offered 

by any parties other than the financing sought through this Urgent Motion. Congress recognized 

as much when it established the Oversight Board with the purpose of providing Puerto Rico and 

its instrumentalities with a method to achieve fiscal responsibility and access to the capital 

markets: “Structural problems, economic shocks and weak public finances have yielded a 

decade of stagnation, outmigration and debt. Financial markets once looked past these realities 

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but have since cut off the Commonwealth from normal market access.” Krueger Report, at 1. 

The impact of the hurricanes on the Debtor’s already fragile circumstances has been devastating.

60. Shortly after Hurricanes Irma and Maria, the Debtor received an unsolicited, 

publicly announced offer for financing from a group of holders of its Power Revenue Bonds. 

Mondell Declaration ¶ 7. That offer was for $1 billion of financing, but was tied to a roll-up of 

$1 billion in existing bonds into an additional $850 million of post-petition financing (which 

would have resulted in a senior credit facility of $1.85 billion, out of which $1 billion of cash 

would have been available for advancement to the Debtor). Id. The offer carried a stated per 

annum interest rate of LIBOR plus 4.5% and a two-year maturity date. Id. In addition, the 

interest rate would have increased to LIBOR plus 6.5% upon the one year anniversary of initial 

borrowing. Id. The roll-up feature also provided investors in the loan facility with enhanced 

security provisions on a portion of their pre-petition claims. Id. The proposal also required the 

appointment of a receiver and had the potential to limit the future transformation of the electric 

grid. Id. For reasons that were publicly stated by AAFAF at the time, the proposal therefore was 

turned down.

61. Beginning on January 21, 2018, the Debtor, through Rothschild, initiated a 

marketing effort to obtain alternative financing. Mondell Declaration ¶ 11. As part of that 

process, Rothschild, with the assistance of advisors for the Debtor and AAFAF, prepared 

marketing materials and assembled a data room populated with relevant diligence information. 

Id. In consultation with the advisors to the Oversight Board, professionals from Rothschild have 

been in contact with ten potential funding providers, which consisted of four existing PREPA, 

Commonwealth, and COFINA bondholders and bondholder groups, and six third-parties capable 

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of providing financing of this magnitude. Id. As set forth in the Mondell Declaration, the 

contacted parties included all of parties that had previously expressed to either Rothschild or the 

Oversight Board’s financial advisor interest in providing such financing to the Debtor. Id. ¶ 12. 

To date, seven of these prospective lenders have signed non-disclosure agreements (“NDAs”) (or 

are operating under existing NDAs) and have been provided access to the data room maintained 

by Rothschild containing relevant information on the current financial conditions of the Debtor. 

Id. Rothschild has requested interested parties to submit initial indications of interest by 

February 2, 2018. The Debtor will submit an updated Mondell Declaration to the Court after 

proposals have been submitted and reviewed.

62. The Debtor, through Rothschild, will continue the solicitation process until the 

Final Hearing to determine whether a superior financing proposal can be obtained. Mondell 

Declaration ¶ 13. Importantly, because the terms of the financing contemplated in the Urgent 

Motion include a zero percent interest rate for the first six months, no closing fees, and no 

prepayment penalty, the Debtor can refinance the Facility if desired (to the extent of available 

financing in the future), without the Debtor having incurred costs on the Facility even following 

approval of the Urgent Motion. Id.

63. Further, despite the efforts of the Debtor’s advisors, the Debtor could not obtain a 

commitment for the financing sought through this Urgent Motion on an unsecured basis, on a 

junior lien basis, or on a pari passu lien basis. Mondell Declaration ¶ 15. Lastly, and critically, 

no party has offered to extend a loan that has the potential to be cancelled or forgiven. 

II. The Lender Should be Afforded Good-Faith Protection under Bankruptcy Code 

Section 364(e)

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64. Bankruptcy Code section 364(e) protects a good-faith lender’s right to collect on 

loans extended to a debtor, and its right in any lien securing those loans, even if the authority of 

the debtor to obtain such loans or grant such liens is later reversed or modified on appeal. 

Section 364(e) of the Bankruptcy Code provides:

The reversal or modification on appeal of an authorization under 

this section [364 of the Bankruptcy Code] to obtain credit or incur 

debt, or of a grant under this section of a priority or a lien, does not 

affect the validity of any debt so incurred, or any priority or lien so 

granted, to an entity that extended such credit in good faith, 

whether or not such entity knew of the pendency of the appeal, 

unless such authorization and the incurring of such debt, or the 

granting of such priority or lien, were stayed pending appeal.39

65. As explained herein, the Credit Documents are a result of (i) the Debtor’s 

reasonable and informed determination that the Lender, over all, offered the most suitable terms 

on which to obtain sufficient and vital postpetition financing, and (ii) extensive good-faith 

negotiations between the Debtor and the Lender. Importantly, the Lender is not charging any 

interest or fees, and has merely insisted on protections contemplated by Bankruptcy Code section 

364(c), (d), and (e) to preserve its own liquidity in the interest of its own restructuring. The 

Debtor submits the terms and conditions of the Credit Documents are reasonable and appropriate 

under the circumstances, and the proceeds of the Facility will be used only for purposes (i) 

approved by the Oversight Board and (ii) permissible under PROMESA and the Bankruptcy 

Code as incorporated by PROMESA section 301. Accordingly, the Court should find that the 

obligations under the Facility and other financial accommodations made to the Debtor have been 

 39 In addition to Bankruptcy Code section 364(e), the Commonwealth is protected by PROMESA section 304(e), 

which provides that “[t]he reversal on appeal of a finding of jurisdiction shall not affect the validity of any debt 

incurred that is authorized by the court under section 364(c) or 364(d) of title 11, United States Code.”

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extended by the Lender in “good faith” within the meaning of section 364(e) of the Bankruptcy 

Code and therefore the Lender is entitled to all protections afforded by that section.

III. The Automatic Stay Should be Modified on a Limited Basis

66. The Credit Documents contemplate the automatic stay arising under section 362 

of the Bankruptcy Code shall be vacated or modified to the extent necessary to permit the Lender 

to exercise, upon the occurrence and during the continuation of any Event of Default, but subject 

to any applicable motion requirements in the Financing Orders, all rights and remedies provided 

for in the Credit Documents, without further order of or application to the Court.

67. Whether or not a default or an Event of Default under the Credit Documents or a 

default by the Debtor of any of its obligations under the Financing Orders has occurred, the 

Credit Documents contemplate the automatic stay will be further vacated or modified to (A)

require all cash, checks or other collections or proceeds from Collateral received by the Debtor to 

be deposited in accordance with the requirements of the Credit Documents, and to apply any 

amounts so deposited and other amounts paid to or received by the Lender under the Credit

Documents in accordance with any requirements of the Credit Documents, (B) file or record any 

financing statements, mortgages or other instruments or other documents to evidence the security 

interests in and liens upon the Collateral in accordance with the Credit Documents, (C) charge 

and collect any interest, fees, costs and other expenses accruing at any time under the Credit

Documents as provided therein, and (D) give the Debtor any notice provided for in or 

contemplated by any of the Credit Documents or this Interim Financing Order.

68. Stay modifications of this kind are ordinary and standard features of debtor-inpossession financing arrangements, and, in the Debtor’s business judgment, are reasonable and 

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fair under the circumstances of this Title III case. See, e.g., In re City of Detroit, Michigan, No. 

13-53846 (SWR), Docket No. 4108 (Bankr. E.D. Mich. Apr. 16, 2014) (modifying automatic 

stay as necessary to effectuate the terms of the order); In re Buckingham Oil Interests, Inc., No. 

15-13441 (JNF) (Bankr. D. Mass. Dec. 2, 2015); In re Autoseis, Inc., No. 14-20130 (RSS) 

(Bankr. S.D. Tex. Mar. 27, 2014) (same); In re TMP Directional Mktg., LLC, No. 11-13835 

(MFW) (Bankr. D. Del. Jan. 17, 2012) (same); In re Broadway 401 LLC, No. 10-10070 (KJC) 

(Bankr. D. Del. Feb. 16, 2010) (same); In re Haights Cross Commc’ns, Inc., No. 10-10062 

(BLS) (Bankr. D. Del. Feb. 8, 2010) (same).

IV. Failure to Obtain Immediate Interim Access to the Facility Would Cause Immediate 

and Irreparable Harm

69. Bankruptcy Rules 4001(b) and 4001(c) provide a final hearing on a motion to 

obtain credit pursuant to section 364 of the Bankruptcy Code may not be commenced earlier than 

14 days after the service of such motion. Upon request, however, the Court may conduct a 

preliminary, expedited hearing on the motion and authorize the obtaining of credit to the extent 

necessary to avoid immediate and irreparable harm to a debtor.

70. The Debtor requests that the Court hold an emergency hearing to consider entry 

of the Interim Financing Order authorizing the Debtor, from and after entry of the Interim 

Financing Order until the Final Hearing, to receive the Initial Borrowing under the Facility. The 

Debtor requires the Initial Borrowing prior to the Final Hearing and entry of the Final Financing

Order to continue its post-hurricane recovery efforts to safeguard the health, safety, and welfare 

of the people of Puerto Rico. Without borrowed funds on an immediate basis, there is a material 

risk the Debtor would have to substantially reduce the pace of its recovery efforts, and the 

Debtor’s ability to fully reestablish electricity services would continue to be hamstrung and 

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imperiled by the Island’s post-hurricane conditions and on-going financial constraints. 

Critically, the Debtor’s suboptimal state, if allowed to continue, will negatively impact Puerto 

Rico’s broader recovery. Without the contemplated funds, the Debtor may be forced to cease 

operations.40 Should PREPA shutdown persist for three to six months, Puerto Rico is projected 

to experience outmigration of approximately 300,000 to 365,000 individuals in fiscal year 2018, 

further depressing revenues that the Government of Puerto Rico can collect and shrinking the 

Debtor’s customer base.

41 A fast response to ensure the availability of liquidity so that 

electricity services can be fully restored may reduce massive emigration from the island. The 

requested relief will enable the Debtor to continue its post-hurricane recovery efforts and 

reestablish electricity services for the citizens of Puerto Rico,

42 and preserve and maximize value 

and, therefore, avoid immediate and irreparable harm and prejudice to its property and all parties

in interest, pending the Final Hearing.43 

Request for Final Hearing

71. Pursuant to Bankruptcy Rule 4001(c)(2), the Debtor requests that the Court set a 

date for the Final Hearing that is as soon as practicable, and fix the time and date prior to the 

Final Hearing for parties to file objections to this Urgent Motion.

Urgent Motion Certification

72. Pursuant to Local Bankruptcy Rule 9013-1 and the Case Management Order, the 

Debtor makes the following certifications. First, the Debtor has carefully examined the matter 

and concluded that there is a true need for an urgent hearing to approve the Debtor obtaining the 

 40 Filsinger Declaration ¶ 15. 41 Wolfe Declaration ¶ 25. 42 Filsinger Declaration ¶ 22. 43 Wolfe Declaration ¶ 27-28. 

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Facility so that the Debtor can address its immediate liquidity needs and begin the process of 

rebuilding its infrastructure. Second, as described above, for several months the Government of 

Puerto Rico has been negotiating with U.S. Treasury over the terms of the CDLs for itself and 

the Debtor, but CDLs are not yet available. In the meantime, the Debtor’s liquidity crisis has 

become dire; the Debtor’s cash on hand and projected revenues are insufficient to cover the 

utility’s operational expenses beyond February. Thus, the Debtor urgently needs financing from 

the Government of Puerto Rico, the only source currently available. Since January 21, 2018, 

AAFAF’s financial advisor has contacted, among other potential funding sources, bond creditors 

of both the Debtor and the Government of Puerto Rico to determine their interest in providing 

financing. This Urgent Motion and the Debtor’s urgent need for financing should not come as a 

surprise. Although certain of the Debtor’s creditors have indicated they are planning to object to 

the relief sought in Urgent Motion, the Oversight Board and AAFAF will continue to work and 

negotiate in good faith to resolve any objection prior to the Interim Hearing. 

Notice

73. The Debtor has provided notice of this Urgent Motion to: (a) the Office of the 

United States Trustee for the District of Puerto Rico; (b) the indenture trustees and/or agents, as 

applicable, for the Debtor’s bonds; (c) any party that has requested notice pursuant to Rule 2002 

of the Federal Rules of Bankruptcy Procedure; (d) counsel to the statutory committee appointed 

in the Title III Case; (e) the Office of the United States Attorney for the District of Puerto Rico; 

(f) counsel to AAFAF; (g) the Puerto Rico Department of Justice; the Puerto Rico Treasury 

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Department; (h) the Other Interested Parties;44 and (i) all parties filing a notice of appearance in 

this Title III Case. The Debtor submits that, in light of the nature of the relief requested herein, 

no other or further notice need be given.

Reservation of Rights

74. The Oversight Board, as representative of the Commonwealth of Puerto Rico and 

the Debtor, has consented to the Commonwealth of Puerto Rico providing and the Debtor 

incurring the Facility, subject to the Oversight Board’s rights under the Facility as described 

herein and in the Credit Documents. The Debtor files this Urgent Motion without prejudice to or 

waiver of its rights pursuant to PROMESA section 305.

45

No Prior Request

75. No prior request for the relief sought in this Urgent Motion has been made to this 

or any other court.

[Remainder of Page Intentionally Left Blank]

 44 The “Other Interested Parties” include the following: (i) counsel to certain of the insurers and trustees of the 

bonds issued or guaranteed by the Debtor and (ii) counsel to certain ad hoc groups of holders of bonds issued or 

guaranteed by the Debtor. 45 PROMESA section 305 provides:

LIMITATION ON JURISDICTION AND POWERS OF COURT.

Subject to the limitations set forth in titles I and II of this Act, notwithstanding any power of the court, unless 

the Oversight Board consents or the plan so provides, the court may not, by any stay, order, or decree, in 

the case or otherwise, interfere with—

(1) any of the political or governmental powers of the debtor;

(2) any of the property or revenues of the debtor; or 

(3) the use or enjoyment by the debtor of any income producing property. 

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WHEREFORE the Debtor respectfully requests the Court to enter the Financing Orders, 

granting the relief requested herein and granting the Debtor any other relief as is just and proper.

Dated: January 27, 2018

San Juan, Puerto Rico

Respectfully submitted,

/s/ Martin J. Bienenstock

Martin J. Bienenstock (pro hac vice)

Paul V. Possinger (pro hac vice)

Ehud Barak (pro hac vice)

Maja Zerjal (pro hac vice)

PROSKAUER ROSE LLP

Eleven Times Square

New York, NY 10036

Tel: (212) 969-3000

Fax: (212) 969-2900

Attorneys for the Financial Oversight and 

Management Board as representative for the 

Debtor

THE PUERTO RICO FISCAL AGENCY 

AND FINANCIAL ADVISORY 

AUTHORITY, as Fiscal agent for PREPA

By its attorneys,

/s/ Nancy A. Mitchell 

Nancy A. Mitchell (admitted pro hac vice)

Greenberg Traurig, LLP

200 Park Avenue

New York, NY 10166

Phone: 212.801.9200

Fax : 212.801.6400

Email: mitchelln@gtlaw.com

David D. Cleary (admitted pro hac vice)

Kevin D. Finger (admitted pro hac vice)

Greenberg Traurig, LLP

77 West Wacker Drive

Suite 3100

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Chicago, IL 60601

Phone: 312.456.8400

Fax : 312.456.8435

Email: clearyd@gtlaw.com

fingerk@gtlaw.com

/s/ Hermann D. Bauer 

Hermann D. Bauer

USDC No. 215205

O’NEILL & BORGES LLC

250 Muñoz Rivera Ave., Suite 800

San Juan, PR 00918-1813

Tel: (787) 764-8181

Fax: (787) 753-8944

Co-Attorneys for the Financial Oversight and 

Management Board as representative for the 

Debtor

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