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UNITED STATES DISTRICT COURT 

DISTRICT OF PUERTO RICO 

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

IN RE: THE FINANCIAL OVERSIGHT 

 PROMESA 

AND MANAGEMENT BOARD FOR PUERTO 

RICO, TITLE III 

 as representative of 

 Case No. 17-BK-3283 (LTS) 

THE COMMONWEALTH OF PUERTO RICO, 

et al., (Jointly Administered) 

 Debtors. 

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

IN RE: PROMESA 

THE FINANCIAL OVERSIGHT AND Title III 

MANAGEMENT BOARD FOR PUERTO RICO, 

 as representative of 

PUERTO RICO POWER AUTHORITY, 

 Case No. 17-BK-4780 (LTS) 

 

 Debtor. 

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

 Trial 

 February 15, 2018 

 9:45 a.m. 

Before: 

HON. LAURA TAYLOR SWAIN,

 District Judge 

 

 APPEARANCES 

PROSKAUER ROSE LLP 

 Attorneys for Movant FOMB 

BY: MARTIN J. BIENENSTOCK 

 TIMOTHY MUNGOVAN 

 EHUD BARAK 

 PAUL POSSINGER 

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APPEARANCES (Cont'd) 

GREENBERG TRAURIG LLP 

BY: JOSEPH DAVIS 

 KEVIN FINGER 

 -ANDO’MELVENY & MYERS LLP 

BY: PETER FRIEDMAN

 SUZANNE UHLAND

 JOHN RAPISARDI

Attorneys for Movant AAFAF 

KRAMER LEVIN NAFTALIS & FRANKEL LLP 

 Attorneys for Ad Hoc Group of PREPA Bondholders 

BY: THOMAS MOERS MAYER 

 DOUGLAS BUCKLEY 

 GREG HOROWITZ 

WEIL, GOTSHAL & MANGES LLP 

 Attorneys for National Public Finance Guarantee 

Corporation 

BY: ROBERT BEREZIN 

 EDWARD McCARTHY 

 MARCIA GOLDSTEIN 

 DEBORA HOEHNE 

 

CADWALADER, WICKERSHAM & TAFT LLP 

 Attorneys for Assured Guaranty Corp. and Assured Municipal 

Corp. 

BY: MARK ELLENBERG 

 ELLEN HALSTEAD

MASLON LLP 

 Attorneys for US Bank National Association 

BY: CLARK WHITMORE 

 WILLIAM PENTELOVITCH 

ROBBINS RUSSELL ENGLERT ORSECK UNTEREINER & SAUBER LLP 

 Attorneys for GO Group 

BY: LAWRENCE ROBBINS 

 DONALD BURKE 

PAUL, WEISS, RIFKIND, WHARTON & GARRISON LLP 

 Attorneys for GO Group 

BY: ANDREW ROSENBERG 

 

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APPEARANCES (Cont'd) 

MILBANK, TWEED, HADLEY & MCCLOY LLP 

 Attorneys for AMBAC Assurance Corporation 

BY: DENNIS DUNNE 

PAUL HASTINGS LLP 

 Attorneys for Official Committee of Unsecured Creditors 

BY: LUC DESPINS 

ROPES & GRAY 

 Attorneys for Knighthead Capital Management, LLC 

BY: KEITH WOFFORD 

WACHTELL, LIPTON, ROSEN & KATZ 

 Attorneys for Scotiabank de Puerto Rico 

BY: AMY WOLF 

C. CONDE & ASSOCIATES 

 Attorneys for Whitefish Holdings, LLC 

LUISA S. VALLE CASTRO 

CHIESA SHAHINIAN & GIANTOMASI PC, 

 Attorneys for Arc American, Inc. 

BY: ROBERT NIES 

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(Case called)

THE COURT: Again, good morning. Welcome to counsel,

parties in interest, members of the public and the press, those

in San Juan, and those who are observing by telephone.

We continue to have in minds and hearts our fellow

American citizens who are working to rebuild their lives and

the island of Puerto Rico.

I remind you that,consistent with court and judicial 

conference policies and the orders that have been issued, there 

is to be no use of any electronic devices in the courtroom to 

communicate with any person, source, or outside repository of 

information, nor to record any part of the proceedings. 

Thus all electronic devices must be turned off, unless

you are using a particular device to take notes or to refer to

notes or documents that are already loaded on the device.

All audible signals, including vibration features, 

must be turned off. And as provided in this court's standing 

order, no recording or retransmission of the hearing is 

permitted by any person, including but not limited to the 

parties or the press. 

Anyone who is observed or otherwise found to have been 

texting, emailing, or otherwise communicating with a device 

during the court proceeding will be subject to sanctions, 

including but not limited to confiscation of the device and a 

denial of future requests to bring devices into the courtroom. 

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That was my usual friendly greeting. So, again, good

morning.

The Court will hear argument and receive evidence

today on the joint motion of the Financial Oversight Management

Board and the Puerto Rico Fiscal Agency and Financial Advisory

Authority for entry of an order authorizing post-petition

secured financing. The original motion is docket entry number

549 in the 4780 PREPA bankruptcy Title III case.

I have allocated three hours to the proponents of the

financing motion and three hours to the opponents for their

respective arguments and witness testimony.

As I indicated in an order that I filed yesterday,

parties may but are not required to make opening statements

except that the proponents are required to make clear certain

matters at the outset of their presentation.

The Court has granted the request for five additional

minutes each for ARC and Whitefish for closing argument, and

the UCC has requested three minutes for closing argument, and

that request is granted as well.

I entered this morning the exhibit-related stipulation

that was filed, and I hope that that will help to make things

go more smoothly.

Has there been a decision as to whether witnesses are

to be excluded from the courtroom prior to their testimony? Is

there any request for that?

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MR. DAVIS: No, Judge.

THE COURT: No request. Very well. That makes things

easier as well.

In last night's flurry of filings regarding the PREPA

bondholders' proposal, there were some issues raised as to

whether that proposal could or should be considered at all and

whether that's preclusive of the debtor's motion and whether

that is in fact something I may institute or approve.

So I think it helpful for you to have my view that the

only motion that is before the Court today is the debtor's

motion. I will consider the existence and terms of the PREPA

bondholders' proposal in the context of consideration of

whether the debtors' motion should be granted. I do not

consider the PREPA proposal preclusive of consideration of the

debtors' motion. So I think that that takes me through my

list.

So, Mr. Bienenstock.

MR. BIENENSTOCK: Good morning, Judge Swain.

May it please the Court. My name is Martin 

Bienenstock with Proskauer Rose LLP, attorney for the Oversight 

Board for itself and representative of PREPA, Title III debtor. 

We're not going to provide opening statements, your Honor, 

beyond what your Honor's order yesterday asked for.

I'm going to take your Honor's second request first

because I can answer that, and then I'll ask to hand off the

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first request to someone else, and I'll explain why.

In terms of your Honor's second request, whether there

are any material changes to the proposed financing order,

your Honor, there are two. One is that in paragraph 2, we've

changed the amounts of the proposed financing from $1.3 billion

to $1 billion.

And in paragraph C, we provided that if there is CDL, 

Community Disaster Loan, refinancing which requires a step 

increase in interest rates, we would return to court on a 

negative notice basis for approval, meaning that if there are 

no objections, the Court can sign the order. And if there are, 

then whatever proceedings the Court deems appropriate. Those 

are the only two major changes. There was other cleanup but 

nothing substantive. 

THE COURT: Thank you.

MR. BIENENSTOCK: In terms of your Honor's first

request for a position as to the urgency associated with

accessing the loan proceeds, as your Honor knows, the Oversight

Board gets numbers through AAFAF and through management of

PREPA which we don't control.

So, as to avoid the game of telephone or something 

being repeated through several people and getting garbled, 

we've asked Mr. Jody Davis of Greenberg Traurig an attorney for 

AAFAF who concentrates on PREPA, to answer your Honor's first 

questions, if that's okay with the Court. 

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THE COURT: Thank you.

MR. DAVIS: Good morning, your Honor.

THE COURT: Good morning.

MR. DAVIS: May it please the Court. Joseph Davis,

also known as Jody, counsel for AAFAF in its capacity as fiscal

agent for PREPA. 

Your Honor, you directed the parties, actually, you

specifically directed the movant, which would be us, to address 

immediately the issue of urgency. I've taken your direction to 

heart, and we have taken it very seriously. 

THE COURT: I'm going to ask you just to project even

a bit more because we have trouble with these microphones

sometimes.

MR. DAVIS: Your Honor, this morning, the governing

Board of PREPA met to address this very issue and to approve

the opening that I am about to give, mindful of your directions

that we are to be candid with you and focus on the issue of

urgency.

Your Honor, today Mr. Todd Filsinger will be prepared

to testify -- is prepared to testify -- that PREPA has been

stretching its vendors as far as it could and as far as it can.

Since the hurricanes, PREPA has been operating with

limitedly liquidity and minimal cash reserves. Critical 

vendors have been pushed to the breaking point while 

restoration and recovery vendors have gone with minimal 

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payments, in some cases no payments, for a period of time. 

Generation has already begun. The interim relief that

we had originally sought we decided to put off until this

hearing today which further strained the liquidity requirements

of PREPA to operate.

The date of this hearing is not a chance one for 

PREPA. It is a critical one. PREPA's reserves will dip below 

$100 million in the next few business days which will make 

PREPA incapable of paying for certain critical ongoing 

operations and will render it incapable of providing power 

services for anyone other than critical and necessary 

customers, which is to say hospitals, medical services, law 

enforcement, gas stations, and fire stations. 

In the absence of adequately liquidity, the debtor is

going to be put in a position where it literally cannot operate

in a very short order. What do I mean by that. The cost to

run PREPA is about $50,000,000 a week.

So, if the $100,000,000 reserve is tapped at that

rate, PREPA would be out of money in a couple weeks.

Mr. Filsinger testified that he is prepared to stretch that

out, but he can't stretch it out far. He can stretch it out

maybe three or four weeks, maybe. But what does that mean.

Your Honor, that means that without the financing 

requested today, PREPA, in order to provide those critical 

services, is going to have to commence shutting down operations 

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Friday, in other words, tomorrow, in a staged fashion. 

That will mean initially notice. It will then mean

cutting back on fuel orders. It will mean initial layoffs. As 

a consequence, power generation will have to be shut down in 

certain places, and very quickly what will result are power 

shortages and brownouts. 

These continued cuts will mean that residential and

commercial customers will commence losing public power within a

very short period, again, on a staged basis.

THE COURT: When you say "a very short period on a

staged basis," are you saying that on Monday people are only

going to be able to find electricity at the gas station? Or

are you saying that something that will play out and get to

this true public impact stage at the end of next week or in the

week after? I would just like you to be as concrete as you

can.

MR. DAVIS: Yes, your Honor. With proper cash

management, which is to say stopping payment of certain things

and commencing the process of laying off and reducing fuel --

and of course, if you don't have fuel, you cannot run a power

plant -- Mr. Filsinger is confident that he can keep things

limping along for probably three to four weeks.

But that means reducing during that process the number

of customers that will actually have power. So initially, as I

said, it will be brownouts and shortages as blocks of people

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are cut off, meaning commercial and residential customers are

cut off.

So it doesn't happen overnight. There is a process

that takes place, but it unfolds very quickly. We're literally 

talking within a couple of weeks large bodies of customers not 

having access to power to conserve as much as the resources as 

possible for those emergency services. 

But within three to four weeks, there won't be

reserves to pay for even the critical services. So that's what

I mean. I don't mean to sound overly dramatic, but that's what

we are talking about here.

They are running out of money for all of the reasons 

that you can imagine. There was a total shutdown of the system 

for a large period of time. If you don't have electricity 

running, you can't bill people for the electricity. If you 

don't bill people for the electricity, you can't have the 

revenues. If you don't have the revenues, you can't pay for 

the things you need unless you can borrow. 

There are other consequences, your Honor, that come

from this too. For example, even if PREPA is up and running

again, the failure to pay, for example, the fuel line providers

timely results in an approximately a $12-a-barrel penalty on

fuel going forward, and after 12 days of unpaid invoices, you

get shut off. With regard to diesel fuel, there isn't even a

penalty phase. They shut you off. Those consequences even

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survive the restoration project if we can get it up and

running.

In essence, your Honor, within a short period, three

to four weeks tops maximum, PREPA will cease operations, 6,000

people will be out of work, and the island will be plunged back

into darkness.

The gains that Mr. Filsinger and his team and the

PREPA Board and the AAFAF and the Oversight Board have been

laying out over the last couple months in improved billing, in

improved collections, improved transformational plans will, of

course, end.

But more importantly, the humanitarian crisis that has

been ongoing in Puerto Rico but has begun to seriously improve,

if you will, will now reverse itself in the worst of ways. So

what nature brought by way of the wrath of the storms in

September, human short sightedness will bring back. I put it

to the Court -- and Mr. Filsinger will testify so much -- that

the moment for an infusion of liquidity is now and cannot wait

any longer.

If I may, your Honor. We do have a couple of

housekeeping matters as we move into the evidentiary phase.

THE COURT: Yes.

MR. DAVIS: You took care of one, the stipulation.

Allowing the stipulation of authenticity helps. There is also

a stipulation that you've allowed with regard to Dr. Wolfe's

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testimony. So he will not be testifying.

With regard to Mr. Filsinger, he will be the first

witness. My partner, Mr. Finger, will be handling it for

PREPA. Obviously, the objectors will be cross-examining first,

given this Court's orders as to how the presentation is done.

However, there was a copying error in the binders that

you have, ironically that we have, but I don't believe it's a

problem with the objectors, which is to say Exhibit 16, which

in the index is described as the revised updated budget, in

your binder is not the revised updated budget.

The revised updated budget you actually have as

Exhibit A to the second supplemental declaration of

Mr. Filsinger. We fortunately have with us copies of what

should have been Exhibit 16, and we intended to introduce that

into evidence or to swap it out with the exhibit that's in

there by accident. 

THE COURT: So is that page 50 of document number 688?

MR. DAVIS: That's a question somebody up there is

going to answer.

THE COURT: It was entered on February 12. I think --

I was trying to be helpful.

So, if you're prepared to supply the document.

MR. DAVIS: Yes, your Honor. As it turns out, we,

fortunately, brought a lot of copies of the document. So we do

have it in the courtroom. It's not in a binder that your Honor

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and the witness have, but we can swap that out as the testimony

occurs.

THE COURT: That's fine. You can just hand it to me

as to the witness.

Are you going to be using the Elmo to display the

documents for the people in the spectator section and in

Puerto Rico?

MR. DAVIS: We were strongly encouraged to do so. So

long as the klutzy nature of some of the lawyers doesn't foul

it up, we intend to do so so that people in Puerto Rico and,

frankly, people in this courtroom can see the documents too.

As you can see, I'm at a stage in life where reading glasses

are important, and looking at these documents without them is

impossible.

One last thing. There is one witness, your Honor --

the witnesses who will be testifying live, just so you know,

are Mr. Filsinger, whom I've already mentioned; Gerardo Jose

Portela. Mr. Portela is the executive director of AAFAF.

He is on his way here from a presentation he had to

make that was scheduled long before this session. So hopefully 

not in violation of your Honor's orders of that emailing. We 

are trying to track him and find out where he is. We are told 

he is very close and will be here momentarily. 

Dustin Mondell from Rothschild. Mr. Wolfe, as we've 

already said, will be submitted by stipulation, and then the 

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objectors, as I understand -- I won't speak for them -- will 

have Mr. Stephen Spencer as their witness. 

So, with that, your Honor, those are all the

housekeeping matters I have on my list.

THE COURT: Thank you.

I would just say that when everyone does use the Elmo,

they'll just have to be particularly careful about moving

around the podium, and Ms. Ng will turn it on. So nobody break

their knees on the shelf.

MR. DAVIS: One of us will trip and fall, and

hopefully it is not I. Thank you, your Honor.

THE COURT: Thank you, Mr. Davis.

MR. DAVIS: So then we would then offer into evidence

the declaration of Mr. Filsinger, which would be his direct

testimony.

THE COURT: I take it from the stipulation that there

is no objection to that proffer. So that declaration is

admitted in evidence. I'm trying to find my copy of the list

because I want the record to be as clear as possible.

What's the document number or the exhibit number? 

MR. DAVIS: Your Honor, he actually has three

declarations. The objectors did what I wish we had time to do

which was to do a consolidated declaration which would be a

little easier. But unfortunately, we couldn't pull that off

due to a travel schedule. So you have three declarations, his

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original declaration --

THE COURT: Which is Exhibit Number 1. I see the

supplemental is Exhibit Number 11. The second supplemental is

Exhibit number 15, and then exhibits to the supplemental are 12

through 14, and 16 was intended to be that exhibit from

document 688 that I referred to.

MR. DAVIS: Yes, your Honor.

THE COURT: So do I understand that you are proffering

into evidence Movants' Exhibits 1 and 11 through 16?

MR. DAVIS: 17.

THE COURT: 17, the trust agreement, which is Exhibit

8.

MR. DAVIS: Yes, your Honor.

THE COURT: So 1 and 11 through 17 are admitted in

evidence.

MR. DAVIS: Yes, your Honor.

(Movants' Exhibits 1 and 11 through 17 received in 

evidence) 

THE COURT: Thank you. 

So is Mr. Filsinger here? I understand there is a 

desire to cross-examine him. 

MR. DAVIS: Yes, your Honor. He is in the room.

THE COURT: Mr. Filsinger, would you please come

forward to the witness stand.

TODD W. FILSINGER, 

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 called as a witness by the Movants, 

 having been duly sworn, testified as follows: 

THE COURT: Thank you.

Please remain standing. State your name and spell it

for the record.

THE WITNESS: Todd W. Filsinger, T-o-d-d, middle

initial W., F-i-l-s-i-n-g-e-r.

THE COURT: Thank you. Please be seated.

Please speak into the microphone.

THE WITNESS: Yes, your Honor.

THE COURT: And your examiner is.

MR. HOROWITZ: Good morning, your Honor. Gregory

Horowitz from Kramer Levin Naftalis & Frankel on behalf of the

ad hoc PREPA bondholder group.

THE COURT: Good morning, Mr. Horowitz.

MR. HOROWITZ: Your Honor, as another small

housekeeping matter, I just want to make sure that the witness

has in front of him two binders. One is the exhibits that were

marked by the movants; the other are the joint exhibits that

were marked by the objectors, and we've used numbers for the

movants' and letters for the objectors' exhibits.

THE COURT: Thank you.

Do you want him to verify?

MR. HOROWITZ: Yes.

CROSS-EXAMINATION 

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SOUTHERN DISTRICT REPORTERS, P.C.

(212) 805-0300

I2FYPRO1 Filsinger - Cross

BY MR. HOROWITZ: 

Q. Mr. Filsinger, could you please take a moment to orient

yourself.

Do you have two binders or more than two binders in

front of you?

A. I have three binders.

Q. I gather one binder is the movants' exhibits and the other

two binders are the objectors' exhibits?

THE COURT: I have four binders here. I have one that

says Movants' Volume I, Movants' Volume II, Movants' Volume

III, and then objecting parties' exhibits.

MR. FILSINGER: And your Honor, I think I have II and

III combined. So I have Volume I, Volume II and III together,

and then I have the objecting parties' exhibit list for hearing

in another binder.

MR. HOROWITZ: That's fine. I also think, your Honor,

Exhibit 16, the most recent cash flow forecast -- this is not

going to be unique to Exhibit 16 -- is very hard to read, and I

believe that the movants kindly prepared large-format copies

which I think there is a copy in front of the witness.

THE COURT: Yes.

MR. HOROWITZ: Unfortunately, I can't guarantee that

we have similar copies of other exhibits. We'll do our best.

THE COURT: All right.

BY MR. HOROWITZ: 

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(212) 805-0300

I2FYPRO1 Filsinger - Cross

Q. Mr. Filsinger, you are the chief financial advisor to PREPA

currently; is that correct?

A. That is correct.

Q. And you were retained on December 7, 2017?

A. That is correct.

Q. So you have been engaged for now slightly in excess of two

months; right?

A. That is correct.

Q. In connection with the motion that brings us here today,

you have prepared and signed three separate declarations;

right?

A. Yes, I did.

Q. And in connection with each of these three successive

declarations, you have also submitted a cash flow forecast. I

think we frequently refer to them as 13-week cash flows, but

some of them are 15 weeks and some of them are 13; right?

A. Yes.

Q. And the first line on each of these cash flow forecasts

refers to customer projections, first actual and then

projections of customer collections; is that right?

A. Yes. Under the heading, under the weeks, yes.

Q. And in each of the revisions to the original cash flow

forecast, the projected customer collections have increased

during the projection period; right?

A. The actuals have been updated, and then the forecasts in

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(212) 805-0300

I2FYPRO1 Filsinger - Cross

some years -- excuse me. In some months -- weeks -- has gone

up. Sorry.

Q. The aggregate customer collections that are projected

during the projection period has increased; is that correct?

A. I believe that's correct, yes.

Q. And the size of PREPA's potential cash need in each of

these successive cash flow forecasts have decreased; correct?

A. The timing of the negative cash position changed.

Q. Well, let me direct your attention to -- I guess I'll start

to practice on the Elmo -- to the most recent cash flow

forecast, which is Movants' Exhibit 16. Everyone in the

courtroom is now laughing because they're seeing what I was

referring to.

THE COURT: I'm also going to challenge you to speak

into the microphone, even when you are moving to the Elmo,

because we are losing your voice.

MR. HOROWITZ: That will be challenging: I'm sorry,

your Honor.

THE COURT: It might be best to refer to a particular

line.

MR. HOROWITZ: Yes. I'll leave it up on the screen,

and we'll all use our hard copies.

Q. So, sir, if I direct your attention to -- let me get my

nice, big copy -- to the line on this cash flow forecast, about

the third of the way down, referring to -- it's a blue shaded

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(212) 805-0300

I2FYPRO1 Filsinger - Cross

line, operating accounts and operating reserve fund.

Do you see that?

A. Yes, I do.

Q. For the actual period, which ends on February 2 in this

iteration of cash flow; correct?

A. Correct.

Q. For the actual projection period, the last actual number

for the balance in the operating account and operating reserve

fund -- let me just stop, sir.

The operating account and operating reserve fund

refers to the balance that PREPA has in the operating reserve

fund; correct?

A. Generally, yes.

Q. Is that a single bank account?

A. I believe so. I'm not sure if there are more accounts.

Q. So, at the time you prepared this, the most recent balance

was $233.2 million; correct?

A. As of this document, yes.

Q. But it was projected to diminish to $144.8 million as of

the end of this week, as of tomorrow; correct?

A. That is correct.

Q. Do you know, as we sit here today, what the current balance

is?

A. The current balance, taking into account the 2-9, is

approximately $194 million.

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(212) 805-0300

I2FYPRO1 Filsinger - Cross

Q. When you sat for a deposition yesterday, you didn't know

what the current balance was; correct?

A. That's correct.

Q. So, since we've sat, you've checked on the current balance;

is that right?

A. Thinking of this morning, yes.

Q. But according to your projection at the time you prepared

this, you expected that the balance might be as low as

$144.8 million as of tomorrow; correct?

A. Just to be clear, the $194 million is as of last Friday.

Q. Oh, it's as of last Friday?

A. Yes. You should be comparing that number to the

$190.4 million.

Q. Okay. So you don't know what the actual balance is as of

the moment.

A. I don't know the balance as of the moment. I do this on --

every Friday I get the numbers -- I get the numbers through

Friday the following day.

Q. Thank you. 

Now, on this current projection -- first of all, this 

current projection is different in format from the prior two 

cash flow projections in that this now contemplates the funding 

of a DIP loan and shows the drawdown of that loan and resulting 

balances. Is that right? 

A. That is correct.

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(212) 805-0300

I2FYPRO1 Filsinger - Cross

Q. And on the bottom line, the bottom quadrant of this cash

flow forecast entitled loans outstanding, this contemplates

that the DIP loan would be approved and would be drawn down

during the 15-week period in this projection by $550 million;

is that right?

A. Yes. You would have to the loan, $550 million.

Q. With the drawdown of $550 million, this contemplates that

the cash balance, the ending cash balance, would drop to as low

as $152 million; right?

A. Yes. Based on this projection, it would drop to $152

million on 5-18, May 18.

Q. Which is not quite as low as you project you might be by

tomorrow; right?

A. Tomorrow we're looking at -- we're estimating about

$144.8 million. So it's similar.

Q. Now, the reason that you used $550 million as the draw in

this exhibit is because that is the amount that has been

authorized by the Puerto Rico legislature; right?

A. For the initial amount, yes.

Q. The Commonwealth has not approved the $1 billion loan;

right? 

A. I don't believe they have as of yet.

Q. And you understand what it means to have a committed loan;

correct?

A. Yes.

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(212) 805-0300

I2FYPRO1 Filsinger - Cross

Q. And currently you are not aware of any commitment to fund

any DIP loan in excess of $550 million; correct?

A. I think currently it's been approved up to $550 million.

Q. And you do not anticipate that FEMA will advance a

Community Disaster Loan, a CDL, to the Commonwealth between now

and the end of this projection period, May 18. Correct?

A. No, I do not.

Q. So this cash flow forecast projects -- represents your best

estimate of what will happen if this current motion is

approved; correct? During the projection period.

A. Well, we have asked in this motion for approval for a $1

billion DIP. So what this shows is the 550 -- what the 550

does but what we're asking for is approval of up to $1 billion.

Q. Let me repeat my question, sir: This projection shows your

best estimate of what will happen during the 15-week period if

this motion is approved; correct?

A. It shows -- well, it shows for the 550 but not for the

billion. It helps demonstrate the need for the billion.

Q. But you have no basis to project that the Commonwealth will

approve a lending in excess of $550 million between now and the

18th; correct?

A. I don't have current approval, but my expectation is that

they will approve it.

Q. You have an expectation, as we sit here today, that between

now and May 18 the Commonwealth will approve funding for more

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than $550 million, sir?

A. Well, we asked for a billion dollars. So I certainly

anticipate that.

Q. You understand that PREPA had requested more than a billion

dollars in financing when the bill was first presented to the

legislature; correct?

A. Yes.

Q. And at that time, the legislature only approved $550

million; right?

A. That's my understanding.

Q. Now, the $550 million that's reflected in this 16-week cash

flow, according to these projections, would at least provide a

$150 million balance in the operating account during the entire

projection period; correct?

A. Based on the projections, yes.

Q. And it's only when cash falls below $100 million that you

would contemplate implementing the emergency plan that I think

Mr. Davis was referring to in his opening statement, the

limited shutdown of electricity?

A. Well, let me explain that. If you have anticipation that

you were going to drop below $100 million and you know you

don't have the funds coming in on very short order, in this

case, probably Wednesday of next week, you have to commence

shutdown.

There is not a magical number, when you hit 100 and

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(212) 805-0300

I2FYPRO1 Filsinger - Cross

you suddenly hit that. You have to look forward because what 

we're doing -- as was explained in the opening, what we're 

doing is if we don't have this loan and we drop -- next week, 

if we drop to around $70 million, we have to implement the 

emergency measures as soon as possible in order to extend that. 

So, in this case, what we are doing is -- 

MR. HOROWITZ: Your Honor, I have a limited amount of

time. I don't mean to cut off the witness, but if he doesn't

stick to my questions, I'm not going to be able to get through

my line of cross.

THE COURT: Mr. Filsinger, please answer specifically

the question that was asked. If the questioner asks you to

respond as a yes or no question, you can respond yes or no or I

can't answer it that way, and then the questioner will

rephrase. But do keep your answers as directed and short as

possible.

THE WITNESS: Yes, your Honor.

BY MR. HOROWITZ: 

Q. I will repeat and slightly rephrase.

Unless you anticipate cash balances falling below $100

million, you do not intend to implement the emergency limited

shutdown plan that Mr. Davis referred to in his opening;

correct?

A. If we don't get the approval of the loan, we are

implementing the emergency plan which starts Saturday.

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(212) 805-0300

I2FYPRO1 Filsinger - Cross

Q. Sir, my question is specifically and I think expressly

related to the projection presented in the cash flow in front

of you which does contemplate the funding of a $550 million

loan.

You just agreed with me that on the funding of a $550 

million loan, your best projection is that the cash balance 

will not drop below $150 million; correct? 

A. I'm sorry. I'm not following you.

Q. You testified a moment ago that based on the funding of a

$550 million DIP loan, your best projection at the moment, as

reflected in Movants' Exhibit 16, is the cash balance would not

drop below $150 million; correct?

A. It does not show dropping below $150 million in this cash

flow.

Q. So, getting back to my question, you do not intend to

implement the emergency limited shutdown plan that Mr. Davis

referred to unless you anticipate cash balances dropping below

$100 million; correct?

A. Well, with the caveat I started to explain. It depends on

what you have and what you see with respect to loan proceeds.

If this loan is put in place, no, you would not implement those

measures during the term of this cash flow.

Q. That was my question, sir. Now let's talk about after the

term of this cash flow.

PREPA also, in addition to a 13- or 15-week cash flow

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forecast, has also prepared a monthly liquidity model; right?

A. That is correct.

Q. Let me direct your attention, if you can find it in the

binders in front of you, to Objectors' Exhibit J.

THE COURT: Are you offering Objectors' Exhibit J in

evidence?

MR. HOROWITZ: I am, your Honor. I believe per the

stipulation, its admissibility has been stipulated.

THE COURT: Yes. So Objectors' Exhibit J is received

in evidence.

(Objectors' Exhibit J received in evidence) 

BY MR. HOROWITZ: 

Q. Exhibit J is a two-page document.

Sir, this is a two-page monthly liquidity model; 

correct? 

A. Correct.

Q. And this is a projection of liquidity to the end of fiscal

year 2018 on the first page; right?

A. Correct.

Q. And then on the other side, on the second page, for the

entire fiscal year 2018. That's July 2018 through June 2019;

right?

A. That is correct.

Q. At our request, PREPA provided an update to this monthly

liquidity model during the course of this motion and

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litigation; right?

A. That is correct.

Q. That update is Exhibit DD in your binder.

THE COURT: Shall I deem DD offered and, therefore,

admitted?

MR. HOROWITZ: Yes, your Honor.

THE COURT: DD is admitted in evidence.

(Objectors' Exhibit DD received in evidence) 

MR. HOROWITZ: I'm trying to find my copy to put it up

on the screen. Maybe when I ask questions, somebody will get

me a clean copy.

THE COURT: I see your colleagues working on that.

MR. HOROWITZ: Thank you very much.

Q. So Exhibit DD is the updated monthly liquidity forecast;

correct?

A. That is correct.

Q. But this update is only prepared through the end of fiscal

year 2018; correct?

A. That is correct.

Q. And that's because you felt like you didn't have any

information to do any meaningful update for the projections for

2019; correct?

A. We did not have the 2019 done yet. They're working on this

as they get more information. Once it's done, they'll post it.

Q. Now, sir, both the original and the updated monthly

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(212) 805-0300

I2FYPRO1 Filsinger - Cross

liquidity forecast project that May of 2018, which is the end

period in your weekly cash flow forecast, will be the low point

for PREPA's cash balance; correct?

A. Is this the one up on the screen now that matches the one?

Q. The one up on the screen is the update, sir.

THE COURT: So is that DD or J?

MR. HOROWITZ: That's DD, your Honor.

I should probably zoom out.

THE WITNESS: Try and zoom in a little bit. I'm

having a hard time.

BY MR. HOROWITZ: 

Q. Are you looking at the hard copy?

A. Well --

Q. If you look at the column for May 2018, at the very bottom,

you will see a total cash balance, and it's a negative figure.

Right, sir?

A. I'm having a hard time seeing it. I apologize.

THE COURT: This is the portrait format document, and

you're talking about the third column in from the

right-hand side, the very last number on the bottom?

MR. HOROWITZ: That's right, your Honor. I don't have

my hard copy in front of me, but I believe it's negative 327.7.

Q. Do you see that, sir? You don't have to confirm the exact

figure.

What I'm asking you to confirm now is that May of 2018 

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is projected to be the low point for PREPA's cash balance in 

this revised monthly cash flow forecast. Right? 

A. Again, I'm just trying to find it so I can validate.

THE COURT: This is the number that he's referring to

down here.

I pointed out to the witness that 327 number on the

page.

THE WITNESS: That bottom box includes emergency

funds. That's why I'm struggling.

Are you looking at the bottom box? Which box are you 

looking at? 

MR. HOROWITZ: I am looking at the very bottom line of

the total cash, sir. You're right. It does include emergency

funds, but you can confirm the exact same thing if you can look

at general funds under ending balance, which is the fourth box

from the bottom. 

The only question I'm asking, sir, is to confirm that 

in this forecast, it shows that May 2018 will be the low point 

in PREPA's projected cash balance. 

Q. Can you please confirm that, or I will refer you to your

deposition.

A. Yes. I believe that's correct.

Q. Thank you, sir.

I can ask you to look at the top line, the projected

customer collections, and ask you to confirm that projections

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of the customer collections will increase from May to June of

2018.

THE COURT: This is the very first line of the chart?

MR. HOROWITZ: It is, your Honor. It shows a forecast

of $329.3 million in customer collections for May 2018 and

$325.2 million in June of 2018.

Q. I want you to confirm that it shows that collections will

continue to increase. Correct?

A. It shows the collections increase in June of '18.

Q. Right. The extended cash flow forecast, which was Exhibit

J, it includes a projection -- I lost it on the Elmo, but I'll

keep going -- contemplates that monthly collection levels after

the hurricane will ultimately reach approximately $250 a month.

Right?

A. $250 million.

Q. And that's something in the range of $60 million per week;

right?

A. Yes. Depending on the number of weeks.

Q. The updated monthly forecast -- I'm sorry. I'm going back

to DD. I'm trying to rush -- projects that there will be

positive net cash flows in the month of June, net cash flow --

I'm looking at the line that's immediately above the general

fund box -- of $75.6 million in June, positive in the cash flow

of $75.6 million in June. Right?

A. Yes.

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Q. And your extended cash flow forecast, referring back again

to DD, for 2019 projected a total positive net cash flow in

2019, referring to the second page of DD, of positive

$434.7 million; right?

A. Where are you referring to on this document? I'm sorry.

THE COURT: I don't see a second page of DD. That's

the portrait?

MR. HOROWITZ: It is, your Honor. A double-sided

document.

THE COURT: Not in my book.

MR. HOROWITZ: I'm sorry, your Honor. I misspoke. J

is the original.

THE WITNESS: We're on J now?

MR. HOROWITZ: Yes. I apologize. We're on J, the

two-page extended one.

THE COURT: Thank you.

BY MR. HOROWITZ: 

Q. And I just circled the number I'm pointing to on the Elmo

as the total projected cash flow for fiscal year 2019.

Do you see that?

A. Looking at the total cash flow from operations?

Q. Yes.

A. Yes.

Q. Thank you. Sir, you were involved in the DIP loan

negotiation process; right?

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A. I was at times.

Q. And you don't know what individuals were responsible for

negotiating the DIP on the Commonwealth side, do you?

A. No. I relied on Nancy Mitchell for the DIP loan.

Q. In your limited experience in the negotiations of the terms

of the DIP loan, you don't recall whether the issue of a

priming lien was even brought up as the subject of negotiation;

correct?

A. Do you mean in my limited participation?

Q. Yes.

A. I'm not aware of all the things that were negotiated.

Q. And you are not aware of there having been any business

discussion about whether the Commonwealth would be willing to

provide an unsecured loan to PREPA?

A. I wasn't in on those parts of the discussion.

Q. Other than the potential third-party lenders, had you no

involvement in the attempts to solicit a DIP loan from a third

party; right?

A. Do you mean other than the third parties that were

solicited you mean?

Q. I'm saying: Including the third parties who were

solicited, other than providing potential names, you had no

involvement in the marketing process of this DIP loan; right?

A. That was not my job.

Q. And you're not aware -- we just looked at some projections.

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I2FYPRO1 Filsinger - Cross

You're not aware of any projections that have been prepared by

PREPA or anyone else that show a repayment, a source of

repayment, for this proposed DIP loan, are you?

A. It's a 30-year term. We haven't provided a 30-year

projection, no.

Q. And you're not aware of any projection that would suggest a

source of repayment for this DIP loan within the next two

years, are you?

A. We have not prepared that yet. No.

THE COURT: You're on your red light.

MR. HOROWITZ: I'm out of time?

THE COURT: You're 54 seconds into borrowed time.

MR. HOROWITZ: Your Honor, is this a limit per witness

that you're going to enforce, or are you going to allow us to

borrow some time from other witnesses?

THE COURT: I am taking the time allocations from the

chart that was provided to me which gave you 25 minutes for

cross.

MR. HOROWITZ: In that case, can I just have two

minutes to finish up my line of questioning, your Honor? I

apologize.

THE COURT: As long as your colleagues will let me

take that off the next one. We just can't be here till 8:00

tonight.

BY MR. HOROWITZ: 

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I2FYPRO1 Filsinger - Cross

Q. Very quickly. Sir, you've been involved in efforts to

collect more than $200 million in outstanding debts shown on

PREPA's books and records from public government corporations

in Puerto Rico?

A. We have been involved in the collections of the

government's outstanding, yes.

Q. Before I showed it to you at your deposition, you were not

aware that the Puerto Rico legislature enacted a law in April

of 2016 requiring public work corporations to sit down within

the next 45 days and engage in a reconciliation process and

then enter into a payment plan with PREPA to satisfy its

outstanding obligations. Correct?

A. I thought the date in the document you showed me was prior

to that, but I'll take, subject to check '16. I thought it was

before that.

Q. I'll represent it was April of 2016. I'll refer the Court

to the document on Mr. Portela's cross-examination.

(Continued on next page)

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I2FQPRO2 Filsinger - Cross

BY MR. HOROWITZ: (Continued)

Q. Sir, there have been meetings within the last few days with

a number of the public corporations that have very large

outstanding amounts in an attempt to collect, correct?

A. There were meetings, I think it was last week, it's in my

declaration, with several corporations, yes.

Q. Notwithstanding those meetings and notwithstanding the

powers granted under Act 22-2016, you feel confident that you

will not receive any significant collections of outstanding

balances from these public corporations during the 15-week cash

flow projection period, right?

A. I don't feel we will be doing -- we will be doing the

reconciliation, but I don't believe that that will be resolved

within the 13 cash flow projection.

Q. Of course, you're aware if the governor wanted to, he would

have the power to compel those entities to pay their

outstanding obligations immediately, right?

A. Well, the issue is, there is a dispute as what is actually

owed.

Q. My question is: If the governor willed it, he could compel

those entities to pay their outstanding obligations

immediately, correct?

A. I don't know.

Q. And it's also true that the Commonwealth could provide

loans or other forms of liquidity to the entities that owe

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I2FQPRO2 Filsinger - Cross

money to PREPA so that they could satisfy their obligations,

correct?

A. I don't know that. 

MR. HOROWITZ: I have no further questions, your

Honor.

THE COURT: Thank you, Mr. Horowitz. 

Mr. Finger, redirect? 

MR. HOROWITZ: I think other parties may have provided

for a short period of time for cross.

THE COURT: What I have is cross-examination expected

to take 25 minutes for the PREPA creditors. So you've used 29.

MR. HOROWITZ: I think some clarification is in order.

The Ad Hoc Bondholder Group, the Monolines and the Trustee, but

there is also projecting parties, the GO creditors and Ambac,

and I think they may or may not have reserved separate time for

cross.

THE COURT: The chart that I have received says with

respect to Mr. Filsinger: Cross expected to take 25 minutes

for the PREPA creditors. Redirect examination expected to

take -- oh, this is the 30 minutes -- so sorry. There is 30

floating minutes. This will go into the 30 floating minutes.

So sorry.

MR. BURKE: Donald Burke, Robbins Russell, the Ad Hoc

Group of General Obligation Bondholders.

THE COURT: Good morning, Mr. Burke.

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(212) 805-0300

I2FQPRO2 Filsinger - Cross

MR. BURKE: Good morning, your Honor.

CROSS-EXAMINATION 

BY MR. BURKE: 

Q. Good morning, Mr. Filsinger.

A. Good morning.

Q. Do you understand that under the proposed terms of the DIP

loan, interest rates begin at zero for a period of six months,

then step up a half percent every six months until it reaches a

maximum of three percent?

A. I believe that's correct.

Q. And you'd agree that those terms as interest terms are

favorable to PREPA, wouldn't you? 

A. I think they are good terms for PREPA.

Q. And you are not testifying here today that PREPA requires

those favorable terms to maintain operations, are you?

A. No. PREPA needs to look at the terms to get the best loan,

but we looked at it, the Board looked at the terms, and decided

they were good for PREPA and that's why they approved it.

Q. You never conducted any analysis as to whether PREPA would

be able to afford a higher interest rate and continue to

maintain operations, have you?

A. I have not done that analysis.

Q. Has anyone on your team conducted such an analysis?

A. Not that I'm aware of.

Q. Are you aware of anyone else, for example, at the FAFAA or

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I2FQPRO2 Filsinger - Cross

the oversight board engaging in such an analysis?

A. They may have. I don't know.

Q. But you're not aware of any?

A. Not that I'm aware.

Q. Mr. Filsinger, do you understand that the proposed debt

loan provides for a maturity term of 30 years?

A. Yes. Yes, I do.

Q. But you're not testifying that 30-year maturity term is

necessary for PREPA to maintain operations, are you?

A. I'm not testifying to that, no.

Q. You've never conducted any analysis of whether that

maturity term is necessary for PREPA to continue operations,

have you?

A. I have not done an analysis around the term for that

purpose.

Q. And no one on your team has conducted such an analysis,

have they?

A. Not that I'm aware.

Q. Are you aware of anyone else, such as the AAFAF or

oversight board conducting such an analysis?

A. I do not know what analysis they have conducted.

Q. Mr. Filsinger, do you understand that under the terms of

the proposed DIP loan PREPA would grant a lien to the

Commonwealth on its revenues but would not grant a lien on

other assets, such as its physical properties?

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I2FQPRO2 Filsinger - Cross

A. That is correct.

Q. But you're not testifying that PREPA couldn't maintain

operations if it granted a broader lien in favor of the

Commonwealth, are you?

A. I haven't looked at that or any of the legalities around

any of those issues.

Q. So you haven't conducted any analysis of whether PREPA

could grant a broader lien and continue to maintain operations?

A. No, I have not.

Q. And no one on your team has conducted such an analysis,

have they?

A. Not that I'm aware.

Q. Are you aware of anybody else, including the oversight

board or AAFAF, who's conducted such an analysis?

A. I don't know if they've done the legal analysis or other

analysis around that. I don't know.

Q. You're just not aware?

A. I don't know.

MR. BURKE: Thank you, Mr. Filsinger. That's all I

have.

MR. HOROWITZ: Your Honor, just as a housekeeping

matter, Mr. Mayer pointed out, I didn't actually offer Exhibit

16, the cash flow forecast, which is the Debtor's Exhibit?

THE COURT: I think I admitted Debtor's 11 through 18. 

MR. HOROWITZ: It's all admitted.

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THE COURT: Yes.

MR. HOROWITZ: Thank you, your Honor. Perfect.

THE COURT: Yes. I'm sorry. 11 through 17 was

admitted. My error.

Anyone else who wishes to cross-examine Mr. Filsinger? 

MR. BEREZIN: Your Honor, is it appropriate for a

PREPA bondholders to cross-examine, continue cross-examine

Mr. Filsinger as our time?

THE COURT: Your time is up plus four minutes.

MR. BEREZIN: Thank you. I only ask because there was

some time left on the GO bondholders.

THE COURT: As I understand it, there are 30 minutes

that can be shared by GO bondholders and some other

constituencies for cross-examination of all witnesses because

the other creditors will allocate 30 minutes of

cross-examination between the Filsinger or Portela and Mondell. 

And so unless you are all agreed to eat it all up now, 

I've counted three minutes against that 30 and assume that 

people will pop up in the course of the day. 

So what do you want to do? 

MR. BEREZIN: We will pass, your Honor. Unless we are

able to continue to use the unused time, we will pass.

THE COURT: I don't know what you mean. Do you want

to use another 27 minutes and then nobody else from your group

can cross-examine anybody else?

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I2FQPRO2 Filsinger - Cross

MR. BEREZIN: No, your Honor.

THE COURT: If you want to do that, you can do that.

MR. BEREZIN: No, your Honor. Sorry to clarify. We

represent National as one of the largest creditors, but we are

not part of the GO group of bondholders. So the GO group did

not use all of the 30 minutes. So what I was requesting is if

we could question the witness using that unallocated time, a

portion of it, but if that is going to eat into the PREPA

creditors' time, then we would pass the witness.

THE COURT: OK. I am looking now for the definition

of "other parties -- other creditors."

LAW CLERK: It's in footnote 4. GO and Ambac.

THE COURT: So "other creditors" are GO and Ambac.

PREPA creditors are Ad Hoc group of PREPA bondholders, 

National, Assured, Syncora and Knighthead. 

So the chart that I received or the documents says 

that the PREPA creditors' group wanted 25 minutes for 

cross-examination. Mr. Horowitz used 29. Then Mr. Burke just 

used three minutes of the 30 minutes, 30 floating minutes that 

general obligation bondholders and Ambac had reserved for 

cross-examining any witnesses. 

So if you are in the PREPA creditors' group, unless

you want to start eating in further to the PREPA creditors' 

next cross-examination period for the next witness, I would 

suggest you don't have any time to do it, and what has been 

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(212) 805-0300

I2FQPRO2 Filsinger - Redirect

given to me does not allow you to invade the GO bondholders, 

Ambac 30 minutes. 

MR. BEREZIN: Thank you, your Honor. We understand

and National will pass the witness for those reasons.

THE COURT: Thank you.

Mr. Finger, it looks like it is back to you for 

redirect. 

REDIRECT EXAMINATION 

BY MR. FINGER: 

MR. FINGER: Thank you, your Honor. Kevin Finger,

Greenberg Traurig on behalf of AAFAF as fiscal agent for PREPA.

Q. Good morning, Mr. Filsinger.

A. Good morning Mr. Finger.

Q. Mr. Filsinger, Mr. Horowitz had asked you about the hundred

thousand dollars -- or hundred million dollars point at which

you feel it necessary to consider whether emergency measures

should be taken. Would you describe to the Court what the

thought process is as PREPA approaches the hundred million

dollars of cash reserves?

A. Yes. As I started to explain is in order to implement the

plan and do the emergency plan, you have to try to preserve

cash so you can operate as long as you can under those

emergency conditions. So we look at, if we can -- if I maybe

can just explain what will happen, it will help.

So if we don't have a loan, then on -- we've already 

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(212) 805-0300

I2FQPRO2 Filsinger - Redirect

contacted FEMA and Carlos Torres who had restoration, and 

informed them of the plan, so they know how to deal with 

restoration. 

Second, we talked to the top customers and let them

know that power is going out. That would happen Friday. 

Friday night or Saturday, Justo Gonzalez, the 

executive director and/or myself and/or the chairman of the 

board would issue a public statement educating the public on 

how the shutdown is going to take place so it's not a surprise 

to the community because, as you know, the community has been 

through a humanitarian crisis, and we want to try to limit the 

pain as much as possible. 

We will announce that. Then generation will start 

ramping down on the Saturday to Monday timeframe, and then all 

critical loads will commence being disconnected starting on 

Monday trying to preserve the hospitals, the fire, the police, 

grocery stores, gas stations, the critical components. We have 

transmission constraints, so we're still refining that piece. 

But the reason for that, back to your question, is we 

need to have enough money to operate to pay mainly the fuel 

providers and the power purchase providers so we can continue 

to use those assets through the emergency. 

Q. What is the current total amount of generation that PREPA

is capable of generating?

A. It's several thousand megawatts. It's 5-, 6,000 megawatts.

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I2FQPRO2 Filsinger - Redirect

Q. What is it currently operating at? 

A. The load is below two.

Q. Can you describe how you're going to cut load during the

course of these emergency measures?

A. The load will be cut initially to about half, a thousand.

And that is again based on the critical loads, and then they

will probably as we examine how the generators are running with

transmission constraints because there are a lot of lines still

down, we will try to drop that into about the 500 megawatt

range within a week.

Q. Over what time will you drop from 2,000 megawatts to about

1,000 megawatts?

A. That will happen -- it will start on Saturday/Sunday, and

hopefully by midweek we'll be in the thousand megawatt range.

Q. What will that do to the residential and industrial

customers access to public power?

A. The residential, commercial and industrial customers for

the most part will be without power, unless they have a back-up

generator or a buy a FEMA generator.

Q. If we could take a look at the cash flow projection, which

is Substituted 16. Do you have that in front of you?

A. Yes, I do.

Q. Mr. Filsinger, do you have Substituted Exhibit 16 in front

of you?

A. Yes, I do.

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(212) 805-0300

I2FQPRO2 Filsinger - Redirect

Q. You testified that based on this Exhibit the most recent

actual period reported is February 2. Is that right?

A. Yes, in the yellow, that's the last actuals.

Q. And that cash figure, that 233.2 million in the middle,

represents the cash that's available to PREPA as of February 2,

2018. Is that right?

A. That is correct.

Q. And then the projections projected that the cash on hand as

of last Friday February 9 is 191.4. Is that correct?

A. Yes, but that actual number now is out. It's 194 roughly.

Q. The projection was accurate in this respect. Is that

right?

A. Right.

Q. And what's the projection for cash on hand by tomorrow,

February 16?

A. Approximately 145 million, 144.8 million.

Q. Can you tell from this document what projections indicate

the cash will be as of next Friday, February 23?

A. Yes. So the way you do the calculations -- this includes

the loan. If you want a very simple way to do that

calculation, you basically take and add the two first blue

boxes and subtract the third.

So what that is you take your operating account of 

$158 million, you add the ending balance of the 220.9 under 

your eligible uses, and then you subtract off the loan, 

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(212) 805-0300

I2FQPRO2 Filsinger - Redirect

assuming you don't have it, so 307.7. And that number comes 

out -- so it's 158 plus 220.9 minus 307.7, and that equals 

approximately $71 million. 

Q. So is it fair to say that between February 2 and February 9

PREPA burned through about $40 million worth of cash?

A. Yes. 

Q. And then the projections indicate that those burned through

another approximately $175 million worth of cash by the

following Friday, February 23?

A. Yes, that's roughly correct.

Q. And what that suggests is that PREPA is going to run out of

money by what date?

A. You would run out of money, I believe, would be the week of

March 2.

Q. What will happen when PREPA completely runs out of money?

A. If we don't implement the emergency measures, then you

basically run the system until all, you know, you run out of

fuel. Once you run out of fuel, you can't generate, and then

you have an instantaneous, you know, blackout.

Q. Can you describe for the Court the cash management measures

that you will undertake upon implementation of the emergency

procedures? 

A. Yes. Well, first I want to say we've been doing a severe

cash management to now, and you see where we are today.

But if you look at, for example, the week of 2/23, 

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next week, you can see your expenses under eligible uses. We 

will -- so we have the AES and EchoElectrica of 12.5 and -- AES 

and EchoElectrica of 12.5 and 26.5 million, respectively. What 

we're going -- what we want to do, and we're still confirming 

this with the technical folks, but our plan right now is to try 

to run those two units. 

Q. Why? 

A. Because they're the lowest cost power. And once you don't

make those payments, then you're taking them out of the stack.

Part of it is going to be based on transmission and looking at

as we start down this process and test it to see how the

transmission holds up to get to the critical loads, that may

impact that decision. So that's going to be a realtime

decision.

We will cut -- we want to cut back on our fuel oil and 

diesel. The issue we have there is we have to balance that 

because right now we are on the maximum -- we are on the 

outside of the terms. So we have stretched Echo fuel oil of 

bunker seed and we've stretched the diesel. So if we don't 

make these payments, then diesel just gets cut off, period, and 

bunker seed moves up to I think it's the $12 a barrel we 

suggested. 

So that's the challenge we're having right now. We're 

going to decide as we test the transmission that we'll either 

cut off the diesel and bunker seed or we'll pull back on AES or 

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EchoElectrica. It's going to depend on that transmission. Our 

plan is to try to drop that to about 50 percent in the first 

week with corresponding load being shut off. 

Q. Describe the issues you have with the transmission system

and trying to determine what load to cut.

A. Well, the issue is, you know, we've got the generators, but

we've got a lot of transmission lines that are still out. So

we have in some cases we're relying on one line, some lines --

one line is predicted to come on in the next week or two, it

could make a difference but if you end up with a constraint

with certain units, you may not be able to get the power up to

some of your critical loads.

Q. Upon implementation of emergency measures, how much do you

think you can cut PREPA's expenditures per week during those

emergency measures?

A. We believe that we will be able to get with the outage and

trying to just do the emergency loads we'll be able to get down

to in the 20 to 20 mill -- to be able to cut costs about a 25

to 30 million range initially, and again, it will get more

severe as you move out, and that extends us to several weeks, I

think two or three weeks.

Q. What's the total amount of time that PREPA can operate

under the emergency measures that will be implemented?

A. I think it's a little uncertain because the one thing you

have to consider is if you go up to the collections line, our

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collections are getting -- are improving and when we do the

shut down, the residentials are going -- for the most part are

going to be out. And so there is maybe some impact -- there's

going to be a, lag but there's going to be an impact on your

collections; but not taking that into account, we think we're

going to be able to stretch the system of the emergency loads

for three to four weeks.

Q. Is it fair to say that the collections are the only form of

free cash that will be available to PREPA over the course of

the next few weeks in the absence of a loan?

A. That is correct.

Q. How soon does PREPA need to receive the loan proceeds so

that you don't have to implement emergency measures?

A. We have -- we have to receive the loan proceeds next week.

Q. What day?

A. I would say Wednesday, maybe Thursday.

Q. At the latest?

A. Yes.

Q. Mr. Horowitz asked you questions about the available cash

that's available to PREPA at the end of the cash flow

projection on May 18. Is that right?

A. That is correct.

Q. And that cash figure is 152 million?

A. Yes.

Q. What is the -- in your experience in the utilities

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industry, what is a customary figure for operating reserve for

an electric utility?

A. Well, it's prudent business practice to have usually two

months of working capital, which would be in the $500 million

range.

Q. In this proposal under the Commonwealth's loan, what is the

maximum operating reserve that PREPA can maintain?

A. That is limited to 300 million.

Q. Will you be able to -- if two months of an operating

reserve is optimal, will you be able to operate at 300 million

of a reserve? 

A. We will be able to operate. If we end up with any fuel

issue, and, you know, this business is not straightforward.

You saw that early this week with the switch explosion and what

that caused to the load in San Juan and the like.

We don't know what's going to happen. If there's a

generation outage, if there's any out sort of outage, that may 

increase your diesel costs and the like. It can vary that 

significantly. We will make it work, but obviously we prefer 

to have a full reserve, but we can make it work with 300 

million. 

Q. You mentioned oil prices. Have they increased over the

last 9 to 12 months?

A. Yes, they have increased.

Q. By how much?

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A. I think in the -- if you look at this time period, I think

the increase is about like $45 million impact on the cash flow

based on that increase.

Q. Do you have an estimate of what the percentage is of that?

A. I believe -- well, we are planning for up to a ten percent

risk tolerance but I don't know the total number.

Q. When you say plan for a ten percent risk tolerance, what

are you referring to?

A. Well, so when we look at the annual fuel costs, I think

they're about 1.2 billion, and so we look at a risk variance of

about 120 million, around there.

Q. Is that built into the sizing of the DIP facility?

A. Yes, it is, it's built into the $1 billion facility.

Q. Based on your knowledge of PREPA's operations, is PREPA

capable of repaying the Commonwealth loan, if it's approved,

within 30 years?

A. I think that the -- my belief is it will be paid off in 30

years or taken out at the final adjustment or if there's a

sale.

MR. HOROWITZ: I have no more questions.

THE COURT: I do have one question that I would like

clarified. Looking at this replacement Exhibit 16, which for

the record is document 2473 from the 3283 docket, does this

assume draws over the life of the projection period of more

than $550 million? There seems to be three columns in which

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$550 million appears.

THE WITNESS: No, your Honor. What this does is it

shows three different draws. The first draw is 307 -- if you

go to the bottom of the sheet, you'll see 307.7 is the initial

draw, the second is 222.9, and the third is 227.5. Is that

right?

THE COURT: So that would be a total of more than

$550 million, wouldn't it?

THE WITNESS: I'm misreading that. I'm sorry. I

apologize. You do the 307, and then in week number 3/23, you

take the rest of the balance of the 550.

Does that make sense? So you're showing a total of

550. You start off in week number three, 2/23 of the 307.7. 

THE COURT: Yes.

THE WITNESS: And then if you go up loans outstanding,

you can see you've got the 307. And then you add in 222.9 in

week number seven.

THE COURT: Which would be 529.9?

THE WITNESS: Yes. And then you have in week 11, the

remaining 19.4.

THE COURT: So what does the 227 in the week 11 column

refer to?

THE WITNESS: That is your eligible uses in the

calculation of what you can take out. So when you calculate

what, you can -- the loan, you look at the four weeks in

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advance, the four-week projection, and then you multiply that

by the 15 percent adder, and that's what you can take out. If

you look at -- you would go to the first column where you have

the 267.6, that's your consecutive four weeks of cash needs.

THE COURT: Yes. So just so they don't use up

everybody's time, so even though 307, 222.9 and 227.5 all

appear in a line that says "draw amount," 227.5 is not an

actual assumed draw amount?

THE WITNESS: Yes, it's not drawn because you reach

the 550 cap.

THE COURT: Thank you.

MR. HOROWITZ: Thank you, your Honor. 

One housekeeping matter, your Honor. I am not sure if 

Movant's Exhibit 6, which isn't an exhibit to Mr. Filsinger's 

declaration has been admitted, and I just wanted to make sure 

the record is clear. 

THE COURT: Movant's Exhibit 6 was not mentioned. And

so you are tendering that?

MR. HOROWITZ: Yes, your Honor, I am.

THE COURT: Movant's Exhibit 6 is admitted in

evidence.

MR. HOROWITZ: Thank you.

(Exhibit Movant 6 received in evidence) 

THE COURT: So Mr. Filsinger, thank you. Your

testimony is concluded.

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THE WITNESS: Thank you, your Honor.

THE COURT: You may step down.

(Witness excused) 

THE COURT: Movants may call their next witness. 

MR. FRIEDMAN: Your Honor, Peter Friedman from

O'Melveny Myers on behalf of AAFAF. The Movants next offer the

testimony of Gerardo Jose Portela Franco, the executive

director of AAFAF.

The only housekeeping matter with respect to 

Mr. Portela tell is with respect to his declaration. 

THE COURT: Mr. Portela, you may come up to the

witness stand.

MR. FRIEDMAN: The only housekeeping matter with

respect to Mr. Portela's declaration is, as you may have seen

from the agreement between the parties, that Mr. Portela's

declaration would be admitted subject to an objection for

admissibility with respect to paragraph 11.

After consulting with opposing counsel, we have 

actually agreed to exclude one sentence from Mr. Portela's 

declaration, which is exhibit number -- 

THE COURT: Number 2. 

MR. FRIEDMAN: Exhibit number 2 in paragraph 11, the

sentence in the ninth line down, in paragraph 11 beginning with

the wors "inclusion."

THE COURT: Beginning with which word?

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MR. FRIEDMAN: The word "inclusion" and ending in the

word "lender."

THE COURT: So you are not offering that sentence, and

so after this proceeding you will tender a redacted version of

the declaration that does not include that sentence?

MR. FRIEDMAN: Yes, your Honor. We agree that that

resolves all objections to admissibility for Mr. Portela's

declaration, and therefore offer it into evidence.

THE COURT: Mr. Portela's declaration as edited is

admitted in evidence.

MR. FRIEDMAN: Thank you, your Honor.

THE COURT: Thank you.

(Exhibit Movant 2 received in evidence) 

THE COURT: Mr. Portela, if you would please step up

into the witness stand and remain standing.

 GERARDO JOSE PORTELA FRANCO, 

 called as a witness by the Movant,

 having been duly sworn, testified as follows:

CROSS-EXAMINATION 

BY MR. HOROWITZ: 

THE COURT: Thank you. Please be seated.

 Mr. Horowitz. 

MR. HOROWITZ: Thank you, your Honor.

Q. Good morning, Mr. Portela.

A. Good morning.

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Q. Mr. Portela, AAFAF is the fiscal agent for PREPA, correct?

A. Correct.

Q. And AAFAF is also the fiscal agent for the Commonwealth,

right?

A. Correct.

Q. And AAFAF has served in both of those capacities in

connection with the negotiation of the proposed DIP financing

facility, right?

A. Correct.

Q. OK. Rothschild is the financial adviser to AAFAF, right?

A. Correct.

Q. And Rothschild has advised PREPA in his capacity as

financial adviser to AAFAF in connection with this DIP

facility, right? 

A. Can you clarify?

Q. I know that was convoluted. Let me try it again.

A. Could you clarify that question, please?

Q. Sure. Rothschild has served as a financial adviser to

PREPA in connection with the negotiation of this DIP facility,

right?

A. Rothschild is a financial adviser for AAFAF and for PREPA.

Q. And Rothschild has also served as a financial adviser to

the Commonwealth. AAFAF is the fiscal agent for the

Commonwealth in connection with this DIP facility, right?

A. Correct.

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Q. Thank you.

Sir, you have had some involvement in attempts to 

collect accounts receivable from government entities on PREPA's 

behalf, right? 

A. Correct. 

Q. You sent 27 letters to various Commonwealth public

corporations on PREPA's behalf on December 21, 2017, right?

A. I believe. I'd better check the exact date.

Q. You can look on the screen. I put on the screen Movant's

Exhibit K, which I've marked as an exhibit in your deposition.

It is copies of the 27 letters that you sent. You can just see

the first one and refer to it.

THE COURT: So are you offering Exhibit K in evidence?

MR. HOROWITZ: I am, your Honor.

THE COURT: Exhibit K is received in evidence.

(Exhibit Objector K received in evidence) 

Q. So that's correct, sir, you sent these 27 letters seeking

collection on PREPA's behalf; is that right?

A. Correct. 

Q. You are not aware -- each of these 27 letters has a

sentence essentially along the lines of the second paragraph on

this letter to Mr. Abreu of the Island Municipal Maritime

Transport Authority that says: "PREPA records show that you

owe a balance of" and then there's an amount given, right?

A. Yes.

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Q. And you're not aware of how that balance was derived, are

you?

A. I received the amounts from PREPA, PREPA advisers. 

Q. Sir, I want to show you on the screen what's been marked as

movant Exhibit K. 

MR. HOROWITZ: And your Honor I am offering it.

THE COURT: Movant's exhibits have numbers. Your

exhibits have letters, and K was the letter that you just put

up.

MR. HOROWITZ: You're quite right, your Honor.

Objector's Exhibit K. I apologize.

THE COURT: So that's the letter that you just put up

that I admitted.

MR. HOROWITZ: I'm sorry, your Honor. I misspoke

again. What I've just put up is Objector's Exhibit E.

THE COURT: Objector's Exhibit E is admitted in

evidence. Thank you.

(Exhibit Objector E received in evidence) 

Q. Sir, do you see Objector's Exhibit E?

A. Yes, sort of.

Q. You can look at it in your binder as well. I'm just trying

to move quickly.

THE COURT: Do you need him to be able to read it?

Q. I'm not going to ask you to read the numbers yet, sir. I

will ask you in a while, so maybe you want to get it in front F

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you?

THE COURT: You have a binder that has a long caption

on it that says Objector's Exhibits, and has tabs with letters,

so please turn to Exhibit E in that binder.

THE WITNESS: Thank you, your Honor.

THE COURT: Thank you.

Q. Sir, do you have it there?

A. It's K, right?

THE COURT: E.

Q. E. K was the exhibit I put up before. I'm sorry I

confused you.

Do you see Exhibit E? 

A. Yes.

Q. This is a document you've seen showing outstanding amounts

owed by government entities to PREPA, right?

A. Yes, I've seen this before. However, I don't know as of

what date it is.

Q. I will represent to you, and hopefully counsel will

confirm, that counsel has represented this is as of year end

2017, 12/31/2017. It doesn't have a date on it, you're right,

but we've received that representation from movant's counsel.

OK?

Sir, if you took a look, for example, at the letter to 

the Puerto Rico and Caribbean Cardiovascular Center

Corporation, which is I think the fourth letter in Exhibit K. 

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Let me put it up on the screen so that you don't have to get 

that out. They are double-sided. That's the problem. There 

we are. 

Sir, do you see this letter that I put up on the 

screen to Jorge de Jesus Rosa? 

A. Yes.

Q. I apologize if I'm mispronouncing that.

Do you see that in this letter that you say PREPA's

records show that the Cardiovascular Center Corporation owes 

PREPA $921,219 and change. Do you see that? 

A. Mmm-hmm.

THE COURT: I need you to answer in words, please.

THE WITNESS: I'm sorry, your Honor.

A. Yes, I do.

Q. And if I ask you to turn back to the document, I hope you

still have in front of you?

A. Yes.

Q. Exhibit E. If you look six lines down, do you see -- I'm

not going to try this one, sir, but that's the Spanish for the

cardiovascular center. Is that right?

A. Yes.

Q. That shows that as of year end, the actual balance

outstanding was in excess of 12.6 million, right?

A. Yes.

Q. And of that large portion of it is a balance of, in the

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final column, 120 days for older or more, right?

A. Yes.

Q. And you don't know why the letters that were sent out did

not include balances that were owed for 120 days or more,

right?

A. The letters express that -- recommended all corporations to

send out a payment, a minimum payment of 900. In this case

that hundred should be $1 thousand that represents current

payments to PREPA.

Q. Sir, the letter says that: PREPA's record says you owe a

balance of 921,000 and change, right?

A. Yes.

Q. And, in fact, PREPA's records showed a balance

substantially higher, right?

A. Yes.

Q. And we went through a number of these letters during

deposition. There are many situations in which the letters

state a number that is substantially lower than PREPA's records

show, right?

A. Yes.

Q. And you don't know why the decision was made only to

include the balances of less than 120 days, do you?

A. The decision was, you know, in consultation with advisers

and PREPA was to receive as soon as possible liquidity to

PREPA, and thus, for public corporations to pay, you know, the

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most recent payables. And that's what in the case of

Corporacion de Centro Cardiovascular de Puerto Rico --

Q. Try the English, if you can, sir.

THE COURT: We are not quite as bilingual here.

A. I apologize, your Honor.

So the cardiovascular center will -- you know, as 

fiscal act for PREPA and for the public corporations, I advise 

to get payments to PREPA as soon as possible, thus, you know, 

requesting a minimum payment for the current payables. 

Q. Sir, when you sent out these letters, and in fact when you

sat for deposition, you were not aware of what I've just put up

on the screen, which is movant Exhibit L Puerto Rico Act No.

22-2016, right?

A. Right.

Q. OK. And you were not aware that on April 7, 2016, turning

to --

THE COURT: L is offered for admission?

MR. HOROWITZ: L is offered for admission.

THE COURT: L is admitted in evidence.

MR. HOROWITZ: Thank you. 

(Exhibit Objector L received in evidence) 

Q. You were not aware that in this Act, the Puerto Rico

legislature had directed all public corporations to immediately

sit down and within 45 days come to an agreement as to how much

they owed PREPA, right

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A. I was not aware?

Q. And ordered that within the 60 days following that period,

those corporations enter into a payment plan. You were not

aware of that, right?

A. I was not aware.

Q. And to your knowledge, PREPA has never taken any steps to

enforce Act 22-2016, right?

A. Not to my knowledge.

Q. Sir, when I asked you at deposition why the Commonwealth

wouldn't loan money to public corporations that owed PREPA

money so that it could satisfy their obligations rather than

seeking to loan money to PREPA to cover the shortfall, at your

counsel's instruction, you refused to answer, right?

A. Could you -- I'm sorry, could you repeat your question or

rephrase it because I'm not understanding it.

Q. Sure. Do you recall at your deposition I asked you why the

Commonwealth wouldn't loan money directly to public

corporations such as the cardiovascular center that owed PREPA

money rather than loaning money to PREPA to cover the amount

that those parties owed? When I asked that question, do you

recall that at your counsel's instruction, you refused to

answer?

A. I don't -- I don't recall. It was a few days. It's

been -- it was basically six hours. I don't remember if -- if

there's a statement and declaration, I would love to read it.

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MR. HOROWITZ: All right. May I just ask counsel

whether they would give a similar instruction if the same

question were posed now?

THE COURT: Mr. Friedman?

MR. FRIEDMAN: Your Honor, to the extent the question

calls for deliberations about policy or predecisional policy

discussions, yes, I instruct the witness not to answer

questions about any policy discussions prior to making

decisions on whether or not to make loans to other agencies.

Those are protected by the deliberative process.

THE COURT: And you construed this question as falling

into that category of questions?

MR. FRIEDMAN: Your Honor, I believe the question

Mr. Horowitz may be referring to is on page 117 of

Mr. Portela's deposition which is:

"Q. So why shouldn't the Commonwealth loan whatever net money

is necessary to process so that it can pay its outstanding

bills to PREPA instead of forcing PREPA to incur continuing

losses to provide subsidized electricity to PROSA."

I think that was the specific question in this 

instance. 

THE COURT: So would you then be instructing the

witness not to answer that question if it were hypothetically

put to him right now on the witness stand?

MR. FRIEDMAN: Yes, I would instruct the witness not

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to discuss any policy deliberations that the Commonwealth or

AAFAF may have been a party to about whether or not to make

loans to public corporations.

THE COURT: Thank you.

MR. HOROWITZ: Your Honor, so the record is clear, we

do not agree with the Movant's interpretation of the

deliberative process privilege because we believe that they

have the burden of proof on this issue and the invocation of

the privilege to prevent the evidence from coming in, it's our

position it is not our obligation to try and force the answer.

It simply leads to a lapse --

THE COURT: You have an argument about whether they

have met their burden if they are not putting forward evidence

recording the process.

MR. HOROWITZ: Exactly, your Honor.

THE COURT: Thank you.

BY MR. HOROWITZ: 

Q. Sir, you are aware that the legislature has passed an

emergency power -- an act giving the governor emergency powers,

right?

A. If that's -- to clarify, is that the emergency act, I think

it's Act 5?

Q. Yes, you're right, sir. It is Act 5. It's entitled -- in

the English it is entitled the Puerto Rico Financial Emergency

and Fiscal Responsibility Act. For the record, it is movant --

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sorry, it is Objector's Exhibit N, and I would offer it, your

Honor.

THE COURT: Objector's Exhibit N is admitted. 

(Exhibit Objector N received in evidence) 

Q. You're familiar with that Act, right?

A. Yeah, of course I'm familiar with it as it came through.

Q. Sir, you are aware that currently an emergency period has

been declared that will be lasting for at least the next three

months that gives the governor emergency powers under this Act?

A. I'm not sure of the extension how many months it is, but I

know we are currently on an emergency period, correct.

Q. And you're aware that the Act gives the governors the power

to take any action necessary to satisfy the debt obligations of

any Commonwealth entity?

A. Again, I mean, I don't know the Act by memory. If you

could show me where --

Q. That's OK, sir. It's public record I'll move on because I

have limited time.

Sir, you were engaged -- you are the primary person at 

AAFAF responsible for negotiations with the federal government 

over a potential CDL, Community Disaster Loan, right? 

A. If you mean for the Commonwealth or for PREPA?

Q. Well, I'm primarily referring, sir, to negotiations between

the Commonwealth and FEMA over attempts to get a CDL?

A. Yes, I am.

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Q. Thank you.

And in connection with those negotiations, at one 

point FEMA sent you a list of proposed terms and conditions 

that they would want to see in a CDL, right? 

A. I believe there were in -- I think they were sent -- I

don't know the exact period, but yes, they were very

preliminary.

Q. And one of the terms and conditions in that preliminary

list was a rate covenant, right?

A. If --

Q. I can show it to you, sir, but I'm hoping that you remember

our discussion.

A. I believe so, and it was in the term sheet.

Q. And you understand that rate covenant clauses are common in

municipal finance agreements, right? This is based on your

experience as an investment banker before you took your current

role?

A. They could be common, yes.

Q. And when I asked at your deposition if you were aware of

any discussions about whether to include a rate covenant in the

proposed DIP facility, again at your counsel's instruction, you

didn't answer, right?

A. I don't remember my declaration regarding that specific

question itself for an answer.

Q. Sir, does the Commonwealth have any -- I want to ask you

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some questions about the priming lien proposed in the current

DIP facility. You're aware that the current proposed DIP

facility was contemplating a priming lien?

A. Yes.

Q. Does the Commonwealth have any motivation in seeking the

priming lien other than to try and get assurance of repayment?

A. If you could repeat that question.

Q. Sure. Does the government have any motives in seeking a

priming lien other than ensuring that it will be repaid on this

DIP loan?

A. I'm trying to understand. I don't want to delay this, but

if you could rephrase it, it would be great.

Q. Sir, do you recall at a deposition --

MR. HOROWITZ: Your Honor, do you want me to provide

the witness with a transcript or put it up on the screen? I

don't know how you want to handle deposition questions.

THE COURT: -- why don't you try reading clearly

"question" and then "answer" and ask if he recalls that.

Q. Sir, do you recall at your deposition for the record, this

is at page 161 beginning at line 4, I asked you the following

question and you gave me the following answer:

"Q. Sir, does the government have any other motives in seeking

a priming lien other than ensuring that it will be repaid on

the DIP loan?" And you answered no.

Do you recall that, sir? 

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A. If that's in the declaration, I -- I would agree to it.

Q. And that's accurate testimony, sir, is that not?

A. Yes.

Q. OK. Let me direct your attention to what's been marked as

Objector's Exhibit P, which is an email exchange between

yourself and Gary Grippo, who is an official at FEMA, right?

A. Yes.

THE COURT: Objector's P is admitted in evidence.

MR. HOROWITZ: Thank you, your Honor.

(Exhibit Objector P received in evidence) 

Q. Do you see in this email chain-- first in the email on the

bottom of the first page of the document, Mr. Grippo has asked

you, "What would be the purpose of the Title III hearing on the

week of the 8th? It's not clear that supporting PREPA from the

TSA would require a Title III hearing."

Do you see that, sir? 

A. Yes.

Q. And you responded to Mr. Grippo, "Gary, if the Commonwealth

wants to be repaid, then it needs to go in as either senior to

the bondholders on a lien basis or as financing for current

expenses."

Do you see that, sir? 

A. I see it.

Q. Now, sir, you know that yesterday the Ad Hoc Group of

Bondholders filed a proposed DIP facility that does not include

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a priming lien. You're aware of that?

A. I'm aware that the PREPA bondholders proposed -- offered a

proposal to PREPA.

Q. Are you aware that very shortly after that proposal was

offered, counsel for AAFAF filed an informative motion that was

entitled a Notice of Defect in Competing Non-Prime Position

Financial proposal. Are you aware of that document?

A. I'm aware of that document.

Q. I'm sorry, you are?

A. I am not aware of that document.

Q. Oh, you are not aware of that document. 

MR. HOROWITZ: Do we have a copy of it? Your Honor, I

don't know that I need to mark it as an exhibit. I'm going to

refer to it by the docket number.

THE COURT: That's fine.

MR. HOROWITZ: Docket No. 714.

THE COURT: In the 4780 bankruptcy case.

MR. HOROWITZ: Yes.

Q. I want to direct your attention to page 6 of this document

which I will put up on the screen.

Do you see the Section 7 of this document with the 

caption in substance: The competing financing contains a 

priming lien in three different ways. Do you see that? 

A. Yes, I see it.

Q. If you look down to B, you'll see that it says -- it

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asserts that the competing -- I'm sorry.

On page 7 of the document sub C says: One of the 

three ways a competing facility has asserted to be equivalent 

to a priming lien is "the competing facility is given current 

expense priority." 

Do you see that, sir? 

A. Yes, I see it.

Q. And that is the same sort of reference that you were making

to Mr. Grippo when you told him that one of the ways the

Commonwealth could get sufficient assurance of being repaid is

if it went in as financing for current expenses, right?

THE COURT: Do you have an objection Mr. Friedman?

MR. FRIEDMAN: I do, your Honor, lack of foundation

that Mr. Portela could possibly know --

THE COURT: You are going to have to speak up.

MR. FRIEDMAN: I object on a lack of foundation to ask

a question of whether something in this document which

Mr. Portela said he wasn't familiar with is the same as

something he was referring to in an email three months ago.

THE COURT: Sustained.

MR. HOROWITZ: I'll move on, your Honor.

Q. I'll read to you, sir, from this section C.

Do you see where it notes that the competing financing 

provides: "all payments with obligations under the facility 

shall be payable from the general fund (as defined in the trust 

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agreement) at the level of current expenses under the trust 

agreement." 

Do you see that, sir? 

A. I see it.

Q. Do you see that it goes on to say that -- I'm going to skip

a sentence.

"The competing facility is thus further granted 

payment priority over debt service on the prepetitioned bonds. 

Its superpriority claim status provides the same results. 

Whether or not this payment priority is a lien is immaterial as 

neither the Commonwealth facility nor the competing facility 

provides foreclosure remedies." 

Do you see that? 

A. I see it.

Q. Sir, do you agree with the assertion that current expense

priority gives the same priority of payment as a priming lien?

MR. FRIEDMAN: I object, your Honor, to the extent

that it asks Mr. Portela for a legal conclusion.

THE COURT: Sustained.

Q. Do you agree with the assertion that superpriority claim

status functionally provides a priming lien?

MR. FRIEDMAN: Same objection?

THE COURT: Sustained.

(Continued on next page)

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MR. HOROWITZ: Your Honor, I have no further

questions. I'm giving back two minutes of the time that I

stole last time. Thank you.

THE COURT: Thank you.

Is there further cross-examination for Mr. Portela?

MR. ROBBINS: Yes. Briefly, your Honor.

CROSS-EXAMINATION 

BY MR. ROBBINS: 

Q. Good morning, Mr. Portela. My name is Larry Robbins. We

met at your deposition.

Do you recall sir? 

A. Yes. Good morning.

MR. ROBBINS: Your Honor, I'm going to work off the

one exhibit, and I'm going to offer it at this time. It's

Objectors' Exhibit Q.?

THE COURT: Objectors' Exhibit Q is admitted.

(Objectors' Exhibit Q received in evidence) 

BY MR. ROBBINS: 

Q. So do you have Objectors' Exhibit Q in front of you,

Mr. Portela? Take a moment and see if you have it, sir.

THE COURT: Do you want him to turn to it in the book?

MR. ROBBINS: It might be easier because I'm going to

use various portions of it. My facility with the Elmo maybe is

a bit limited.

THE COURT: That's fine. I do also challenge you to

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speak into the microphone while manipulating the Elmo.

Exercise today.

MR. ROBBINS: I'll do my best.

THE COURT: Thank you.

BY MR. ROBBINS: 

Q. Mr. Portela, do you have that exhibit in front of you, sir?

A. Yes. Do you mind if I take it out of the binder?

Q. I have no trouble with that at all. Do whatever works best

for your eyes.

Tell me when you have it ready for me.

A. Yes.

Q. Just to lay the groundwork, these are the -- at least as of

the 3rd of February, these were the basic terms, the concise

statement of the terms of the proposed DIP; correct?

A. I see that it was filed on February 3, 2018. So I

believe --

Q. Just so we're clear, in the process by which these terms

were discussed and arrived at, you were at all times the

executive director of AAFAF; is that correct?

A. Correct.

Q. And in that capacity of AAFAF, you were an advisor to both

the Commonwealth and also to PREPA; correct?

A. Correct.

Q. And you had duties, the same duties, as to each entity in

the course of those discussions or negotiations. Isn't that

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correct?

A. That is correct.

Q. And you had a team of AAFAF personnel who worked on the

negotiation process; correct?

A. I have to clarify. I have a team at AAFAF that works on

PREPA, and yes. They've been involved in conversations,

discussions, etc.

Q. I believe you testified in your deposition -- correct me if

I'm wrong -- that although you weren't personally involved in

all of those discussions, you were, nevertheless, debriefed on

the discussions that resulted DIP proposal; correct?

A. Yes. As executive director of AAFAF, I have a lot of work

sheets at AAFAF, and yes. I tend to ask my team to brief me,

you know, as much as possible.

Q. So, with that in mind, I'd like to just review a few of the

terms of the proposed DIP and just quickly go through them.

You'll see there is a provision on security and priority that

is at the bottom of page 2, running over to page 3.

Do you have that, sir?

A. Yes. I'm looking at it right now.

Q. Am I correct, sir, that, as you sit here today, you don't

recall whether or not the Commonwealth ever offered a term

different from what appears in Exhibit Q? Correct?

A. I do not.

Q. Now take a look at the section of the proposed DIP called

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title ineligible uses, and tell me when you're there.

A. I see it. Thank you.

Q. For the record, that's at the bottom of page 3. Am I

right?

A. Yes.

Q. And once again, sir, in your capacity as executive director

of AAFAF and having been debriefed on discussions that you may

not have been personally a part of, again, as you sit here

today, you can't recall whether or not the Commonwealth ever

proposed a different term for ineligible uses than what is

reflected in Exhibit Q. Isn't that correct?

A. Could you try to repeat that question. It was a long

question. I'm sorry.

Q. Yes. You're quite right. I'd be glad to.

Once again, with respect to the ineligible uses, you

don't remember the Commonwealth ever proposing a different term

than what is reflected in Exhibit Q; correct?

A. Again, as I explained before, sir, I have team members that

work on a daily basis on PREPA matters. Myself -- I don't

recall that there -- if they changed or not, the ineligible use

conditions or provisions.

Q. Now let's take a look at the interest rate provision. Tell

me when you're there.

A. Page 5?

Q. 5 of 5 and running over to 6. Correct?

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A. Correct.

Q. When I asked you at your deposition, sir, whether or not

you could recall whether the Commonwealth ever proposed a

materially different interest rate than what is reflected in

Exhibit Q, you told me, not that I am aware of, and that

remains your testimony today. Correct?

A. It does.

Q. Am I right, sir, that as best you recall, neither you nor

anyone at AAFAF performed an analysis as to whether PREPA could

perform its operations if it had an interest rate above the

level reflected in Exhibit Q? Correct?

A. Again -- and I apologize. No more delay. If you could try

to rephrase that question, I would be grateful.

Q. Let's start with the interest rate. The interest rate

begins at 0 percent; correct?

A. Correct.

Q. Did you personally ever analyze whether PREPA could perform

its operations with an interest rate higher than that?

A. Again, sorry. I have team members for AAFAF that worked on

a daily basis with regard to PREPA matters. PREPA has their

advisors as well. It's been a collaboration between AAFAF,

PREPA, and the Commonwealth. So at that time I did believe

that this was a fair rate for PREPA for the proposed DIP.

Q. Forgive me, sir. All I asked you was: Have you performed

an analysis as to whether PREPA can operate if it were charged

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a higher interest? Have you done so? Yes or no?

A. Personally, no.

Q. Have you seen any analysis done by a PREPA team member?

A. I'm not aware of their analysis or not.

Q. Have you seen any analysis performed by anybody on earth?

A. Sorry. That was a different question.

Q. Have you seen any analysis of whether PREPA can do its job

if it were charged a rate higher than Exhibit Q performed by

anybody?

A. With all respect, that's something I couldn't answer

because I don't understand your question. It's very, very

broad.

Q. I'll try it once more, and then I'll move on.

Have you ever seen an analysis performed by anyone as

to whether PREPA could perform its operations if it were

charged an interest rate higher than reflected in Exhibit Q?

Yes or no?

A. I'm not aware of is there an analysis or not.

Q. And you know that this proposed DIP is for 30 years. You

know that; correct?

A. Sorry. I have to check. Yes.

Q. Have you ever seen an analysis performed by anyone as to

whether PREPA could do its job if the maturity were less than

30 years?

A. I haven't -- I'm not aware of their analysis on the stress

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of maturity to PREPA.

Q. Let's just generalize it, and then I'll be done.

Have you seen an analysis done by anyone as to whether

PREPA could continue its operations if the terms contained in

Exhibit Q were more favorable to the Commonwealth and less

favorable to PREPA? Have you seen any such analysis performed

by anyone? Yes or no?

A. It would be great if you could repeat that question.

Q. Sure. I'll be glad to, and then I'll stop.

With respect to all of the terms and conditions

contained in Exhibit Q, the document I put in front of you.

Are you with me so far?

A. Yes, I am.

Q. Have you seen any analysis performed by anyone as to

whether PREPA could continue its operations if any of the terms

and conditions in Exhibit Q were more favorable to the

Commonwealth and less favorable to PREPA? Yes or no?

A. I couldn't answer whether there is an analysis or not. It

would be pretty difficult for me to take a look at the

different vast analyses that PREPA may have or may have not

done, but personally, I have not seen that.

MR. ROBBINS: I have nothing further for the witness,

your Honor. Thank you.

Thank you, Mr. Portela.

THE COURT: Is there any further cross-examination for

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Mr. Portela?

Seeing none, Mr. Friedman, redirect. 

MR. FRIEDMAN: I just have a few questions,

Mr. Portela.

REDIRECT EXAMINATION 

BY MR. FRIEDMAN: 

Q. Mr. Portela, the funds that are being lent to PREPA -- do

you know where they're currently held by the Commonwealth?

A. I believe at the TSA.

Q. Do you know in the course of your responsibilities the

amount of interest that the Commonwealth earns on cash in the

TSA?

A. I'm not aware of the specific interest, if there is.

Q. Are you aware of what kinds of accounts the funds are held

in?

A. I believe they're in operational bank accounts, cash

accounts. I don't know if there's a money market fund or not.

That's the top of my memory.

Q. So do you have any understanding of the interest rate that

the Commonwealth earns on TSA funding?

A. I do not.

Q. Mr. Portela, you were asked some questions about whether

the Commonwealth has directed public corporations to make

payments of its outstanding bills.

Do you recall that?

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A. Yes.

Q. Are you aware: Has the Commonwealth or AAFAF ever ordered

PREPA to pay outstanding bills or overdue amounts that it may

owe, either public or private corporations?

A. I believe not.

Q. You were also asked some questions about various public

corporations. I think one of the public corporations that was

mentioned was Cardiovascular Center.

Are you aware in your responsibilities what that

corporation does?

A. Sure. I believe it's a large -- it's one of the largest

public hospitals in Puerto Rico.

Q. One of the other letters that you sent I believe was to the

Elderly Care Advocate's Office.

Are you aware of what they do?

A. Yes. Advocacy for the elderly residents of Puerto Rico.

Q. In your role as director of AAFAF, are you aware of whether

these public corporations have the liquidity currently to make

all payments that PREPA asserts are outstanding and overdue to

them?

A. I would have to check. As most people are aware,

Puerto Rico is undergoing liquidity issues. So I would have to

check their budget and liquidity situation.

Q. As a public servant, what would you have to evaluate in

order to assess whether they could pay overdue amounts?

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A. Sure. First we would probably have to validate them or

validate the amount. That's part of the reconciliation process

that AAFAF is trying to facilitate. Second, I would try to

check the budget that currently has a the liquidity situation.

THE COURT: It's better if you speak directly into the

microphone for people to hear. Thank you.

THE WITNESS: I'm sorry. 

The liquidity situation and see if they have any other 

obligations outstanding and then try to get a preliminary 

information to see if there is any residual or not for that 

specific corporation and then decide how and when and when to 

pay. 

BY MR. FRIEDMAN: 

Q. Sir, you were asked some questions about CDL loans.

Has the United States Treasury ever told you that it 

would make a loan directly to PREPA using CDL funds? 

A. The federal government has not.

Q. Has it told you that it would not?

A. Let me clarify. At AAFAF we're trying to get CDL funding

directly to PREPA. The federal government declined that and

decided not to lend directly to PREPA.

Q. Have you ever had any discussions with the United States

Treasury about whether it would make a loan to the Commonwealth

for the purposes of them making a loan to PREPA?

A. We are currently -- there are ongoing efforts right now.

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I've been in discussions and negotiations with the federal

government since October 2017.

Q. When was your last discussion, sir?

A. I talked to them on Monday this week.

Q. Did they give you any terms with respect to what a loan to

the Commonwealth would look like?

A. After a few months, they finally gave me some preliminary

terms and conditions orally. I have not received a formal term

sheet from them.

Q. What, if anything, did those terms reflect with respect to

security, any security interest?

A. Sure. One of the main asks is a priming lien.

MR. FRIEDMAN: I just want to take one second. Thank

you.

(Pause)

MR. FRIEDMAN: Nothing further, your Honor.

THE COURT: Thank you, Mr. Friedman.

Thank you, Mr. Portela. Your testimony is concluded.

You may step down.

THE WITNESS: Thank you, your Honor.

(Witness excused)

THE COURT: Movants may call their next witness.

MR. DAVIS: Your Honor, movants' next witness is

THE COURT: Thank you. Is Mr. Mondell in the

courtroom? Yes. I see him. 

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Please come forward. Be careful of that drawer

sticking out of the podium and come up to the witness stand and

remain standing. Thank you.

DUSTIN L. MONDELL, 

 called as a witness by the Movants, 

 having been duly sworn, testified as follows:

THE DEPUTY CLERK: Please state your full name and

spell it for the record.

THE WITNESS: Dustin Mondell, spelled D-u-s-t-i-n,

middle initial L., last name Mondell, M-o-n-d-e-l-l.

THE COURT: Thank you. Please be seated, and as you

testify, please speak into the microphone.

THE WITNESS: Thank you.

MR. DAVIS: Your Honor, Mr. Mondell's testimony is

offered by way of his declaration and his supplemental

declaration. Those would be Movants' Exhibits 3 and 8.

THE COURT: Movants' Exhibits 3 and 8 are admitted

into evidence.

(Movants' Exhibit 3 and 8 received in evidence) 

MR. DAVIS: With reference to those two

declarations -- and hopefully I've written them all down

correctly -- which I believe would be Movants' 9, 10, 29, 30,

31, 32, 33, 42, and your Honor 36, which is in the binder has

been previously offered as objectors' Exhibit Q.

THE COURT: I will admit it as 36 as well and will

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note that it is the same as Objectors' Q.

(Objector's Exhibits 9, 10, 29, 30, 31, 32, 33, 42,

and 36 received in evidence) 

MR. DAVIS: I believe, your Honor, that's every one of

them. If I said something wrong, I'm sure someone will flag it

and bring it to my attention.

THE COURT: All right. Thank you. You may proceed.

MR. BEREZIN: Your Honor, Robert Berezin of Weil,

Gotshal & Manges representing National Financial Guarantee

Corporation.

THE COURT: Good morning, Mr. Berezin.

MR. BEREZIN: Good morning, your Honor.

CROSS-EXAMINATION 

BY MR. BEREZIN: 

Q. Good morning, Mr. Mondell, almost good afternoon.

A. Good afternoon.

Q. Is it correct that PREPA acts as the sole provider of

electricity services to the island of Puerto Rico?

A. That is my understanding, yes.

Q. And indeed PREPA provides 99 percent of the electricity

consumed on the island?

A. I'm not sure of the exact percentage, but my understanding

is that PREPA is the primary provider.

Q. And would you agree with me as a financial advisor that

PREPA has effectively a monopoly providing electric power on

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the island of Puerto Rico?

A. I believe PREPA is the sole provider, yes.

Q. And of course, as the sole provider essentially of electric

power, what PREPA has to offer is extremely valuable.

Do you agree with that?

A. Valuable. I think it's important.

Q. It's extremely important.

THE COURT: Would you please speak into the microphone

a bit more.

THE WITNESS: Sorry. Yes.

THE COURT: Thank you.

BY MR. BEREZIN: 

Q. And you would agree with me that PREPA provides the

government of Puerto Rico with all of its power?

A. Yes.

Q. And that includes agencies of the central government?

A. I believe so.

Q. And that would include all of the municipalities on

Puerto Rico?

A. As well, yes.

Q. And the instrumentalities, public corporations, that we've

heard about today; right?

A. Correct.

Q. And the government has no substitute, of course, for PREPA;

is that correct?

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A. Well, the government -- I'm not a power person. My

understanding is they may have generator capacity to some

extent, but by and large part, PREPA is the option they have.

Q. So casually speaking, sir, when it comes to the

Commonwealth's supply of power, PREPA was the only game in town

during the negotiations; correct?

A. As to power, yes.

Q. Now, you're aware or you were aware that PREPA's records

indicated a substantial amount of receivables were owed by

government entities to PREPA; right?

A. I am aware of that, yes.

Q. And you're aware of that during the process of developing

the terms of the present proposed DIP; right?

A. Yes. That's correct.

Q. And if the Commonwealth had agreed as part of the DIP loan

to pay down the receivables of these government entities, even

those owed more than 180 days, then obviously PREPA would have

had to borrow less money; right?

A. I believe that's correct, yes.

Q. And you're aware, aside from the central government, that

instrumentalities such as PRASA owed PREPA money during these

negotiations; right?

A. PRASA.

Q. I'm sorry. PRASA.

A. I believe that's correct.

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Q. And the same is true as to the Highway Authority?

A. I believe that's correct.

Q. And if the Commonwealth had agreed in the DIP negotiations

to lend public authorities and other government entities money

to repay PREPA, then PREPA would have had to borrow less money;

is that correct?

A. I'm not sure what would be involved in that, but to the

extent that those agencies were able to pay their bills, then

that would reduce the DIP.

Q. My question is: If the government had lent the money to

those agencies so that the agencies could use that money to pay

PREPA, then that obviously would reduce the amount of the DIP

loan; right?

A. That makes sense, yes.

Q. And if the Commonwealth had agreed to permit an offset of

the amounts owed to PREPA, including amounts that are more than

120 days old in lieu of repayment of cash of the loan, that too

would have eased PREPA's financial crisis; right?

A. I think we talked about this before. I think they did

include an offset provision.

Q. More than 180 days old, sir?

A. I'm not sure of the specifics, sir, of the dates.

Q. I think if you read the latest briefs from the oversight

committee, you will see that a specific -- any proposed order,

there is no offset for receivables older than 120 days.

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So, if you waited long enough to pay, those government

agencies don't have to. Right?

A. I have not read that, but if that's what you're telling me,

I understand.

Q. During the DIP negotiations, there were no discussions

about whether PREPA could repay the loan utilizing an offset

based on receivables that are in its books and records; right?

A. Not that I recall.

Q. I'm sorry?

A. Not that I recall.

Q. And there were no discussions during the negotiations about

how to treat amounts owed to PREPA by government entities;

correct?

A. Not that I'm aware.

Q. And during the negotiations, PREPA also did not request an

unsecured loan; isn't that true?

A. That is true.

Q. And PREPA did not request that the secured loan be junior

to existing lien holders during the negotiations; right?

A. Are you talking about the TSA loan?

Q. Yes. I am talking about the current DIP loan that we're

here to talk about today.

A. That is correct.

Q. And PREPA did not request that the loan be granted merely

administrative priority as opposed to super administrative

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priority; right? That's not a request that PREPA made during

the negotiations.

A. Not that I'm aware.

Q. Now, the proposed loan, DIP loan, grants the Commonwealth a

super-priority status. And what that means, in plain terms, is

that at the time of the plan confirmation, PREPA needs to pay

back that loan 100 percent in full. Right?

A. Unless the creditor decides to alter the payment.

Q. So what you're saying is PREPA will have to pay at the time

of plan confirmation 100 cents of this billion dollar loan

unless the Commonwealth agrees that it doesn't need that

treatment? Is that right?

A. That's my understanding of how super administrative claims

function.

THE COURT: I'll need you to speak up a bit more and

perhaps a bit slower. Talk as if you expect Mr. Berezin to

hear you without the microphone.

THE WITNESS: To repeat my answer, that's how my

understanding of how super-priority claims function.

BY MR. BEREZIN: 

Q. And the proposed DIP loan does not require the Commonwealth

to consent in advance to allow PREPA to avoid having to pay at

plan confirmation 100 cents of the entire billion dollars;

right?

A. Correct.

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Q. To your knowledge, there have been no discussions where the

Commonwealth has agreed, made a decision to agree, to waive

that right to insist on full payment in cash at the time of the

plan confirmation; correct?

A. Not to my knowledge.

Q. And PREPA has told other creditors and potential DIP

lenders in this situation that it was targeting a plan of

adjustment for some time in 2018 or 2019. Correct?

A. I am not specifically aware, but that sounds reasonable.

Q. And you would agree with me that the source of repayment of

the DIP loan are the revenues of PREPA; right?

A. Yes.

Q. And we've seen these monthly forecasts, including today,

which I'm going to spare everyone the requirement of looking at

that type.

You've seen one that goes out as far as June 2019;

right?

A. Yes.

Q. Now, based on the forecasts that you've seen, PREPA does

not have the funds to pay this loan back in full and in cash at

the time of the estimated plan of adjustment. Right?

A. The forecast I have seen does not show them being fully

repaid by June '19, if that's your question.

Q. Yes. My question is: The forecasts you've seen -- there

is no cash to pay 800 million of the billion, for example?

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A. Not in that timeframe.

Q. The timeframe of the targeted plan of confirmation when

PREPA needs to have under a super-priority lien 100 cents fully

paid up the entire $1 billion loan; right?

A. I'm sorry. There was a little confusion between the plan

adjustment and the forecast I've seen. The forecast I've seen

is to June '19. I'm not sure what you're talking about in

terms of the plan.

Q. That's fine. Withdrawn.

It's not typical in your experience, is it, for an

investor banker with 18 years' experience for a DIP lender to

loan without seeing forecasts that show how the DIP loan is

going to be paid; right?

A. Yes. Much of this loan, including that, is not typical.

Q. Now, we've heard talk of a 30-year maturity; right? You've

heard some of that testimony today?

A. Yes.

Q. It confused me because super-priority status means it needs

to be paid 100 cents at the time of plan confirmation, unless,

as you said, the Commonwealth decides that it won't have that

treatment. Right?

A. Yes.

Q. But you know that under the credit agreement that's been

submitted with this motion, that one of the triggers for

payment of the entire loan is plan confirmation. Right?

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A. Yes.

Q. So, even if the Commonwealth decides, we're not going to

require PREPA to pay 100 cents of the loan at plan

confirmation, the loan will become due by its terms, the terms

that PREPA agreed to, regardless at plan confirmation; right?

A. Unless the 100 cents are mature.

Q. Yes. In the negotiations, did PREPA ask the Commonwealth

to waive that maturity payment requirement?

A. PREPA did not ask the lender to waive the maturity, no.

Q. Now, we heard today that AAFAF is the fiscal agent for

PREPA; right?

A. Yes.

Q. And AAFAF is the fiscal agent to the Commonwealth; correct?

A. Correct.

Q. And during the negotiations, that was also true?

A. Yes.

Q. So AAFAF was acting both for the borrower and the lender?

A. Correct.

Q. And Rothschild was performing financial advisory services

to AAFAF and through AAFAF to both the borrower and the lender?

A. Correct. Rothschild advises AAFAF.

Q. Now, if you had wanted to negotiate with the Commonwealth

in an effort to improve its DIP loan, you would have called

AAFAF; right?

A. Yes.

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Q. The very same AAFAF that represents PREPA; right?

A. AAFAF is the fiscal agent for PREPA.

Q. And the fiscal agent for the Commonwealth?

A. Yes.

Q. Now, you have been a financial advisor for 18 years;

correct?

A. Correct.

Q. And that includes 18 years in the restructuring field in

particular as well; right?

A. That's correct.

Q. In your career, you've been involved in negotiations of DIP

financing agreements; right?

A. Yes.

Q. And so you've been involved in preparing term sheets?

A. Yes.

Q. And in proposing term sheets; right?

A. Yes.

Q. And you've been involved in negotiating economic terms of

those term sheets for DIP loans; right?

A. Yes.

Q. But the process of developing this proposed loan was not

like the negotiations you've been involved in over your 18-year

career; right?

A. It was fairly unique.

Q. Fairly unique? Okay. And really, from your perspective,

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during the negotiations, there weren't really two sides; right?

A. This was a collaborative effort to achieve an agreed-upon

goal.

Q. So there weren't two sides to this negotiation; right?

A. Yes. I would not describe this as a negotiation.

Q. Not a negotiation, and there weren't two sides to the

negotiation; correct?

A. This was a unified team.

Q. You've heard of the term "arm's length negotiation;"

correct?

A. I have.

Q. That's when two parties negotiate back and forth to reach

an eventual settlement of terms. Right?

A. Right.

Q. And it's thought in that back-and-forth struggle the

outcome is something that is legitimate, can be trusted.

Right?

A. I'm not sure about that. Could you clarify what you mean

by that.

Q. It's okay. Withdrawn.

So, to be clear though here for the Court, the process

to develop the proposed DIP loan was not an arm's length

negotiation. Correct?

A. This was a collaborative process, not an arm's length

negotiation.

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Q. Not an arm's length negotiation. Okay.

Now, after the hurricane, AAFAF started working to

obtain community disaster loans; correct?

A. Correct.

Q. And on or about January 9 of 2018, a letter was sent to

AAFAF by the federal government, specifically FEMA and the U.S.

Department of Treasury. Is that correct?

A. I believe that's correct, yes.

Q. Why don't we look at exhibit -- this is Movants' Exhibit 7.

THE COURT: Movants' Exhibit 7 is admitted in

evidence.

(Movants' Exhibit 7 received in evidence) 

MR. BEREZIN: Thank you, your Honor.

Q. Do you have that in front of you, sir?

A. I'm not sure where to find it.

Q. It would be in the movants' exhibits?

THE COURT: So the book that says Movants' Exhibits,

Volume I, tab 7.

THE WITNESS: Yes. I have that now.

BY MR. BEREZIN: 

Q. So this letter, sir, summarizes the federal government's

policy for the Community Disaster Loan program to Puerto Rico

in or about January 9; correct?

A. Yes.

Q. And in the letter, the federal government took note that

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the Commonwealth's treasury single account balance was

approximately $1.7 billion. Is that correct?

A. Yes.

Q. You'll see that in the third paragraph.

It also noted that a report was issued by the

Commonwealth indicating that $6.875 billion in unrestricted and

restricted cash was on deposit across all Commonwealth

governmental entities. Right?

A. Yes.

Q. So the government noted there is a $1.7 billion balance in

the treasury single account and then another $6.75 spread in

other accounts. Right?

A. In a variety of unrestricted and restricted cash accounts.

That's correct.

Q. Could you explain briefly for the Court what the treasury

single account is.

A. So my general understanding is that's the account that the

Treasury Department of Puerto Rico uses for a variety of

primarily daily operational functions.

Q. Thank you.

The federal government in this letter informed AAFAF

that it was establishing what it called a cash balance policy;

right?

A. Yes.

Q. And it stated that it was establishing this cash balance

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policy because the treasury single account had consistently

exceeded $1.5 billion even in the months following the

hurricane, and in light of the $6.875 billion located in

various accounts. Correct?

A. Yes.

Q. So it announced that the cash balance policy was that the

Commonwealth's treasury single account had to fall below a

certain level before Community Disaster Loans could be

disbursed.

Is that your understanding, sir?

A. That is my understanding, yes.

Q. And you understand that the federal government has set that

minimum cash balance policy at $800 million?

A. I have been told that.

Q. And AAFAF learned about this minimum cash policy in early

January 2018; correct?

A. I think this was the letter, yes.

Q. And at the same time, negotiations began over the loan from

the Commonwealth to PREPA; correct?

A. In and around this time, we started to develop the loan.

Yes.

Q. Now, in the forecast you've seen of the treasury single

account, you have not seen an instance where the balance of

that account falls below a billion dollars. Is that correct?

A. Again, shortly after the hurricane, there were a variety of

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forecasts that showed amounts going very low, but the most

recent forecast I've seen, have been upward, yes.

Q. Okay. Thank you.

So the most recent forecast you've seen the balance of

the treasury single account remains somewhere between $1

billion and $1.5 billion; correct?

A. Yes.

Q. Now, if that $1.5 billion was reduced in the amount of $1.3

billion, obviously, the treasury single account would dip below

the 800 million threshold; right?

A. Yes.

Q. And at a billion dollars, the same would be true; correct?

A. Yes. I think that's correct.

Q. Now, in the process of once the DIP proposal had been

formalized, you instituted, on behalf of AAFAF and on behalf of

PREPA a third-party marketing process; is that correct?

A. That's correct.

Q. And in that process, you, I think, created a list of ten

companies or institutions to contact?

A. Yes. It was initially nine, and it grew over time.

Q. And of the institutions you contacted, you did not contact

my client, National Financial Guarantee Corporation, did you?

A. No.

Q. And you understand that National is the largest single

creditor of PREPA.

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A. I think that's correct.

Q. And National, as an insurer of bonds, is going to be

holding these bonds for 10, 20, 30, even 40 years. Right?

A. I think that might be speculative.

Q. Withdrawn.

Now, these three proposals from the ten companies --

actually, at this point there are 11; correct?

A. At this point, there are 12.

Q. Of the 12 that you have received, have you sought to

negotiate for a non-priming lien?

A. We requested all the parties to provide their indications,

and in that request, we specifically asked if they were willing

to provide the loan on an unsecured, non-priming basis.

Q. Did you seek to negotiate with any of those parties to

obtain a non-priming loan?

A. Of the three proposals that we received, all of them

required a -- two required a priming. One was a little bit

fake.

Q. For the non-fake one or ones, did you pick up the phone and

try to get a non-priming lien for the PREPA?

A. Be we have not yet entered into negotiation with those

indications.

Q. You haven't done it yet?

A. Correct.

Q. So it's on your list maybe after today.

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MR. BEREZIN: Your Honor, we have nothing further.

Thank you.

THE COURT: Thank you, Mr. Berezin.

Any further cross-examination? Mr. Robbins.

CROSS-EXAMINATION 

BY MR. ROBBINS: 

Q. Good afternoon, Mr. Mondell.

A. Good afternoon.

Q. Could I ask you to put in front of you, sir, Objectors'

Exhibit W, which I'm going to offer in evidence at this time,

your Honor.

THE COURT: Exhibit W is admitted in evidence.

(Objectors' Exhibit W received in evidence) 

BY MR. ROBBINS: 

Q. Let me ask you to put that in front of you, Mr. Mondell.

A. That's the contact log?

Q. Yes.

A. I have it.

Q. This lists a number of other potential lenders to PREPA;

correct?

A. Yes. This is the list of parties that we reached out to

contact.

Q. And it's fair to say that not one of them has, at least up

until now, offered terms nearly as generous to PREPA as the one

the Commonwealth has offered. Correct?

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A. That's correct.

Q. As a matter of fact, one or more of them has indicated to

you and to Rothschild -- that's the advisor to AAFAF -- that

PREPA was simply too risky to provide terms that were as

favorable as the Commonwealth has provided. One or more of

them have told you that; correct?

A. In words to that effect, yes.

Q. As a matter of fact, if you'll take a look at Objectors'

Exhibit AA, which I'll offer at this time.

THE COURT: Exhibit AA is admitted in evidence.

(Objectors' Exhibit AA received in evidence) 

MR. ROBBINS: Your Honor, what I'm going to try and do

is put a version in that doesn't have my handwritten notes all

over it.

THE COURT: All right.

BY MR. ROBBINS: 

Q. You recognize this, do you not, sir?

A. I do recognize it.

Q. It was written to you from a potential lender called

Carval; correct?

A. Correct.

Q. And they told you, among other things, did they not, in the

third full paragraph, Mr. Mondell -- read along with me, if you

wouldn't mind: "However, we are unable to match or approve on

the current terms" -- and by that you understood that to mean

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the Commonwealth's current terms; correct?

A. Yes.

Q. "As we believe they do not compensate for its inherent

risks. In particular, PREPA's uncertain regulatory framework

and evolving plans for privatization make the transaction

difficult to underwrite."

Do you see that?

A. Yes. I see that.

Q. And you understand the preference to the evolving plans for

privatization, that refers to the prospect that PREPA as a

whole will be selling off some or all of its assets into the

private market; correct?

A. Yes. I think that involves a transition process which it

probably does.

Q. And you would agree with me that that presents some

considerable risk for a potential lender looking to get

security in assets that may or may not be privatized; correct?

A. I think it creates an uncertainty for them.

Q. Carval went on to say: "While these issues can be

overcome, a viable transaction for us would most likely require

additional collateral, stronger protections, and higher rates

of return." Correct?

A. Yes.

Q. And that was the position that actually several potential

DIP financiers made known to you; correct?

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A. This particular paragraph?

Q. Or words to that effect. Correct?

A. No. Actually, I think Carval was singular in this

expression.

Q. Well, you understood, for example, that the feds, FEMA,

for example, told you that they would not actually lend

directly to -- they were not inclined to lend directly to PREPA

at all but would do so only through the Commonwealth; correct?

A. Yes. That's correct.

Q. As a matter of fact, 100 percent of all potential

third-party lenders insisted on terms more favorable than the

Commonwealth has insisted in this proposed DIP. Yes or no?

A. No.

Q. As a matter of fact, remember in your deposition I asked

you whether if you were an advisor to any of these third

parties you would be prepared to advise them to lend on terms

similar or identical to the ones from the Commonwealth.

Do you remember I asked you that?

A. I recall, yes.

Q. And you said, well, I wouldn't say never, but these are

pretty good terms. Right?

A. Right.

Q. As a matter of fact, you have never seen a DIP loan at

0 percent, have you?

A. Not that I recall.

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Q. In fact, the lowest rate you've ever seen in a DIP loan is

about prime. Correct?

A. Correct.

Q. And you certainly have never seen a DIP loan at a 30-year

maturity, have you?

A. No.

Q. Or even a 10-year, have you?

A. No.

Q. In fact, the longest you've ever seen is about three to

five years; right?

A. That is more typical, yes.

Q. And typical is actually 18 to 24 months, isn't it?

A. Yes.

Q. Do you have any analysis that you've done that shows that

PREPA could not operate if the terms were any more favorable to

the Commonwealth than these?

A. No.

Q. Have you seen any work done by anybody at Rothschild

showing that?

A. The operational analysis we rely on -- we don't perform an

operational analysis of PREPA.

Q. Have you seen a single scrap of paper that purports to show

that PREPA could not operate if the terms of the DIP loan were

more favorable than these proposed DIP loans to the

Commonwealth? Yes or no? Have you seen it?

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A. No.

Q. And if it existed, you would expect to see it, given the

role you played in this transaction. Yes or no?

A. If it existed, I would expect to see it?

Q. Yes. Would you or would you not?

A. Yes.

Q. Have you seen any analysis of the extent, if any, to which

creditors of the Commonwealth are less likely to be paid, in

whole or in part, because of this DIP? Have you seen any such

analysis?

A. Yes.

Q. You have seen it?

A. I'm not sure if I would describe it as an analysis per se,

but I have seen various declarations indicating that if the

power were to go out, that would have a negative impact on

creditor recoveries.

Q. Have you produced such an analysis in the course of this

discovery?

A. I have not.

Q. Have you seen one?

A. I think I just stated -- I'm not sure it would be described

as an analysis. I think it's a declaration.

Q. Somebody has asserted it; correct?

A. Yes.

Q. And it's fair to say, as I believe you testified earlier,

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that in fact there weren't really anything called negotiations

around this DIP, were there?

A. As I stated and I described, this is a collaborative

process.

Q. By "collaborative," you meant everybody was seeking to

promote the same goal; correct?

A. Yes.

Q. And as you think back to these collaborative discussions,

I'm right, sir, you can't think of any respect in which the

Commonwealth sought to use its leverage as what we might agree

as the only game in town to extract terms more favorable to the

Commonwealth; correct?

A. Correct.

Q. You would agree with me, sir, that when a lender is not

engaged in a collaborative process and is in fact the only game

in town, it's able to exercise what you would call incremental

leverage; correct?

A. Yes. Correct.

MR. ROBBINS: I think that's it.

Thank you, Mr. Mondell.

THE COURT: Thank you, Mr. Robbins.

Any further cross-examination of Mr. Mondell?

Mr. Davis.

MR. DAVIS: Yes, your Honor.

THE COURT: You may proceed.

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MR. DAVIS: Thank you, your Honor.

REDIRECT EXAMINATION 

BY MR. DAVIS: 

Q. Good afternoon, Mr. Mondell.

A. Good afternoon.

Q. Mr. Mondell, you were asked several questions about the

extent to which there was a requirement to pay off the entire

obligation at the time that a plan of arrangement would be

approved.

And several questions had to do with paying off the

entire building by a facility.

Do you remember those? 

A. Yes.

Q. Is the proposed facility a term loan?

A. No. It's a revolver.

Q. What does it mean to have a revolver?

A. A revolver is a credit facility that you can borrow and

also repay, but to the extent you repay, you are able to

reborrow again up until the full length of the facility in

terms of time.

Q. So do you have an understanding as to whether the full

billion dollars would have to be paid off, or is the amount

that has to be paid off is the amount that has been drawn?

A. No. You only have to pay back once you've drawn.

Q. Now, in terms of repayment, is there anything about this

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loan facility that prohibits another lender from taking the

loan out?

A. No. Just the opposite. This loan is designed to be

refinanced.

Q. Could you take a moment and explain to the Court what it

means to take a loan out.

A. So by that I mean I understand you to mean to refinance a

loan, and that is to -- with this loan, borrow some amount

outstanding -- I'm not sure how much -- have another lender

come into play, use the proceeds of that new loan to pay back

the Commonwealth and pay back this loan, retire, and assume

what the terms of the new loan will be, whatever those are.

Q. You mentioned that this loan doesn't prohibit another

lender from refinancing.

Does it do anything to encourage another lender to

refinance the loan?

A. It actually -- I think the encouragement is from the PREPA,

the borrower's perspective. To the extent PREPA seeks to

refinance before the maturity date, you can repay the loan at

any time without penalty as well as because there is an

extended period of time of 0 percent and with low interest

rates, the amount of dollars spent on this loan up until

they're ready to refinance is relatively small.

Q. Do you have an understanding as to whether the loan can be

refinanced per the CDL from the federal government?

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A. I believe it can, yes. I think that's a provision.

Q. Is there anything about the structure of the proposed

facility that would inhibit a CDL from being put in place?

A. No.

Q. Can you elaborate.

A. So, if this loan is designed to be used for I think the

term is current expenses and/or eligible uses, which I think

are fairly synonymous, and that is language that is used in the

CDL context for is disbursements or operating needs that a CDL

is qualified to pay.

So the CDL itself -- you can't just put in a CDL and 

have a limitation. So the idea is this loan will be able to be 

use this to pay for things that a CDL would also allow us to 

pay so that there would never be any confusion that as a CDL 

covering past bills of non-CDL kind of things, the answer is 

no. It's a good match. 

Q. Now, you've also talked about a process to market this what

we've all come to call the DIP financing to prospective

alternative lenders, all of which are private entities;

correct?

A. Correct, yes.

Q. Is there anything about the existing proposed loan facility

that is before the Court today that would inhibit a private

lender from going forward with a refinancing loan?

A. No. Absolutely not.

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Q. Is there anything in it that would encourage or be

complimentary towards such financing by a private lender?

A. I think for much of the same reasons, the fact that there

is no repayment penalty, that there is very limited financial

risk in this time period, it does facilitate, to the extent one

of these prime financiers is able to reach a committed stage

and actually be approved to fund, it's very well positioned to

accommodate that.

Q. Have you been in contact with the various parties that

submitted proposals that are enumerated in Exhibit 30?

A. Yes, I have.

Q. In those communications, has any one of the prospective

lenders indicated that they would not go forward if this loan

were to be approved by the Court?

A. No.

Q. Have any additional parties, other than the parties that

were described in your declaration and supplemental

declaration, shown an interest in possibly providing a future

loan to PREPA?

A. Yesterday I reached out to an additional party. I can't

tell you yet if they're going to provide a proposal, but

they're starting the process now.

Q. There has been some questioning -- and you gave some

testimony -- about the interest rate.

A. Yes.

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Q. Is there anything about the structure of the loan facility

that would prevent a lender in a refinancing from charging a

higher interest rate?

A. No.

Q. Is there anything in the current facility that would cause

PREPA to have to pay a prepayment penalty of any sort in the

event that this loan were to be refinanced?

A. No. The prepayment penalty is 0.

Q. You say you've been in this profession for some 18 years;

correct?

A. Correct.

Q. And how long have you been at Rothschild?

A. Eighteen years.

Q. In that course of time, you've stated that you found this

to be a somewhat unusual proposed loan; correct?

A. Yes.

Q. In what ways is this loan different than the ordinary DIP

loan you've experienced in the past?

A. To name a few, the fact that this is a monopoly electrical

provider and the risk of not repaying the loan is a blackout to

thousands of people; number two is the PROMESA process and all

that's involved with the Oversight Board and the government is

really unique; and number three, as actually was mentioned,

this collaborative process, that everyone involved --

oftentimes the goal is to get the loan funded, but there are

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lots of gives and takes, and people give and take. This really

was -- we just need to find a way to avoid a blackout. How are

we going to do that. What tools do we have.

Q. Have you ever been involved in a situation before where a

central government is making a loan to a public corporation

owned by that central of government.

A. No.

Q. Are you aware of any similar situations?

A. This is the first that I'm aware.

Q. You were asked a number of questions about commercial loan

term sheets, kinds of benchmarks and terms you would expect to

see in a loan.

Do you view the loan from the Commonwealth, from the

government, to PREPA as akin to a commercial loan term sheet?

A. This is not a commercial financial loan, no.

Q. You were also asked about the collaborative process.

Within the context of the process that led to the

proposal of the loan that's set forth here today, was AAFAF the

only public agency involved in approval of this loan?

A. No.

Q. What other entities were involved in the process of having

this loan approved? I'm not asking for the details of that

process. I'm trying to get into the delivery process. I'm

just asking you who else was involved in that.

A. Sure. So, to my understanding, there was also the

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Puerto Rican legislature which needed to approve the

legislation to enable the funding of the loan and also at that

stage the Treasury Department, local Treasury Department.

(Continued on next page)

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BY MR. DAVIS: (Continued)

Q. Outside the Commonwealth, were there other entities -- were

there any other entities other than the Commonwealth agencies

and Commonwealth officials involved in approval of the loan

that is put forth before this Court?

A. Yes, clearly the Oversight Board has the approval process.

Q. Was there a give and take with the Oversight Board as to

what the structure of this loan would be?

A. There was, yes.

Q. Do you have an understanding as to whether AAFAF has the

authority to actually authorize the credit terms that are set

forth in the loan facility before the Court today?

A. Again, I'm not aware, but my understanding is the Treasury

Department on the Puerto Rican side needed to approve that and

then the Oversight Board.

Q. Do you know whether the governing board of PREPA also

approved the terms?

A. Yes, I believe they had.

Q. Is there any expectation as to whether a CDL might some day

be presented as an option?

A. As an option in general or as an option with respect to

PREPA?

Q. That was a poorly asked question. Do you have any

continuing expectation as to whether the federal government

might step up to the plate and provide a CDL to PREPA or to the

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government on behalf of PREPA so that this loan could be

refinanced through that statutory loan process?

A. Yes, I don't have any assurances as to when that is going

happen, but we do remain optimistic that it will come to pass.

The money that has been authorized and signed by the president.

It just hasn't made its way from Washington down to

Puerto Rico.

MR. DAVIS: Thank you, Mr. Mondell. I have no further

questions.

THE COURT: Thank you, Mr. Davis.

At this point I would propose that we -- actually, let 

me verify. There is to be no oral examination regarding the 

Wolfe stipulated testimony. Is that correct? 

MR. MUNGOVAN: Your Honor, Timothy Mungovan. 

If I may address the Court at the podium? 

THE COURT: Yes.

MR. MUNGOVAN: Good afternoon, your Honor. 

Timothy Mungovan from Proskauer Rose for the Oversight 

Board. What we would propose to do, your Honor, is to read 

into the record the testimony of Dr. Wolfe, which was the 

subject of the stipulation and order that the Court entered 

yesterday. 

THE COURT: Very well.

MR. MUNGOVAN: If Andrew Wolfe were called to testify

at this hearing, he would testify as follows:

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If PREPA were to cease operating Puerto Rico's 

electrical grid for any material period of time, the potential 

consequences to Puerto Rico's economy would be significantly 

adverse and potentially irreversible. 

The government of Puerto Rico's ability to provide 

basics services would be adversely affected by PREPA's ceasing 

operations. It is my opinion that the cessation of PREPA's 

operations for any material period of time would lead to 

further out-migration beyond that which was already created by 

Hurricanes Irma and Maria; and that this further out-migration 

would result in additional reduction of (A) PREPA's customer 

base and (B) government of Puerto Rico taxpayers. 

The Commonwealth and all stakeholders would fare 

better if PREPA remains operable and completes bringing back 

power for all customers as soon as possible." 

Movants request that the Court accept the foregoing

evidence in this case as the testimony of Andrew Wolfe. 

THE COURT: So accepted.

MR. MUNGOVAN: Thank you, your Honor.

THE COURT: Thank you. 

And so at this point then the next witness would be

the objecting parties' witness, Mr. Spencer, and that is 

anticipated to be a fairly lengthy examination. And so unless 

there is an objection, I will shortly declare the lunch break, 

and we would resume here at 2:00. 

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Seeing no objections, I will first thank Mr. Mondell 

and invite him to step down from the witness stand. 

If someone would just push in the drawer -- I haven't 

said adjourned yet. 

(Witness excused) 

THE COURT: Mr. Bienenstock.

MR. BIENENSTOCK: Your Honor I rise only because we

haven't decided yet on the length of the examination Mr.

Spencer. It may not be long, and if it is relevant to your

Honor's scheduling, we can make that decision if your Honor

would give us five minutes. Otherwise, we'll tell you when we

get back.

THE COURT: Well, I think that we should -- we need to

take a break, and taking it as a lunch break I think is

logical.

MR. BIENENSTOCK: Sure. OK.

THE COURT: So let's just plan to resume at 2:00.

Yes, Mr. Friedman. 

MR. FRIEDMAN: Your Honor, with respect to

Mr. Portela's declaration, instead of a redacted declaration,

which I think might lead to some confusion as to whether

something different had been filed under seal, may we just file

a revised declaration with a footnote that says: This, the

revised version reflects an agreement on the record with

respect to resolving an objection asserted to testimony in Mr.

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Portela's original declaration or something to that effect. I 

am worried that if we have something redacted, people might 

think there is something under seal. 

THE COURT: I understand. So you'd call it something

like "trial declaration."

MR. FRIEDMAN: Yes, your Honor.

THE COURT: Yes. Please do it that way.

MR. FRIEDMAN: Thank you, your Honor.

THE COURT: Now consider yourselves adjourned, and we

will resume at 2:00. Thank you.

(Luncheon recess) 

AFTERNOON SESSION 

2:00 p.m. 

THE COURT: I have a just couple of brief housekeeping

issues before we continue.

First, we noticed that Exhibit E is in Spanish. As

you know, under the local rules, everything has to be 

translated into English. And so any exhibit that is in Spanish 

including, but not limited to, Exhibit E must be filed in 

English translation with the Court as quickly as possible. 

Secondly, for the convenience of the people who 

couldn't read the spreadsheets that were illegible on the 

screens, I would ask that the proponents of those exhibits file 

them tonight on the ECF system separately. 

I thank you for those accommodations. So we are now 

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ready for Mr. Spencer's testimony 

MR. HOROWITZ: Yes, your Honor, Gregory Horowitz for

the Ad Hoc PREPA bondholders and we call Stephen Spencer as a

witness.

THE COURT: Mr. Spencer, would you come up please?

MR. DAVIS: Your Honor, before we rest if you will as

Movant, we have a couple evidentiary housekeeping matters. It

will only take a moment. Just to move in evidentiary exhibits.

THE COURT: Yes. Let's let Mr. Davis complete the

case for the Movants. And I apologize for not having spoken

specifically to them. 

MR. DAVIS: Thank you, your Honor.

Movants would like to move into evidence Exhibits 24, 

25, 26, 27, 28 -- 

THE COURT: Hold on. So exhibits 24, 25, 26, 27, 28

are admitted.

(Exhibit Movant 24, 25, 26, 27, 28 received in 

evidence) 

MR. DAVIS: Yes, your Honor. And 36.

THE COURT: We've already admitted 36, which is also

Objector's Q.

MR. DAVIS: Q, exactly.

And 40 and 41. 

THE COURT: Exhibits 40 and 41 are admitted in

evidence.

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MR. DAVIS: Thank you, your Honor.

(Exhibit Movant 40 and 41 received in evidence) 

THE COURT: Thank you. Do the Movants now rest?

MR. DAVIS: One second, your Honor.

(Pause) 

MR. DAVIS: And also 19.

THE COURT: 19?

MR. DAVIS: Yes.

THE COURT: Exhibit 19 is admitted in evidence. 

MR. DAVIS: Thank you, your Honor.

(Exhibit Movant 19 received in evidence) 

THE COURT: And so do the Movants now rest on your

principal presentation?

MR. DAVIS: Yes, your Honor, we do.

THE COURT: Thank you.

MR. DAVIS: Thank you.

THE COURT: Mr. Horowitz and Mr. Spencer.

MR. HOROWITZ: Mr. Spencer was making his way up to

the witness box, your Honor.

As he is going up, perhaps I can just recite that we 

are offering Mr. Spencer's trial declaration as his direct 

testimony. That appears as Objector's Exhibit A. 

THE COURT: Exhibit A is admitted.

(Exhibit Objector A received in evidence) 

MR. HOROWITZ: Exhibit A, your Honor, I will note has

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attached to it its own Exhibits A through E. Just reciting the

Exhibit A to Exhibit A was the redline for the Court's and

proponents' convenience showing the changes from Mr. Spencer's

original declaration. So that is omitted.

Exhibit B -- I'm sorry. Excuse me, your Honor Exhibit 

B is Movant's Exhibit D, and we would move that into evidence. 

THE COURT: Exhibit B is admitted in evidence. 

(Exhibit Objector B received in evidence) 

THE COURT: And so just to be clear, so A, the trial

declaration as marked as an exhibit includes the exhibits to

the trial declaration as filed on ECF for the redline?

MR. HOROWITZ: That is correct, your Honor, but it has

its own exhibits. I'm afraid it was a little awkward the way

it was done before we did the exhibit list.

Exhibit A has attached to itself its own Exhibits A

through E, which are not the same as the actual Objector's 

Exhibits A through E. They're the exhibits to the declaration. 

THE COURT: Yes. But so Objector's Exhibit A is

docket entry 694 with all of the exhibits that were filed under

docket entry 694 except for the redline?

MR. HOROWITZ: That's exactly right, your Honor.

THE COURT: OK. Good. I'm following it.

MR. HOROWITZ: I will note that originally Docket No.

694 was filed under seal. Since then, I believe that the

debtors -- the Movants have agreed that nothing attached

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thereto needs to be confidential. So all of the exhibits that

were to Exhibit A are now being offered not under seal that

relate, and we will follow your Honor's direction to publish

those to the ECF for people's convenience.

THE COURT: Yes, would you just refile an unredacted

694 with a cover that says this is an unredacted 694?

MR. HOROWITZ: Of course we will do so, your Honor.

THE COURT: Thank you.

MR. HOROWITZ: Just to continue because it was a

little confusing, Exhibit B to the Spencer trial declaration is

actually Objector's Exhibit D, and we are moving Objector's

Exhibit D into evidence.

THE COURT: Exhibit D is admitted.

(Exhibit Objector D received in evidence) 

MR. HOROWITZ: Exhibit C to the Spencer declaration is

a demonstrative and merely shows some calculations referenced

in his declaration so we don't need to move that.

Exhibit D to the declaration Spencer declaration has 

already been admitted as Exhibit 16. 

Exhibit E to the Spencer declaration has been admitted 

as Exhibit J. And with that, your Honor, we tender the 

witness. 

THE COURT: Thank you.

So, Mr. Spencer, will you step up to take the oath?

 STEPHEN J. SPENCER, 

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I2FQPRO4 Spencer - Cross

CROSS-EXAMINATION 

BY MR. FINGER: 

THE COURT: Thank you.

Who will conduct the cross-examination? 

MR. FINGER: Your Honor, the Movants will have no 

cross-examination for Mr. Spencer. 

THE COURT: Good afternoon, Mr. Finger.

MR. FINGER: We will excuse the witness.

THE COURT: I'm sorry?

MR. FINGER: We will excuse the witness.

THE COURT: All right. So there will be no

cross-examination, and therefore no redirect. 

MR. FINGER: That's correct, your Honor.

THE COURT: So, thank you, Mr. Spencer. Your

testimony is greatly appreciated.

(Witness excused) 

THE COURT: All right then. Are there any further

evidentiary proffers from the Objectors?

MR. HOROWITZ: That happened a little quicker than I

expected, your Honor. We might want to take a quick look and

see if there are any exhibits that we need to move in, if you

would give us a minute.

THE COURT: All right. I was thinking that I would at

the conclusion of the evidence we would take a brief break, so

Ms. Ng could be certain of the time left, and you could figure

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I2FYPRO 

out your time allocations for closing arguments.

So perhaps we can use that ten-minute break, which is 

also happening sooner than I expected, for you to do that, and 

then when we come back you can offer in the remaining exhibits. 

Is that acceptable to everybody? Looks like yes. 

See you in ten minutes. Thank you. 

(Recess) 

THE COURT: Mr. Horowitz.

MR. HOROWITZ: Good afternoon, your Honor. 

Having conferred with the other PREPA creditors, the 

remaining exhibits that the PREPA creditors would like to offer 

are Objector's Exhibits C, F, O, U, S. 

THE COURT: Just one second. So Exhibits C and F are

admitted in evidence and Exhibit O.

(Exhibit Objector C and F received in evidence) 

MR. HOROWITZ: U.

THE COURT: Exhibit U is admitted in evidence.

(Exhibit Objector U received in evidence) 

MR. HOROWITZ: S Exhibit.

THE COURT: Exhibit S is admitted in evidence.

(Exhibit Objector S received in evidence) 

MR. HOROWITZ: T.

THE COURT: Exhibit T is admitted in evidence.

(Exhibit Objector T received in evidence) 

MR. HOROWITZ: Y.

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I2FQPRO4 Summation - Mr. Baker

THE COURT: Exhibit Y is admitted.

(Exhibit Objector Y received in evidence) 

MR. HOROWITZ: And Exhibit GG.

THE COURT: Exhibit GG is admitted in evidence.

(Exhibit Objector GG received in evidence) 

MR. HOROWITZ: Your Honor, I will note of those

exhibits, Exhibit F is in Spanish and we will undertake to

provide a translation, and of the exhibits that you previously

admitted in addition to I think you mentioned F -- Exhibit E,

we also noted Exhibit D is in Spanish, so we will undertaken to

have that translated as well.

THE COURT: Thank you.

MR. HOROWITZ: Unless somebody on my side tells me

that I've missed something, your Honor, the PREPA creditors

rest.

THE COURT: Do the remaining objectors also rest?

MR. ROBBINS: We do, your Honor.

THE COURT: Thank you.

So at this point we will turn to closing arguments. I 

have your time allocations and lineup here. 

So, according to my notes, the first two argue will be 

counsel for Solus for two minutes. 

Good afternoon. 

MR. BAKER: Good afternoon. 

For the record, Nicholas Baker Simpson Thacher & 

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I2FQPRO4 Summation - Mr. Bienenstock

Bartlett on behalf of Solus Alternative Asset Management. 

Your Honor, Solus is the largest unsecured creditor of 

PREPA. They hold over $284 million of fuel oil loans. Solus 

would like to state for the record that they are supportive of 

the DIP. We had some issues, and we received some changes in 

the DIP order. Obviously, like any creditor we don't welcome 

the idea of having a DIP that comes ahead of pre-petition 

claims, but Solus also recognized, and we think the evidence 

shows, that PREPA is in immediate need of liquidity and the 

Commonwealth DIP is the best financing option available. 

Your Honor, unless you have any questions, I will cede 

the podium. 

THE COURT: Thank you, Mr. Baker.

Next would be Mr. Bienenstock for the Oversight Board 

for 30 minutes. 

MR. BIENENSTOCK: Good afternoon, Judge Swain. 

Martin Bienenstock of Proskauer Rose LLP for the 

Oversight Board for itself and as representative for PREPA as a 

Title III debtor. 

THE COURT: I'm going to ask you to project a bit

more. Thank you.

MR. BIENENSTOCK: Yes, your Honor.

So I'm starting with the Statute Section 364(d)(1) and 

(2). 

There are two tests that the statute says that we're 

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supposed to satisfy as a premise for your Honor's being able to 

grant our motion. The motion is the motion we filed 

January 27, and the relief we seek is entry of the last revised 

proposed order that we filed where I explained the two recent 

changes this morning. 

The first test in 364(d), your Honor, is whether the 

trustee or debtor is unable to obtain such credit otherwise. 

Your Honor has the testimony of Dustin Mondell, who

ran the process at Rothschild for AAFAF and PREPA to try to 

obtain such credit otherwise. And until at least yesterday, 

his testimony was he received two offers with priming liens 

that were more expensive. One offer that he couldn't really 

tell if it was unclear -- or he didn't say it was an offer. It 

was an indication of interest, but it was unclear as to the 

collateral situation, the lien situation. 

But it was clear that the proposal made by the 

Commonwealth was superior to all three because if just look at 

the obvious, the interest rate goes from zero up to three 

percent over a period of three years with half percent 

increases every six months, but it stops at three percent. 

Yet, it's a 30 year facility. There is no question it is a 

below-market interest rate facility. It is secured by what we 

said under 364(d)(1) was a priming lien, and as we explained in 

our now multiple briefs that we filed since the original 

motion, that, in essence, because the PREPA bondholders who 

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hold liens under the trust agreement hold liens only against 

the net revenues and net revenues are defined as the revenues 

minus current expenses, while for safety and because we didn't 

want to understate what we're asking for, we said we're asking 

for a priming lien. 

In effect, because their lien was always behind 

current expenses, they're not primed in the typical sense. 

It's not as if they had a first lien on a building and now they 

have a second lien. They had a first lien on net revenues 

which was revenues minus current expenses, and this loan is 

only -- only can be used for current expenses, and, in fact, a 

subset of them, as your Honor knows through all the testimony 

and briefs, we call the subset current expenses the "eligible 

uses." 

So I am arguing this as if we have to satisfy 

364(d)(1) out of an abundance of caution because I think it 

makes it safer for all concerned including the Court, but I 

don't want to lose sight of the fact that the secured claim 

holders at PREPA really are behind current expenses before we 

ever got here. 

THE COURT: Now, you've made that point about current

expenses and about the subset of current expenses, but the

opposition papers have pointed out the operational reserve

provisions that would appear to let monies disburse from this

facility and transfer it into the operational account to be

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used for broader purposes and also the provisions for changing

the application of funds' restrictions on agreement of the

lender and the Oversight Board.

Are they incorrect that those observations can move

the application of funds beyond current expenses as defined in 

the bond financing papers? 

MR. BIENENSTOCK: Let me take one at a time, your

Honor.

On the first issue, our understanding of their 

argument is such that we do think they're mistaken because what 

they're confusing is the use of loan proceeds for eligible uses 

as a subset of current expenses on the one hand with use of 

revenues of the debtor on the other hand. And revenues of the 

debtor can be used for, as we said in our briefs, for 

ineligible uses. Some of them are still current expenses, and 

some of them may not be current expenses. 

On the second issue as to whether we could agree 

with -- the Commonwealth could agree with PREPA to change the 

restrictions on the use of loan proceeds, I think two contract 

parties do have that power. It's not a power that we've ever 

contemplated using, but we have that power simply because we're 

the two contracting -- the Commonwealth and PREPA are the two 

contracting powers -- two contracting parties. 

THE COURT: Who need the Court's approval to implement

the contract?

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MR. BIENENSTOCK: That is certainly not a -- that is

certainly not something we would have a problem coming back to

court if we wanted to change that. We don't contemplate

changing it, but if we ever did need to, we have no problem

coming to court to do that.

THE COURT: Thank you.

MR. BIENENSTOCK: Obviously, on appropriate notice. 

So getting back to 364(d)(1), the evidence largely of 

Dustin Mondell and his exhibits basically shows no such credit 

was otherwise available, and certainly not on better terms. 

Yesterday, as your Honor knows, a competing proposal 

was filed by a subset of PREPA creditors secured claim holders, 

and they contend that because they are not a priming lien, our 

motion cannot be granted. I think your Honor disposed of that 

premise early this morning when your Honor said you don't 

regard that as preclusive of preventing the Court from 

considering our motion, but I'd like to explain why they're 

wrong on several grounds from our point of view. 

First, is that 364(d)(1) says you have to be able to 

obtain such credit otherwise, and they're not providing such 

credit. And the arithmetic is simple, but I think it needs to 

be carefully looked at because it's crystal clear that they 

have not provided an adequate facility constituting such credit 

otherwise, and the reasons are as follows: 

Their proposal was a $534 million facility, but right 

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off the bat they say they're only providing 98 percent of it, 

so that takes 534 million down to 523.3 as a way of increasing 

the interest rate. 

Then there are closing fees that depending on how 

large a commitment each lender makes, the closing fees could be 

zero up to $12 million. That could take the facility from 523 

to 511 million. 

Then the interest expense, which they -- instead of

giving us annual interest rates, they give us quarterly rates, 

but we did the math in the informative motion we filed last 

night. I won't repeat it on the record here. The bottom line 

is that over two years the interest on that facility is 

$114.8 million, and at the end of the first year you have to 

pay $10.86 million to get an extension for the second year. So 

when you subtract from 523 or -- from 523 million the 

12 million closing fees, the 114.8 million interest, the 

10.68 million extension fee, you end up with a facility of 

$373.81 million. 

Even Mr. Spencer's declaration does not say that a 

$373.81 million facility is adequate. 

In contrast to that, your Honor has Mr. Filsinger's

Exhibit 15, which I think was his -- I forget whether it's 

his -- it was his trial declaration, where in paragraphs 14 and 

15 he explains in a fair amount of detail why the billion 

dollars facility is necessary. 

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I2FQPRO4 Summation - Mr. Bienenstock

I would like to -- at the risk of stating the obvious, 

I would like to mention that the Commonwealth facility we're 

talking about, unlike some of the other proposals, is a 

revolver, which means you draw down what you need. You can pay 

back money when you have a surplus, and you're only paying 

interest on what you need to be borrowing. It's not a term 

loan where you take the money and you're stuck paying interest 

on it regardless, because if you repay it you can't borrow it 

back again. 

So, if it turns out that the billion dollar facility 

that Commonwealth is offering is more than PREPA needs, PREPA 

will never have to draw the portion that it doesn't need; and 

if it only needs it only temporarily and then can pay it down, 

it will have the benefit and all the incentive in the world to 

do that. So bottom line, there is no such credit otherwise on 

this record such that would prevent the Court from approving 

the proposal that the Commonwealth has made. 

Now, in order to, I guess, lodge another objection on 

the such credit otherwise provision, some of the objectors have 

argued that this was not arm's length negotiated, and that, as 

your Honor knows from the briefing, some said that because 

related parties were involved, the Commonwealth of PREPA, that, 

therefore, heightened scrutiny is required and some kind of 

entire fairness test has to be applied. 

We have argued in the briefs, and I won't repeat why 

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the imposition of Delaware law to the Commonwealth of 

Puerto Rico and PREPA is a non-starter. The Dodgers case that 

the objectors cite says in very clear language that it applied 

that in the context of a loan because the Dodgers were subject 

to Delaware law, but I'd like to provide a more common sense 

rationale to the Court. 

PREPA is in no position to say that it needs something 

to be arm's length negotiated. It got a below-market deal. If 

anyone is going to argue that they want arm's length 

negotiation, and they are arguing it's the GO creditors who say 

we would get a higher rate of interest if we could get market. 

So PREPA even if it were right in asking for some kind 

of entire fairness test, it's got more fairness than it ever 

deserved from that point of view, and it makes no sense for it 

to be saying entire fairness. The interest rate would go in 

the opposite direction. 

THE COURT: I'm sorry, but wouldn't an entire fairness

test look holistically at PREPA and PREPA's constituents as

opposed to straight business rationality on the part of the

PREPA entity?

MR. BIENENSTOCK: Well, I was just going to make that

point.

THE COURT: Sorry.

MR. BIENENSTOCK: Well, thanks for the segue.

To the extent that the PREPA creditors argue for 

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(212) 805-0300

I2FQPRO4 Summation - Mr. Bienenstock

entire fairness, for the imposition of that standard somehow 

are saying "you have to look at the effect on us" so now we're 

talking about the priming lien. We're not talking about the 

interest rate because we all like the below-market interest 

rate, of course. 

Your Honor from PREPA's viewpoint, it's got to repay 

the debt no matter what, and it's agnostic among its creditors. 

So the priming lien issue, I submit, is not an entire fairness 

issue for consideration under whether such credit is available 

otherwise. The priming lien issue comes into 364(d)(2) when 

the code says you have to look to see whether the lien being 

primed is adequately protected. 

So the short answer, your Honor, is because from 

PREPA's point of view, it's agnostic. It's not going to take 

part in an inter-creditor fight. The entire fairness doesn't 

reach that far, especially when Congress went to the express 

length of saying in (d)(2) that the existing lien holder has to 

be adequately protected. 

And on that, your Honor, I have already made probably 

the most important argument, which is that since they were 

behind current expenses before this ever started, there really 

is no question as matter of law and fact that they're 

adequately protected, but there's a lot more in the record of 

the stipulated facts from Andy Wolfe that if PREPA were to 

cease operating, Puerto Rico's economy would be significantly 

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SOUTHERN DISTRICT REPORTERS, P.C.

(212) 805-0300

I2FQPRO4 Summation - Mr. Bienenstock

adverse in that -- it would suffer potential consequences that 

would be significantly adverse and potentially irreversible; 

that the government's ability to provide basic services would 

be adversely affected by PREPA ceasing operation; that the 

result would be an additional reduction of PREPA's credit 

customer base, and government of Puerto Rico taxpayers. 

And the fourth stipulated fact was that the 

Commonwealth and all stakeholders would fare better if PREPA 

remains operable and completes bringing back power to all 

customers as soon as possible. 

Your Honor, it is hard, as you know, in this crowd to 

get a consensus. But I think we obtained a consensus, and 

that's why they were stipulated facts because while they come 

from an expert, they're also obvious in common sense. We can't 

turn out the lights. And the fact that everyone would be hurt 

from turning out the lights is also obvious. No business can 

be done; no revenues can come in, and all the rest. 

So there is ample evidence, we submit, in the record 

to show that if the secured claimants at PREPA have any 

positive value to protect and the Filsinger declaration also 

shows that net revenues are negative for the foreseeable 

future, hopefully they will turn positive; that there is really 

no issue on protection. 

Your Honor, I'm going to move now to some of the 

objector's complaints about things that they would like to see 

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(212) 805-0300

I2FQPRO4 Summation - Mr. Bienenstock

done differently. We understand that from the PREPA 

creditors's point of view, they wish PREPA collected more debt 

from its municipalities and instrumentalities. They wish that 

PREPA exercised rights of setoff; that PREPA could take money 

out of GDB. I'm sure they have a bunch of operational changes 

they would like as well as evidenced by the fact that the 

competing proposal that was filed yesterday has a bunch of 

covenants putting a group of required lenders in charge of 

virtually all facets of operations from the rates being 

charged, collection efforts, and the like. 

I have no doubt that if we all got together, whether 

ten litigants, ten judges, or ten other people, they'd have ten 

different ideas as to how PREPA might make itself more 

efficient and would wish that it did, and the Oversight Board 

has certainly been working on that and shares the view it's got 

to be a much more efficient operation and is in concert with 

the governor that there needs to be a transformation so that 

PREPA can create energy at an efficient cost in a cleaner way. 

But that is not what Section 364 turns off. PREPA,

and the governor, and the Commonwealth and the Oversight Board, 

tried to balance all of the different concerns, and came out 

where it came out. And as many judges at 364 hearings have 

said before, the Court would sometimes like or maybe sometimes 

not like to rewrite the credit agreement or the covenants, but 

that's up to the parties, and subject to satisfying the 

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SOUTHERN DISTRICT REPORTERS, P.C.

(212) 805-0300

I2FQPRO4 Summation - Mr. Bienenstock

criteria in 364(d)(1) and (d)(2). 

So as a matter of law we do not believe that the 

objector's complaints about things that should be done 

differently carry weight for this purpose. They certainly 

carry weight as far as how maybe fiscal plans and budgets and 

future operations are conducted. 

But as a for instance, your Honor, your Honor can look 

at the Wall Street Journal to see what people earn in the money 

market today. The Commonwealth creditors are really not worse 

off than they otherwise would be because you can't earn the 

three percent the Commonwealth will earn on this loan in a 

money market today. 

It's a matter of public record in this case that GDB 

is attempting to undergo a Title VI restructuring. It's not a 

situation where you can simply walk in GDB and say, "I'd like 

my money." You can't go to strapped municipalities and say 

"pay me." And the other suggestion that's been made that the 

Commonwealth should led money to municipalities assumes that if 

we did that, that the municipalities would use the money to pay 

PREPA. Well, they have other creditors they might pay. It's 

simply not so simple as to tell all these elected officials in 

all of the 78 municipalities that they have to borrow, which 

they haven't asked to do, and they have to use the borrowings 

to pay their PREPA bills. 

If only we could snap our fingers and make things 

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(212) 805-0300

I2FQPRO4 Summation - Mr. Bienenstock

happen as we'd like, but the Oversight Board has certainly 

learned it is not one of its powers, and the Commonwealth can't 

do it either. 

So it is not that we don't sympathize with some of the 

efforts to try to make things more efficient, and if we need 

less money, we'll use less money, and we're heading in the 

right direction. But these are business decisions that are all 

being worked on. Reasonable people can differ. And we 

respectfully submit it's not for this loan to be denied because 

some creditors would contend that if we manage our business 

differently, then we'll need less money. 

I'm not sure if I mentioned it before. Just in case I 

didn't, in Mr. Filsinger's Exhibit 1, which was his first 

declaration, Movant No. 1, on paragraphs 18 through 20, he 

explains why the effect on the secured claimants at PREPA is a 

positive one; that they're not hurt by this loan. Quite the 

contrary. 

Your Honor, unless the Court has other questions, I

would reserve the rest of my time for rebuttal, except that my 

colleague wants me to mention something. 

(Continued on next page) 

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(212) 805-0300

I2FYPRO5 Summation - Mr. Bienenstock

MR. BIENENSTOCK: Your Honor, Mr. Barak reminds me

that there is already a provision in the proposed financing

order in paragraph 6(a) providing that to the extent any

material amendment to the credit agreement is approved by the

Oversight Board, such material amendment shall not become

effective without further Court order which may be submitted on

presentment with notice to parties in interest in accordance

with the case management procedure still in effect in the

debtor's Title III case.

THE COURT: Isn't that paragraph limited to rates --

MR. BIENENSTOCK: It's headed "Amendments, Consents,

Waivers and Modifications."

MR. BARAK: Your Honor, 6(b) is limited to PREPA.

6(a) is limited to any material changes.

THE COURT: Thank you.

So it doesn't define "material," but it does generally 

provide that material changes would be subject to approval? 

MR. BIENENSTOCK: Yes, your Honor.

THE COURT: Thank you.

MR. BIENENSTOCK: And I'd be happy and do stipulate

that if we were asked or the Commonwealth were asked to approve

use of loan proceeds other than current expenses, we would

consider that a material modification invoking paragraph 6(a).

Thank you, your Honor.

THE COURT: Thank you, Mr. Bienenstock.

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(212) 805-0300

I2FYPRO5 Summation - Mr. Finger

Next I have Mr. Finger for 15 minutes.

MR. FINGER: Good afternoon, your Honor.

THE COURT: Good afternoon.

MR. FINGER: The evidence has clearly shown that PREPA

faces a liquidity crisis. When a normal commercial enterprise

faces a liquidity crisis, employees lose job, investors lose

equity, loans are not repaid.

Here the word "crisis" truly applies. PREPA's 

liquidity crisis present the humanitarian crisis. The 

residents of Puerto Rico have suffered a humanitarian crisis 

caused by the hurricane. 

Mr. Filsinger testified that because of PREPA's 

liquidity crisis, he must implement emergency measures to 

preserve cash so that PREPA can provide power to those who need 

it most -- hospitals, medical centers, police stations. And 

yet under these emergency measures but without the immediate 

receipt of funds from the Commonwealth loan, PREPA can last at 

most four to five weeks. 

But PREPA has a valid, committed loan to provide

immediate funds to allay PREPA liquidity crisis and sincerely

asks that its motion be granted. Mr. Filsinger described the

cash flow projections which are in corrected Exhibit 16 and how

PREPA continues to lose money every week. In reality, ever

since the hurricanes, PREPA's expenditures have exceeded its

receipts.

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SOUTHERN DISTRICT REPORTERS, P.C.

(212) 805-0300

I2FYPRO5 Summation - Mr. Finger

Since Mr. Filsinger assumed his role, he has strived

to address certain operational issues at PREPA in increasing

transparency of PREPA's financial performance. Indeed, the

evidence contains several iterations of cash flow projections

and liquidity analyses which have been provided to PREPA's

constituents that demonstrate the liquidity need that PREPA

has. Mr. Filsinger continues to refine them, but what it shows

irrefutably is that on its current cash burn, PREPA will run

out of money by March 9, 2018.

Indeed, Mr. Spencer concedes that PREPA needs money

but suggests that the size of the facility should be smaller

and that PREPA should find the rest of the money it needs

elsewhere. But there are no funds available to PREPA except by

way of a loan, and the Commonwealth is the only real option

today to provide those funds.

Mr. Filsinger reported that as of last Friday,

February 9, PREPA's actual cash position was $194 million which

was approximately 1 1/2 percent off from its projections as

reflected in PREPA Exhibit 16. The projections show a further

net weekly cash burn of $50 million for the week ending

tomorrow and $70 million for the week ending February 23.

Because it projects to run completely out of money by

March 9, PREPA's governing board has authorized Mr. Filsinger

to implement the emergency procedures. As Mr. Filsinger

testified, he's contacting FEMA and the 20 largest creditors.

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(212) 805-0300

I2FYPRO5 Summation - Mr. Finger

And either Mr. Filsinger or the executive director will make an

announcement to the residents of Puerto Rico on Friday or

Saturday of the implementation of the emergency procedures.

From Saturday through Monday, he will shut down

certain generators to reduce load. As part of the emergency

procedures, he will cut the total load by about half.

By mid next week, residential, commercial, and 

industrial customers will begin to lose power, and by the 

following weekend, a majority of customers who are not 

emergency recipients will not have power. 

As I stated earlier, under these emergency measures,

power to the emergency recipients will last approximately four

to five weeks. Mr. Filsinger testified that he absolutely must

obtain funds by Wednesday, and in light of the fact that Monday

is a bank holiday, time is truly of the essence. PREPA's

margin for error here is razor thin.

Therefore, we ask the Court to grant the motion and

enter the order as soon as possible. Avoiding the emergency

procedures will avert another humanitarian crisis on the island

and will permit PREPA to continue its restoration efforts, its

operational and financial initiatives, and continue on the path

to a reliable, efficient source of electric power for the

residents of Puerto Rico.

Without the loan, PREPA and the residents of

Puerto Rico will lose the gains it has been fighting so hard to

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SOUTHERN DISTRICT REPORTERS, P.C.

(212) 805-0300

I2FYPRO5 Summation - Mr. Friedman

obtain since the hurricane.

If the Court has no questions, I will accede the

podium.

THE COURT: Thank you, Mr. Finger.

MR. FRIEDMAN: May I use Mr. Finger's time remaining

instead of reserving for rebuttal, your Honor.

THE COURT: Sure. What did Mr. Finger have left?

MR. FINGER: Ten minutes, your Honor.

THE COURT: Mr. Friedman, I'll put you down for 15

minutes.

MR. FRIEDMAN: Thank you. I think I have far less

than that. Peter Friedman from O'Melveny & Myers on behalf of

AAFAF.

The first thing I wanted to say in response to a 

question you asked is in fairness to PREPA. I think in that 

context, it's important to keep in mind what PREPA's 

responsibility is. It's actually, it turns out, mentioned in 

Mr. Portela's declaration in paragraph 3 where he cited to Act 

number 83-1941, the PREPA Enabling Act, Section 6, which 

reminds that PREPA was created for the purpose of conserving, 

developing, utilizing, and aiding in the conservation, 

development, and utilization of water energy resources of 

Puerto Rico for the purpose of making it available to the 

inhabitants of the Commonwealth in the widest economic manner 

that benefits thereof. 

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(212) 805-0300

I2FYPRO5 Summation - Mr. Friedman

When you take into account that that's what PREPA's

mission is, this loan clearly is the most fair opportunity for

PREPA to continue along in its mission.

I have two other points to make about the

Commonwealth's role here and AAFAF's role here. I'm sure we'll

hear many verbal comebacks. You've already heard aimed at the

Commonwealth and AAFAF.

In essence, your Honor, no good deed goes unpunished.

First of all, the Commonwealth and AAFAF have tried to be part

of PREPA's liquidity solution. Mr. Portela's declaration makes

clear in paragraph 13 that the government prepaid $50.9 million

in a prepayment to PREPA in January for services over the next

five months. No one has ever indicated that that was obligated

or required. It was something the Commonwealth chose to do.

You heard terrible numbers from Mr. Filsinger about

liquidity and the consequences to PREPA of running out of 

money. Imagine how much grimmer and worse that would have been 

if the Commonwealth hadn't stepped up and imparted the $50 

million in liquidity in January that it didn't have to. The 

Commonwealth has been part of the solution here. 

In addition, your Honor, AAFAF did more and the

Commonwealth has done more than give this nearly $51 million

prepayment. It speaks to its good faith and its appropriate

conduct.

It sent letters to public corporations. It's convened

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(212) 805-0300

I2FYPRO5 Summation - Mr. Friedman

meetings with public corporations. But that's not all. Far

from it. The unrebutted testimony in paragraphs 15 and 16 of

Mr. Portela's declaration, which was emphasized on his redirect

examination, make clear that to the extent balances are owed

and haven't been reconciled, they are owed by organizations

like HTA and PRASA and the Elderly Care Advocates Office of

Puerto Rico and the Cardiovascular Center, all of which have

their own liquidity issues.

Mr. Portela's declaration makes clear that PRASA,

which is responsible for the entire water system and supply of

Puerto Rico, a critical element of public health, safety, and

welfare, only had $27 million in its unrestricted accounts as

of the date he submitted his declaration.

That simply can't just be all entirely directed to pay 

one bill. He went through the litany of factors that a public 

corporation would have to take into account before it simply 

decided to write a check after it even decided that receivables 

were due and owing. 

It's not as simple as the other side is putting 

forward about being able to write checks to PREPA with no 

consequence for collateral damage it might inflict on other 

institutions in Puerto Rico. 

Let's be clear. PREPA has been treated very fairly.

As Mr. Portela testified and Mr. Filsinger testified together,

PREPA itself has many overdue bills. Has AAFAF walked in and

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(212) 805-0300

I2FYPRO5 Summation - Mr. Friedman

insisted that PREPA pay every single one of those bills? Has

it commandeered that public corporation's bank accounts to

insist that they make payments? It has not. It has treated

PREPA in the way it has treated other public corporations.

The final point I would make, your Honor, is with

respect to the good faith that is so obviously evident from the

terms of this loan that the Commonwealth has extended. Look at

the interest rate. It's 0 percent for the first six months.

Look at the maturity runway that's being given to 

PREPA and the flexibility and time to maneuver and to come up 

with the right solution for itself and its creditors. Look at 

the lack of fees. Look at the lack of any restrictions on 

prepayment. 

In fact, as you heard from the stand -- and I think

this is within the quintessential definition of good faith --

the Commonwealth didn't use the leverage it had to extract more

onerous terms from the borrower. What could speak of good

faith more than that, than the fact that it did not exercise

the leverage it had to take advantage of PREPA.

So why did the Commonwealth make the loan, your Honor?

Again, look to Mr. Portela's declaration. Look at the

justification. It's in paragraph 11. It's really not

rebutted.

AAFAF, consistent with statutory duties, assisted both 

the government and PREPA in accordance with their common 

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(212) 805-0300

I2FYPRO5 Summation - Mr. Despins

interest in serving the people of Puerto Rico. That's the 

right way to think about this transaction, its goals, and its 

end. 

The proposed facility, as Mr. Portela testified,

balances PREPA's urgent need for liquidity with the

government's considerations regarding its own finances. That's

why this loan was made. That's the purpose it serves, and for

the reasons I've described, that's why it should be approved,

your Honor. Thank you.

THE COURT: Thank you, Mr. Friedman.

Now, Mr. Despins, you have three minutes.

MR. DESPINS: Good afternoon, your Honor. Luc Despins

of Paul Hastings on behalf of the official committee of all

debtors other than COFINA. Of course that means that we are

the committee for both the Commonwealth and PREPA as well. So

we are on both sides of this issue.

There are pure Commonwealth creditors on the 

committee, and there are pure PREPA creditors on the committee. 

Notwithstanding that, the committee unanimously resolved to 

take the following position vis-à-vis this financing: 

First, that PREPA needs this financing. There is no 

doubt. The evidence is very clear on that. Two, that the DIP 

needs to be on a priming basis. Why? Because the Commonwealth 

should take no risk or close to no risk, given that it is the 

lender's last resort. 

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(212) 805-0300

I2FYPRO5 Summation - Mr. Despins

The federal government won't lend to PREPA. The 

evidence is that no third party will lend to PREPA. I'll come 

back to the PREPA bondholders and their term sheet in a second. 

So, therefore, there should be no risk to the Commonwealth. 

However, the committee, again, unanimously, believed

that the terms of this DIP should be on, as much as possible,

regular arm's length business terms. And I'll give just one

example to the Court which is the issue of the interest rate.

Just to give you a sense, let's not look at what 

people are saying but really what the market tells you. We 

know that based on the PREPA secured bondholders' proposal, if 

you look at all their built-in costs and fees and original 

issue discount and all that, that for a period of one year, 

they're all-built-in interest rate, if you want to look at it 

that way, would be 14 percent or so as opposed to 0 percent 

from the Commonwealth. So that gives you a market data that 

shows that 0 percent is clearly not market. 

By the way, nobody is debating that 0 percent is not 

market. If you want to look at another data point -- and 

that's public. It's not in the record, but the Court can take 

judicial notice of that because it's a public document -- the 

federal government is lending to the U.S. Virgin Islands at a 

rate that is around 3 percent. So that tells you that clearly 

this rate is not market. 

The response of the Oversight Board and AAFAF on that 

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(212) 805-0300

I2FYPRO5 Summation - Mr. Despins

is that hey, Section 305, which is the favorite section that 

they use all the time, but also that we're not seeking approval 

in the Commonwealth case. And, therefore, Judge, put your 

blinders on just to look at this PREPA transaction. Forget 

about the fact that the Commonwealth is a debtor, but the 

Commonwealth is a debtor, your Honor, and it's not because 

approval is not sought in that case that there shouldn't be 

close scrutiny paid to this insider transaction. 

Your Honor, we're not saying that the Court should

tell the Commonwealth or the Oversight Board what the interest

rate should be, but plenty of judges approve DIP financings.

And they say, I'm approving the DIP, but I'm not comfortable

with the following features. 

And debtors and lenders go back to the drawing board 

and come back to court saying, we fixed it in the following 

manner, and we suggest that that's what the Court should do 

here. I know I'm out of time, and I'll close very quickly, 

your Honor. 

The argument that the Commonwealth is no worse off

because the money is sitting in the TSA account is really not a

compelling argument, your Honor. The risk profile is totally

different.

If you have your money parked at JP Morgan Chase or

lending it to me, for example, not the same profile, not the 

same credit risk. I'd rather have my money in the JP Morgan 

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SOUTHERN DISTRICT REPORTERS, P.C.

(212) 805-0300

I2FYPRO5 Summation - Ms. Wolf.

account. So the argument that that money is just sitting there 

is not compelling. 

As to the issue of the PREPA bondholders' proposal, I

direct your Honor to the Yellowstone Mountain Club case, which

is a 2008 case, WL 5875547, where the court rejected what it

described as a last-minute attempt to derail good financing.

In that case, Credit Suisse came to the table and

said, oh, we have a non-priming DIP. That means the court

cannot approve a priming DIP, and the court rejected that as a

transparent attempt to derail the process.

For all these reasons, your Honor, we believe the

Court should approve the DIP financing but should condition its

approval on the debtors coming back to the Court with a

reasonable market rate for the interest charged by the

Commonwealth to PREPA. Thank you, your Honor.

THE COURT: Thank you.

Now counsel for Scotiabank.

MS. WOLF: Your Honor, Amy Wolf on behalf of

Scotiabank. We ask --

THE COURT: I'm sorry. You're not by a microphone.

So I'm going to have to repeat what you say unless you go to a

microphone.

Thank you, Ms. Wolf.

MS. WOLF: Sorry, your Honor. Amy Wolf on behalf of

Scotiabank as agent for fuel line lenders.

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I2FYPRO5 Summation - Mr. Mayer

We had wanted to speak -- I'm sorry there was some

confusion -- if necessary in rebuttal. We'd like to hear what

the bondholders have to say, and then we'd like the few minutes

that were reserved for us at that time.

THE COURT: So the five minutes will be for rebuttal

if you choose to use it.

MS. WOLF: Yes. Thank you very much.

THE COURT: Thank you for that clarification.

So I think that this takes me to objectors. Now,

there is no other principal in support.

First I have the PREPA ad hoc creditors committee.

Mr. Mayer for 25 minutes.

MR. MAYER: Thank you, your Honor. Tom Mayer of

Kramer Levin Naftalis & Frankel for the ad hoc PREPA

bondholders.

I want to talk first about the competing proposal that

we made yesterday, and I want to give the Court a little

background to put it in perspective because --

THE COURT: Tilt the microphone more up to you.

MR. MAYER: Yes. A practice that has attracted

criticism that, in my view, is wholly unwarranted.

A little review of the history. The Oversight Board 

moved for approval of the DIP I believe on January 26, and on 

February 2, they contacted us, and they asked us for a 

proposal. And we had been in contact with representatives of 

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I2FYPRO5 Summation - Mr. Mayer

AAFAF since February 6. 

The fact that we are here on the DIP loan today should 

be of no surprise to anybody who was attending the Mondell 

deposition where it was mentioned and the deposition of 

Mr. Filsinger where it was also mentioned. 

We ended up providing the term sheet yesterday because

it's hard to get eight institutions to commit to lend $524

million. That's real money.

Incidentally, as our filing last night or very early

this morning indicated, it really is $524 million -- the fees,

the interest. That gets added on to the principal amount of

the loan which means that the principal amount is higher than

$524 million, but there is really $524 million of cash that's

available.

I've told people to have it ready tomorrow. We have 

signed commitment letters. Mr. Filsinger says he needs money 

by Wednesday. That is not a problem. I have, by my count, six 

of the eight principals in this courtroom or in the overflow 

room but comprising north of $400 million of the $524 million 

that has been offered. 

One principal is in San Francisco, but we have the 

signature pages that we need to make the money available. So 

this is a real DIP. It was a DIP that -- I keep saying "DIP." 

This is really a debtor in possession. 

THE COURT: I understand.

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I2FYPRO5 Summation - Mr. Mayer

MR. MAYER: We have real money available. It's a real

credit agreement, and it is not for purposes of just

disrespecting the DIP. We don't want to see the lights go out

in Puerto Rico any more than anyone else. We just don't want

to see our collateral taken from us when we can provide an

alternative, where in fact the Commonwealth can provide an

alternative.

So, with that, I appreciate your Honor taking our term

sheet into consideration as evidence. I regret to say I find

myself in a position where I must challenge something you said

at the beginning of this hearing. I tried to listen very

carefully to what you said, and I think I have a fundamental

disagreement that I am compelled to air.

You said that the Commonwealth loan is the only loan

before you today. The necessary consequence of that, perhaps,

is that well, PREPA needs money on Wednesday, and the

Commonwealth loan is the only loan that is available today. So

the Court has no choice but to approve the Commonwealth loan

because to do anything else would take more time.

Your Honor, I respectfully disagree. I think that is

not the law. This is an auction. It was set up as an auction.

The Oversight Board ran it as an auction. People were supposed

to come to court with proposals, not as an academic exercise.

We didn't spend a week tearing our hair out getting

people to sign commitment letters as an academic exercise. We

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(212) 805-0300

I2FYPRO5 Summation - Mr. Mayer

came to make a bid, and we are here as a bidder. With respect,

your Honor, you have the authority, the power today, to

authorize either the Commonwealth loan or our loan.

So I respectfully disagree with your statement that

there is only one loan before you today.

THE COURT: Doesn't 364 require the debtor to be the

proponent of a financing proposal like this? And even if there

could be a 363-type auction situation under 364, I don't recall

that the debtor's papers were set up that way.

I recall that the debtor's papers said, here is our

joint proposal. We continue to solicit other proposals and 

look for other things, but I don't see anything in there that 

says if something walks up that you think is the highest and 

best, we consent in advance to that, and the Oversight Board 

does whatever it needs to do under PROMESA Section 207 by the 

way of consent to other financing based on the Court's 

independent evaluation. 

So, if you can just help me textually in the statute

and in the motion to understand your position. The reason I

said what I said is that, as I see it, I have a proposal from

the debtor and the Oversight Board that I can approve or not.

And if I don't, I'll give some explanation as to why I 

don't. If I don't, the proponents may have good cause to think 

about things in some other way and come back to me with another 

proposal to which the Oversight Board would consent. 

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(212) 805-0300

I2FYPRO5 Summation - Mr. Mayer

But I don't see, in the structure of the motion or the

structure of the statute, an ability to impose your proposed

solution on PREPA. I'm trying to be as candid with you as I

can. So tell you why I'm not.

MR. MAYER: Your Honor, I agree with everything you

said, but it is not an answer, and I'll tell you why. We have

not asked you -- and no one can ask you -- to impose a DIP loan

on the debtor. That doesn't even happen in Chapter 11.

You have the authority to deny their motion, and you 

have the authority to approve our loan if they enter into it. 

You can't force them to enter into it, but you can say to them, 

as judges have said in other circumstances, I can't give you X. 

I can give you Y. 

THE COURT: All right. Then I understand what you're

saying.

MR. MAYER: So that's why I said what I said. And

what I am most concerned about is that if your Honor looks at

these two proposals, if your Honor looks at 364(d)(1) and if

your Honor agrees with us -- and I respectfully submit the

statute is clear as day -- if your Honor agrees that if the

non-priming facility is available, a priming lien cannot be

granted. 

What I want to avoid is any assumption that that means 

we have to go back to the drawing board. There has to be a new 

motion. There has to be a new period of notice, and we just 

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(212) 805-0300

I2FYPRO5 Summation - Mr. Mayer

don't have time for that. And therefore, I'm not even going to 

get to the analysis because I don't think that's right. This 

is an auction. People show up. That's true. 

The debtor can't be forced to do a loan it doesn't

want, but it can be told that it can't do the loan it wants and

there is another alternative available to it, and that is the

essence of our argument and the reason that we came to court

with another proposal.

Your Honor, if the law were otherwise, this facility

has been set up from day one to make this hearing basically a

nullity because no one could ever come to this Court with an

offer that was better than what the Commonwealth was offering

because if it required an additional 20 days to approve, if you

have to go back to the drawing board, no one was ever going to

be able to meet that standard.

So I respectfully submit I think you have two

proposals before you. You cannot force the debtor to do either

one, but you can do what I have just outlined. I submit it's

something you should do and something, in our view, you must

do.

I won't spend more time on we're a non-priming loan.

They're a priming loan. That's done. I want to talk about

what's wrong with their facility.

We heard a lot about how this is a billion-dollar

facility, and they need a billion dollars. It's 0 percent

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(212) 805-0300

I2FYPRO5 Summation - Mr. Mayer

interest, and isn't that great. This is a facility that limits

what proceeds can be used for. They can't be used for anything

other than current expenses or eligible uses, and we've been

told now, well, we'll come back to court if we change that.

Your Honor, I'm afraid, from our perspective, this

credit agreement is a fake. It's a fake on a number of

grounds. First, as you've heard, the billion dollars is a fake

when you think about elements of good faith, then about the

Oversight Board and AAFAF going out to the market and saying,

we need you to bid against a billion-dollar loan that we don't

have authority to use.

It's a fake because that $800 million number -- that

isn't just FEMA's number on what has to be in the TSA. That's

in the credit agreement itself. If the TSA ever drops below

$800 million, the Commonwealth doesn't have the money to fund

another buck or, more accurately, PREPA has no authority or

mobility under the credit agreement to borrow another dollar.

So, again, the principal amount, the availability -- 

it's a fake. I have never been in a case where I've been asked 

to bid a committed facility against a facility that isn't 

committed. So that's number one. 

Now, number two, there has been a lot of talk about

this wonderful 0 percent interest, and 0 percent interest is

unheard of. Who projects 0 percent interest except that's not

really what the credit agreement says because what the credit

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I2FYPRO5 Summation - Mr. Mayer

agreement says is that if you approve this loan today, tomorrow

one of the ad hoc GOs can lend $500 million to the Commonwealth

at 15 percent to refinance our loan and the interest rate

adjusts automatically under the terms of the credit agreement.

So it's 0 percent today, and it's whatever the 

Commonwealth wants to charge tomorrow, and there is no 

provision in the modifying order, in the credit agreement, or 

anywhere else that requires anyone to come back to court and 

get that approved. 

THE COURT: So you don't agree that that would be a

step --

MR. MAYER: No. Take a look at the order. The order

is very narrow. The order refers to an increase, a step-up

loan. Incidentally, lest you think this is a gotcha, we've

been pounding this drum for weeks, and the changes in the

order -- and they just don't address it.

Paragraph 6(b): "In the event a step increase" --

that means going from 550 up -- "funded through Commonwealth

financing results in a material change to the economic terms of

the facility, such material economic terms shall not become

effective without further court order." But the original

550 -- that's not a step up.

Any money that's already been loaned, that's not a

step up. The interest rate on that can be reset automatically,

and no one gets a chance to say who. Now, maybe that's a

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(212) 805-0300

I2FYPRO5 Summation - Mr. Mayer

mistake. Maybe that's going to be fixed in the rebuttal, but

this is in the drum we've been pounding for a long time, and

it's a game of, look. You still have a problem, and it doesn't

get fixed.

Then let's look at 6(a). Mr. Barak commented on that.

It says: "Subject to the approval of the Oversight Board,

PREPA may enter into any amendments, consents, waivers, or

modifications of the credit documents in accordance with the

terms thereof without the need for further notice in a hearing

or any order of this Court, provided, however, to the

extent" -- look carefully -- "any amendment to the credit

agreement is approved by the Oversight Board, such material

amendment shall not become effective without further Court

order."

Even on the terms of this order, the only thing that

the court needs to approve is a material amendment. It's not a

consent. It's not a waiver. Okay.

Now let's go back to the credit agreement. You've

heard about Section 413 which limits the use of proceeds to pay

eligible uses unless the parties consent, and you've heard an

offer, well, we'll come back and get your approval before we

consent.

It isn't just 413. Take a look at Section 12-4(b).

It's on page 27. The credit agreement, by the way, is document

640-2. "The borrower," which is PREPA, "may undertake any

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I2FYPRO5 Summation - Mr. Mayer

action otherwise prohibited hereby and may omit to take any

objection otherwise required hereby upon and with the express

prior written consent of the lender and the oversight Board."

So every single restriction in this agreement means

nothing for any third party. Any time anyone says to the ad

hoc bondholders, don't worry. The credit agreement doesn't

allow X, that's worthless because the credit agreement can be

waived by an amendment, and we may never even know about it,

and the order that's been provided to the Court provides no

limitation on that.

As Mr. Bienenstock says, well, there are two

contracting parties. There's the Commonwealth, and there's

PREPA. They happen to be run by the same person, but they can

change their agreement between themselves any time they want,

and no third party has any chance to say anything about it.

This is one of the problems of the setup here, and

with respect to how PREPA got all these Bennies from the

Commonwealth and PREPA is the favorite child, I'm sorry. The

Commonwealth controls PREPA, not the other way around. PREPA

does what the Commonwealth wants it to do.

One last thing. Your Honor has already mentioned

this. Even with a tightening up of Section 413 and even if we

tighten up Section 12, your Honor noted our argument that this

whole restriction of proceeds is kind of a fake because right

now, pledged revenues -- they come in, and they go to pay

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I2FYPRO5 Summation - Mr. Mayer

current expenses. Okay. That's cool.

Once this agreement gets approved, the revenues don't

go to pay current expenses. The loan proceeds do, and that

frees up revenues to pay anything PREPA wants.

So the effect is that instead of having operating 

revenue, operating expenses paid out of operating revenues and 

our collateral stays right where it is, what happens is the new 

loan eats into our collateral every day as money is advanced, 

and the revenues that would ordinarily have just gone to pay 

operating expenses and would not have eat into our 

collateral -- they go off to pay something else that doesn't 

benefit us at all. 

Incidentally, at deposition, Mr. Mondell testified to

that. That's exactly what this is set up to do. I'm not

making this up. So, as I said, from the perspective of the

PREPA bondholders, this wonderful credit agreement, the

wonderful 0 percent, the wonderful billion dollars -- it's a

fake. It's all a fake.

Now, I want to talk about adequate protection for a

DIP. Mr. Bienenstock has two basic arguments on adequate

protection. One he seems to have abandoned for purposes of

this particular hearing, given, perhaps, time constraints,

which is his argument that we don't have any value to protect.

Your Honor has heard how everybody other than the

PREPA bondholders is just desperate to get that priming lien on

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I2FYPRO5 Summation - Mr. Mayer

collateral that Mr. Bienenstock says has no value.

So I'd like to move right past that because I think -- 

I tried to convince my colleagues I could make an estoppel 

argument. They said I can't quite get there, but this is 

really inconsistent, and it simply isn't it true. 

I want to take one moment to stress something in our

papers because it's not a topic that people have talked about

very much, but it is very important to us. Your Honor, we

believe that we have the right not just to today's depressed

revenues but to tomorrow's better revenues because that's what

Section 928 does. It gives us a lien on those revenues ad

infinitum, and we also believe, as you know, that we have a

rate covenant that entitles us to have rates increased. And

that's not in today's issue.

We did not raise that for today. We're not asking for 

it today, but it is part of the value of our collateral, and I 

would urge the Court, this is not an issue that you need to 

reach today. We will raise it in confirmation, and if the 

First Circuit comes down the way we're asking, we may raise it 

somewhat earlier. 

It isn't just that we have a rate covenant as part of

our collateral under our documents. It isn't just that we have

a rate covenant under Puerto Rico's statutes. Under the

Constitution of the United States, stockholders in a regulated

utility have a constitutional right to have rates set to

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I2FYPRO5 Summation - Mr. Mayer

protect their capital investment.

We are better than stockholders. We have a pledge of 

revenues. So I reject the argument that still lingers in the 

papers that our collateral has no value and is not worthy of 

adequate protection. 

Now let's move to current expenses. Your Honor, there

are a lot of loans secured by blanket liens in this country.

It's pretty standard. Blanket UCC liens cover everything --

cash, accounts receivable, inventory. In the loan agreement,

there's a provision that says the proceeds can be used to pay

ordinary operating expenses.

Well, I think a lot of commercial lenders would be

very surprised to find out that according to the Oversight

Board's argument here, they're subordinated to expenses they've

agreed to be paid or that their lien doesn't attach until those

expenses are paid or that in a Chapter 11 case, they can always

be prime because, after all, pre Chapter 11, they agreed that

operating expenses could be paid.

None of that is true, and it is the natural

consequence of the argument that Mr. Bienenstock is making. I

don't think there is any support for it, and I don't believe

that our collateral that needs to be adequately protected is

done so simply by the payment of current expenses by a loan

that eats into our collateral every day while money is diverted

elsewhere.

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I2FYPRO5 Summation - Mr. Mayer

I've already touched on a number of things that deal

with the issue of good faith. We do not believe good faith has

been shown. The essence of a good-faith argument that we're

left with here has nothing to do with process because everybody

agrees process was a bunch of people sitting around the room

and saying, well, let's do what we think is right. Oh, by the

way, the deliberate process will keep you from finding out what

we talked about which I should think disqualifies any reference

to process as being indicative of good faith.

The basic argument on good faith is res ipsa res ipsa

loquitur, look at this wonderful loan. It's so great for PREPA

that tells you it was done in good faith. Well, your Honor, as

I indicated in my previous remarks, I think the good-faith

argument fails. 

Let's face it. We don't want the lights out. Nobody 

wants the lights out, but PREPA has $200 million it can collect 

from the Commonwealth on account of the other 

instrumentalities, and the Commonwealth has the money. If 

they're prepared to lend it, they can be use it to pay the 

bills. 

That can be done with a punch of the button. You 

heard today the governor has total control. Mr. Bienenstock is 

correct that the Oversight Board can't make things happen with 

a punch of the button, but there are several Puerto Rico 

statutes that give the governor carte blanche and give AAFAF 

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I2FYPRO5 Summation - Mr. Mayer

carte blanche over every governmental corporation. 

Anything AAFAF and the governor want the governmental 

corporations to do they have the ability to make happen. 

They've chosen not to do. They've chosen not to make the money 

available except through a transaction that takes that out. We 

don't think that's good faith. 

We've heard a lot of stuff about there's a dispute.

Your Honor, all I can say is if you take a careful look at the

second Filsinger supplemental declaration -- that's docket

688 -- Mr. Filsinger goes through a lot of governmental

corporations, and most of them don't say that this is a

dispute.

They say there needs to be some reconciliation, but

what they say is well, we basically just didn't pay anything 

for electricity for two, three, four years. They owe the 

money. It's not a question of do they owe the money. They 

actually owe the money. 

Also I want to take issue with something Mr. Friedman 

said. He referred to testimony today that PREPA owes a lot of

money too. I listened very carefully, and maybe I missed it,

but I don't know of anything in the record that says

substantial amounts owed by PREPA to other governmental

corporations. PREPA was used as the piggy bank, and we're here

in part because of it.

Your Honor, you have two loans before you. I can't

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(212) 805-0300

I2FYPRO5 Summation - Mr. Berezin

force you to take either one, but I can suggest that the

Commonwealth's loan is not offered in good faith. It doesn't

provide us with adequate protection. It is a priming loan, and

it can't be approved if there's an alternative available. Our

alternative is available. If you have questions, I'm happy to

answer.

THE COURT: Thank you, Mr. Mayer.

Now for National. I have you down for ten minutes.

MR. BEREZIN: Yes, your Honor. Thank you. Robert

Berezin from Weil, Gotshal & Mangers on behalf of National

Financial Guarantee Corporation.

Your Honor, National is a municipal bond insurer. It

is PREPA's largest creditor. It's one of the largest creditors

across these Puerto Rican Title III cases.

As a large creditor and as, importantly, the key

insurer in the municipal bond market, National has a key role

to play to advance PROMESA's goal of facilitating Puerto Rico's

access to the capital markets.

We are here to say, your Honor, that this priming DIP

is a giant step backwards from that goal. There is, in the

first instance, your Honor, no need for a priming DIP under

Section 364, and its terms are not fair, reasonable, and the

circumstances before this Court.

This crisis is entirely manmade. It is not a natural

crisis. It has been brought on by people. The Commonwealth,

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(212) 805-0300

I2FYPRO5 Summation - Mr. Berezin

as the record shows, owes PREPA hundreds of millions of

dollars. These receivables go back, the record shows, more

than five years. PREPA has indeed been the piggy bank for many

government entities.

The Commonwealth could, has the power and could,

simply pay its bills tomorrow. Push a button, pay your bills

for the electricity it used in the last five years, and voilà.

This Court would not be faced with the dilemma that it's

currently faced with, and this Court would not have to make a

decision, essentially overnight, over this loan. It is not a

natural crisis. It is one made by people.

Other government agencies, in addition to the

Commonwealth, owe PREPA several hundred million dollars, again,

going back several years. That's several years that government

entities -- it has nothing to do with the hurricane -- simply

were not paying for electricity.

Again, the Commonwealth, with the Oversight Board's

consent, which can be done with a push of a button, can pay

those bills tomorrow. The immediate crisis will pass, and the

natural course of the market can continue without this looming

artificial crisis.

Municipalities have been getting free power. This is

a well-known problem in Puerto Rico. The hurricane has been

devastating. It has created a force majeure event under

Puerto Rican law.

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SOUTHERN DISTRICT REPORTERS, P.C.

(212) 805-0300

I2FYPRO5 Summation - Mr. Berezin

These payments that have been made in lieu of taxes no 

longer need to be paid. The governor can make that

declaration. PREPA could make that declaration overnight, 

again, easing this manufactured crisis. 

The priming lien is also entirely unreasonable, and I

ask the Court to consider what we've heard at the beginning of

today's proceedings and just before from Mr. Bienenstock.

It's a 30-year maturity we're told, lots of runway. 

Okay. Thirty years. This is a monopoly. It has monopoly 

power. It is the sole source of electricity on Puerto Rico. 

No one is talking about raising rates in the midst of 

this hurricane. We're talking about over 30 years. This goes 

to the point about how this collateral has tremendous value and 

is being primed because there is a regulatory process. 

Puerto Rico has laws. It has a regulatory process. 

That regulatory process is designed by law to ensure that this 

utility can charge rates sufficient to cover its operating 

expenses and sufficient to make a provision to satisfy its 

ongoing debt service. 

This is not normal. This is a crisis that has been

created. It will be temporary. It must be temporary because 

the laws of economics demand that it be temporary. 

A public utility, if it needs to collect money

immediately because it is in crisis, will do -- maybe not now,

but hopefully as this island heals, will do what other

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(212) 805-0300

I2FYPRO5 Summation - Mr. Berezin

utilities do all the time, which is explain to their customers,

commercial customers -- by the way, the customers in the

municipalities that are for-profit businesses that are using

power for free -- those customers can have their power turned

off. It is the ultimate in self-help.

It's not going to happen today. It shouldn't happen

today, but it can happen. Once things return to normal, this

crisis will end, and this loan, this priming loan, is

completely and utterly unnecessary.

In any semblance of a negotiation, it would not exist.

The record is crystal clear. There was no negotiation. There

weren't even sides. It must be the first DIP loan in history

to be negotiated without sides.

The other fatal defect, your Honor, with this DIP loan

is that it gives a single creditor by design and based on

everyone's expectations, all parties to this, unfettered

control over the plan of adjustment.

We're at the DIP stage. We have a DIP where every bit 

of testimony you heard, not the lawyers but from the witnesses, 

is that PREPA cannot afford to pay this DIP back upon 

confirmation 100 cents in cash. It's not going to happen. 

That's the only evidence this Court has before it. 

So that renders the estate administratively insolvent

or this debtor administratively insolvent. So there is no

confirmation unless the Commonwealth agrees.

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SOUTHERN DISTRICT REPORTERS, P.C.

(212) 805-0300

I2FYPRO5 Summation - Mr. Berezin

So we are putting the Commonwealth in control of this 

case ahead of existing creditors, ahead of the secured 

creditors by dint of a DIP loan being approved, and all parties 

to the DIP loan understood that that was the situation, that 

PREPA didn't have money. 

And what we've seen is that this DIP loan, which has

no obligation -- it's the height of irony. If you look at the

order they put before your Honor, it obligates PREPA to use its

best efforts to pay bills.

Why in the world wouldn't this DIP loan obligate the 

government of Puerto Rico, which has all the power -- obviously 

PREPA doesn't -- to compel its governmental agencies to 

reconcile and pay PREPA's bills? 

We're not talking about this year's bills because if 

you look at Mr. Filsinger's declarations very carefully, it's 

about this fiscal year. What about last fiscal year? What 

about the year before? What about the year before and the year 

before? Those bills are due and owing. This crisis was made 

by people, and they put this Court in a very, very difficult 

position. 

One word about priming, Your Honor. I've mentioned

before that if this is a 30-year loan, we see two things. If 

you look at the actual loan document, it says that there is a 

30-year maturity date unless earlier there is a plan of 

confirmation. If there is a plan of confirmation, it's all due 

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(212) 805-0300

I2FYPRO5 Summation - Mr. Berezin

and payable. That's putting aside the super-priority status. 

So I don't know why it's a 30-year loan, but if it is a 30-year 

loan, then priming is not necessary because it's going to get 

paid. 

But they say, in any event, that this loan doesn't

prime because the proceeds are only going to be used for

current expenses. Okay. But at some point, this loan is going

to have to be repaid. It's either going to be repaid at the

point of confirmation or it's going to be repaid sometime

later.

When it is repaid, under the governing documents that

govern the bonds at issue, that payment of a loan for past

current expenses doesn't make it a current expense. So they're

going to be taking more revenue, revenue that would otherwise

go to repay the bondholders, it's going to go instead to pay

back this loan, and that is a priming lien for which we have no

adequate protection.

Now, again, of course the arguments make perfect

sense. If the power goes out, then it's going to be a disaster

for Puerto Rico, and when you go down the order of bad

consequences, it will be bad for creditors.

But, as I've said, this is a crisis made by people,

and it can be averted, and it does not need to be averted with 

a priming DIP, particularly because an alternative has been 

placed before this Court. 

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SOUTHERN DISTRICT REPORTERS, P.C.

(212) 805-0300

I2FYPRO5 Summation - Mr. Ellenberg

Your Honor, with my 48 seconds, unless you have

questions.

THE COURT: Actually, your 48 seconds are over 55.

Thank you.

MR. BEREZIN: I will sit down.

THE COURT: Next for Assured.

MR. ELLENBERG: If the Court please, Mark Ellenberg on

behalf of Assured.

THE COURT: I have you down for ten minutes.

MR. ELLENBERG: Thank you, your Honor.

I would just like to emphasize five points. We joined

in the arguments of the ad hoc group, National. There are a

few points I would like to emphasize.

THE COURT: Would you just angle the microphone a bit

more toward you and project. Thank you.

MR. ELLENBERG: Sure.

As you just heard, the lack of liquidity at PREPA is 

clearly a self-fulfilling prophecy. Not only are there 

hundreds of millions of dollars of government receivables which 

could be paid and are not being paid, it's the same dollars. 

AAFAF and the Commonwealth have been scooping up all 

of the tax remedies that should be sent down to agencies like 

HTA. They're scooping them up, they're keeping them in the TSA 

account, and they're preventing those agencies from paying 

their bills. 

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(212) 805-0300

I2FYPRO5 Summation - Mr. Ellenberg

If the TSA account has sufficient liquidity to make a

loan to PREPA, it has sufficient liquidity to pay those bills.

And not only are they not paying the bills for energy received,

they are lending the money, and they're not just lending it.

They're seeking a priming lien. So they're turning what should

be a payable, an asset of PREPA, into a liability and a

liability with a priming lien attached to it.

If they did this before the case began, people would

be in here making arguments about equitable subordination, and

now they're trying to do it in the light of day. It is

something that should give the Court significant pause.

In addition, your Honor, it's not just the payables.

The projections have been tarnished with a concern.

For example, the DIP motion was filed on January 27. We've

gotten two 13-week cash flow reports since then.

Over that two-week period, they collected $141 million 

from customers. That is $101.3 million over projection. So 

over a two-week period, they collected $141 million. They were 

$101 million off. 

THE COURT: Don't they say that that includes the

undisputed payments from 2017 and the $50 million prepayment by

the Commonwealth? So some $80 million or so of that is a

one-off occurrence?

MR. ELLENBERG: All of which they control. All of

which they control, and what will be the one-off occurrence

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(212) 805-0300

I2FYPRO5 Summation - Mr. Ellenberg

next week and the week after that? They have consistently

underestimated their revenues, consistently. Even if you

adjust for those one-time payments, they were still way over

their projections.

There's more. There is $150 million, give or take,

sitting in GBD. That is property of the PREPA estate. PREPA

is a Title III debtor. GBD is not a Title III debtor. It does

not have the benefit of a stay.

If PREPA were really being independently run and was 

acting as a fiduciary for its creditors, it would be pounding 

on the doors of GBD demanding its $150 million. They're not 

doing that because it's all being managed from the top. 

In addition, your Honor, $2 billion was just

appropriated in the budget signed by the President earmarked

essentially for PREPA. That's not even taken into account in

their projections.

It certainly questions the need for the DIP, but even 

more so, it questions the size of the DIP. It certainly 

questions the equity of turning what should be an asset into a 

liability and putting priming on top of that. 

Now, your Honor, Mr. Bienenstock wanted to start with

Section 364. I think that's a really good place to start.

Mr. Mayer addressed how they have failed to meet the first

requirement for priming, which is that they have no alternative

available to them. Clearly they do.

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(212) 805-0300

I2FYPRO5 Summation - Mr. Ellenberg

Let's talk about adequate protection. 364(d)(2) is

mandatory. There must be adequate protection if there is going

to be priming. And that adequate protection is measured not by

the value of the collateral but by the amount of dollars that

are going to come in on top of the pre-existing collateral,

whether it's a dollar-for-dollar replacement lien or some other

adequate form of protection, and it is their burden to show

that they're providing adequate protection. 

They are not even pretending to provide adequate 

intention. They're saying we are not entitled to it because we 

were barred by current expenses anyway. First of all, that's 

wrong, which I'll get to in a minute. More importantly, 

they're wrong as a matter of law. 

They are obligated to provide adequate protection, 

dollar for dollar, if they are going to prime us. They are 

relying on their briefs on cases where creditors are moving for 

relief from stay under Section 362(b) for lack of adequate 

protection. 

When you are a creditor moving for relief from stay

based on lack of adequate protection, yes. Then you have to

prove the diminution of value in your collateral. That is the

wrong standard under 364. 364 has a mandatory requirement to

provide affirmative adequate protection dollar for dollar.

They're not doing that. That, as a matter of law, 

precludes this motion being approved. It's a show stopper 

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(212) 805-0300

I2FYPRO5 Summation - Mr. Ellenberg

right there. They're not even pretending to be providing us 

with adequate protection. 

Now let's address this notion that we have a net lien

and not a gross lien. It is simply 100 percent incorrect. We

have a gross lien on revenues. In fact, they've conceded that

on page 2 of their original motion, the bonds are secured by a

lien on all of the debtor's revenues. On page 9 of the reply

brief, as explained in the post-petition financing motion, the

holders of the power in the bonds have a security interest in

revenues.

The pledge language is clear. There is no carve-out.

We have a lien on revenues, full stop. There is language in

the indenture to which we are a party and PREPA is a party and

the indenture trustee is a party that creates a waterfall. 

And in that waterfall, under certain circumstances,

PREPA is authorized to pay current expenses ahead of debt 

service. That is a contractual provision in an indenture. It 

is not a carve-out from our lien. Somebody with a priming lien 

has completely different rights, particularly at the time of 

confirmation, from someone who merely has contract rights under 

that indenture. 

This is really key, your Honor. There is no carve-out

from our lien. We are not primed in any way by current

expenses. That is an indenture provision.

Remarkably, Mr. Bienenstock filed a pleading last

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(212) 805-0300

I2FYPRO5 Summation - Mr. Ellenberg

night in which he said the competing DIP is really a priming

lien because it seeks to have an order giving it the status of

current expenses or a super-priority administrative claim.

Your Honor, that is not priming. It is very different

from priming. Yes, they have a right to be paid in full before

the plan can be confirmed, but they do not have the right of a

priming lienholder at confirmation or in the event of sale.

If they wanted to limit themselves to what

Mr. Bienenstock says is the equivalent of priming, which is an

admin priority claim or the status of current expenses, we

would drop our objection. I believe all the creditor objectors

would drop their objections.

The entire problem here is that they're seeking 

priming that they don't really need, and they're not doing it 

for economic reasons. They're doing it for tactical reasons. 

They're doing it for a debtor who is not in control of its own 

fate, and they're not doing it in their interest as a lender. 

They're doing it in their interest as the Commonwealth 

and the Oversight Board for strategic purposes having to do 

with plan confirmation. The priming needs to go. If the 

priming goes, this trial goes away. Thank you. 

(Continued on next page)

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(212) 805-0300

I2FQPRO6 Summation - Mr. Wofford

THE COURT: Now counsel for Knighthead for five

minutes.

MR. WOFFORD: Your Honor, good afternoon. 

Keith Wofford from Ropes & Gray. Hopefully, the 

diminishing time will not be diminishing returns, but I do have 

some points to join in with my predecessor that I would like to 

emphasize. 

First of all, I think everyone stated correctly the

two requirements of 364(d), which is adequate protection and 

inability to obtain the loan without problem. 

So in order to avoid granting adequate protection, 

this debtor has argues that our lien on revenues is

subordinated to current expenses. And I know that people have 

mentioned generally that is not in the trust agreement. But we 

want to make sure that for the record the Court is very, very 

correct, we highlight a few of the particular provisions. I 

believe the trust agreement is Exhibit 17 in what you've been 

handed. 

First of all, what is pledged under the grant in 

Section 701 of the trust agreement is Revenues. That 

definition, as Mr. Ellenberg stated, does not carve out current 

expenses, and there is no doubt that that lack of exclusion 

from revenues of current expenses is intentional. 

There is a different defined term under the agreement: 

Net revenues. That is also in section 101, which is revenues 

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I2FQPRO6 Summation - Mr. Wofford

minus current expenses. So, the debtor seeks to redefine 

pledge 701 of our grant, which is on Revenues as applied to net 

revenues which is a defined term in the agreement that was 

explicitly not used. So the clear language of the agreement 

says that our pledge is not a revenue pledge to be stayed. 

Second, the term revenue in section 502(b) of the 

trust agreement is recognized also as not being net of current 

expenses because there is a permission to pay those expenses 

from the revenues but that permission is not in fact an 

exclusion from that term or from the pledge. 

Third, Section 709 of the trust agreement states that 

gross revenues, those two words "gross revenues" are in quote. 

Gross revenues of the system will not be used for any other 

purpose other than is provided under the trust agreement and no 

action will be taken which would impact the rights of the 

bondholders under that agreement. If our pledge wasn't the 

debtor state, merely a net revenue pledge, then there would be 

no reason to discuss the gross revenues pledge in Section 709 

if in fact it was a net revenue pledge 

THE COURT: I think I need you to talk a little bit

slower and project into the microphone. 

MR. WOFFORD: Fair enough. In you thank you very

much. It's been one of the few times in life I've been accused

of not talking loud enough, so my apologies.

Fourth and finally, your Honor, Section 705 as far as 

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SOUTHERN DISTRICT REPORTERS, P.C.

(212) 805-0300

I2FQPRO6 Summation - Mr. Wofford

any liens on revenues is a negative pledge covenant. Again 

Revenue is capital R. Other than that of the bondholders with 

the exception of a traditional carveout for materials liens 

that under prevailing law would prime the bondholders lien. So 

there is no mention of a carveout for of current expenses or 

anything of the sort. 

So the revenues lien that the bondholders have clearly 

defined, the lien is prospective and extended into the future 

and it clearly has value. There is no doubt that we have to be 

adequately protected if we're going to be primed here, and the 

debtors, as have been stated, refused to provide any adequate 

protection. That is the first question of the 364 as to why 

this loan cannot be authorized, at least as proposed. 

The second question is whether the finance would be

available from the Commonwealth or others without a priming 

lien. Mr. Mayer has talked about the bondholder financing that 

is now available as an alternative. But no one has discussed 

yet the Commonwealth alternative and whether that Commonwealth 

alternative proposed is the only one that's available. 

The argument of the Movants is that the priming lien, 

which was not negotiated at all by the Movants' own testimony, 

much less negotiated at arm's length, was a non-severable term 

and that no loan would be made without it. Your Honor should 

have reason to doubt that contention. 

In order to approve this loan in our view, the Movants 

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SOUTHERN DISTRICT REPORTERS, P.C.

(212) 805-0300

I2FQPRO6 Summation - Mr. Whitmore

must admit to this Court that the Commonwealth will refuse to 

lend leading to the beginning of shutdown of power in 

Puerto Rico if a priming lien is not given to secure this loan. 

But we would submit, your Honor, that precisely 

because of the humanitarian crisis that the movant's cite it's 

doubtful that the Commonwealth loan is going to go away solely 

because the Commonwealth doesn't have the ability to prime us. 

If the Court refuses to approve this loan because the 

requirements of a priming loan cannot be met, the reasonable 

inference from the evidence we would submit, your Honor, is 

that the Commonwealth would immediately pivot and make a 

non-priming financing available rather than beginning the 

unfavorable shutdown process that they have described. 

So, your Honor, since the debtors cannot show that the 

proposed loan would be unavailable without priming, and since 

there is no adequate protection proffered, the proposed loan 

does not comply with 364(d) and therefore on these terms should 

not be approved. 

THE COURT: Thank you, Mr. Wofford.

Next for the U.S Bank, five minutes. 

MR. WHITMORE: May it please the Court, Clark Whitmore

from Maslon LLP representing National U.S. Bank Association as

trustee for the $8.3 billion of PREPA bonds.

U.S. Bank's position is, like all the other parties, 

that we need to address this liquidity problem but we come to 

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SOUTHERN DISTRICT REPORTERS, P.C.

(212) 805-0300

I2FQPRO6 Summation - Mr. Whitmore

Court with very, very grave concerns about the "fake DIP" that 

Mr. Mayer was describing with the completion of almost 

unlimited powers being conferred upon the combination of the 

Commonwealth, PREPA, and the Oversight Board and the 

commensurate reduction of this Court's role in the rights of 

creditors as we move forward. 

In my remaining time, what I'd like to do, your Honor, 

is really address three points that are additional serious 

problems with the proposed order and the relief that's being 

requested, and end by asking to have an opportunity to, if the 

Court is inclined to grant the relief being sought, at least 

with respect to the direct advances, that we be given an 

opportunity to provide a markup of the proposed order to 

address some of the issues that I'm addressing now, Mr. Mayer 

addressed, as well as some of the issues in our supplemental 

objection. 

Point number one is, as indicated in our papers, 

they're seeking a power of attorney to go out and become -- the 

Commonwealth is, to become sort of an exclusive agent that can 

book deals and bind PREPA to those deals and has only put 

something in the order saying that when they come back with a 

deal, the only issue will be price. None of the other terms 

for any new DIP loan that is a Commonwealth financing is 

subject to review by the Court. 

This Court under 364 needs to review actual DIP loans. 

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(212) 805-0300

I2FQPRO6 Summation - Mr. Whitmore

When there is a loan, when there is a commitment, they need to 

come to court so we can understand what's going on. 

Mr. Portela said, oh, the federal government, now they want a 

priming lien. Well, that was hearsay, number one. And, number 

two, who put that idea into their mind? All they seemed to 

need for disobligated funds related to grant money was a 

priority claim, and we all worked that out in an order earlier 

after the hurricane. 

So we need to understand what DIP loans are being kind 

of brokered by the Commonwealth at the time, and we don't think 

it's appropriate for the Court to preapprove or delegate as 

powers under 364 to the Commonwealth to book deals that need 

court approval. 

Secondly, there is a real problem with the scope of

the priming liens. The priming liens are in revenues. And 

that sounds simple enough, but when you go to the credit 

agreement -- well, there's a couple problems. First of all, 

the credit agreement has priority over this Court's order 

because of how they've worded it as further described in the 

credit agreement in the order, so there's a little shifting of 

the scope of lien from this Court's order into the credit 

agreement which they can change and modify and waive and do 

things to. 

But there is a provision in the credit agreement that 

grants a priming lien on anything that is characterized as an 

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(212) 805-0300

I2FQPRO6 Summation - Mr. Whitmore

other account, and there's supposed to be a schedule attached 

but there's no schedule attached. I've reached out trying to 

get a resolution of this. And I'm in discussions, and there 

was a helpful implication in the omnibus reply that in seeking 

a priming lien on anything they designated as an other account, 

that they're really just trying to -- they're not trying to 

pull on the lien, but they're trying to make sure they're 

perfected. 

But here we are on the day of the hearing when they

want the order entered, and as trustee of a trust agreement 

while of the last of restricted accounts. There's a 

construction account, and maintenance reserve accounts, and 

other accounts created under the trust agreement, and we can't 

really tell what lien they're really seeking to get. 

And this really brings up a bigger point. I know I

don't have much time left, but PREPA is violating the trust 

agreement. They're doing that because the trustee and our 

creditors can't get relief of the automatic stay to do anything 

about it, and the oversight board has taken the position that 

this Court doesn't have jurisdiction to do anything about that. 

And they take the position, well, this is -- they're just 

unsecured obligations, and we can violate whatever we want. I 

just wanted to make the point that it's our position and it 

says in Section 601 of the credit agreement that every penny of 

revenues that PREPA receives, it holds in trust for application 

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(212) 805-0300

I2FQPRO6 Summation - Mr. Whitmore

in accordance with the credit agreement. So we want to make 

sure that there's nothing in the order that blesses violation. 

So in paragraphs 2, 3 and 4, they've included language 

that makes it OK for PREPA to do whatever the Commonwealth says 

it needs to agree to do in the credit agreement and a lot of 

that is using money on purposes that are not permitted by the 

trust agreement. So there's lots and lots of problems that are 

subtle. They're sort of latent problems worked into vague 

wording. 

And we would very much appreciate the opportunity if 

your Honor is inclined to grant the relief to have an 

opportunity to really put this order in the credit agreement 

and how they work together through a fair review process with 

input by the parties. 

Thank you. 

THE COURT: And so, on that last point, I had heard

that you had some sort of markup that you wanted to hand around

and hand a copy to me.

Are you asking for something different, asking for me 

to send it back for word shopping, if you will, in the event 

that I'm inclined to? 

MR. WHITMORE: I think that would be the best answer.

Of course, what we don't want to do is have no opportunity, but

rather than for me to presume a universal answers all around, I

think it would be better if you were so inclined to enter an

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(212) 805-0300

I2FQPRO6 Summation - Mr. Robbins

order to require input for further discussion.

THE COURT: Thank you. I now understand the request.

So that brings us, I think, to the "other creditors" 

category, and I have first up in that category Mr. Robbins for 

23 minutes for the GO Ad Hoc. 

MR. ROBBINS: Thank you. And may it please the Court,

for the GO bondholders.

Our submission this afternoon, your Honor, is actually 

pretty modest when all is said and done. If the Court 

determines that it is inclined to approve the Commonwealth DIP 

at all, notwithstanding the submission Mr. Mayer made earlier 

this afternoon, the Court ought to strike two particular 

provisions from the proposed DIP order that are absolutely 

unnecessary to sustain the debtor's burden under 364(d)(1) and 

(2) as it was articulated by the Oversight Board today. And 

the Court should add a proviso that we sought and which is not 

there. 

Let me take those in order. Let's start with the 

first of the two provisions that we think have to change. 

Paragraph four of the proposed order asked this Court 

to order that "all obligations" under the loan shall be immune 

from any avoidance action or "any other challenges under 

PROMESA, the bankruptcy code or any applicable law or 

regulation by any person or entity." 

On its face, this language could be read to preclude 

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(212) 805-0300

I2FQPRO6 Summation - Mr. Robbins

any challenge to this transfer even in the Commonwealth case by 

us as creditors of the Commonwealth. There is no warrant for 

that language. And the problem, your Honor, is easily remedied 

by simply adopting the proviso that I referred to at the 

outset. And we asked the oversight board to include this 

language and they declined, and here is the language that we 

think should be added. 

"For the avoidance of doubt, the Court's approval of 

the transaction from PREPA's perspective will not in any way 

prejudice or affect any rights or remedies that creditors of 

the Commonwealth may assert in connection with the 

Commonwealth's decision to enter into the proposed loan or the 

implementation thereof." 

Now, oddly enough, the board I think actually agrees 

with us on this, that paragraph four should not be read as 

broadly as its plain language seems to suggest because in its 

intervention reply at page 6, it insisted that paragraph four 

concerns only "obligations of the debtor" and does not have " 

preclusive effect" on the Commonwealth's creditors.

Now, we think that's what it ought to say, but that's 

not what it does say, and for whatever reason the Oversight 

Board has not been willing to add the proviso that would take 

out any doubt about the otherwise overreaching and potentially 

preclusive language of paragraph four. And it is crucial, your 

Honor, it is crucial to avoid any hint of a preclusive effect 

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(212) 805-0300

I2FQPRO6 Summation - Mr. Robbins

on the Commonwealth's creditors because as the evidence showed 

in response to many of the questions that I asked on 

cross-examination, there is likely to be a meritorious 

challenge to this DIP under Sections 549 and 926 of the Code. 

Now, I fully understand in saying that, and I want to 

be clear, we understand the Board's rationale that the 

Commonwealth has an independent interest in PREPA's welfare. I 

understand that argument. But unless all of the debtors are to 

be substantively consolidated, which the law forbids, it cannot 

be that the Commonwealth can fund other entities on whatever 

terms it chooses, free of potential challenge from the 

Commonwealth's own creditors. 

And in this case, this DIP on these terms, there is

every reason to anticipate that a future challenge by the 

Commonwealth's creditors would be compelling because the 

Commonwealth is effectively giving away resources far in excess 

of any benefits it purports to receive. It is indeed in many 

respects analogous to a fraudulent transfer. 

And that should scarcely be surprising because as the 

evidence shows, the parties didn't regard the process of 

arriving at this DIP as any sort of true negotiation. As 

Mr. Mondell testified, it was more in the nature of a 

collaborative discussion. No one was looking out only for the 

position of the Commonwealth, much less its creditors. All of 

the parties regarded the process as driven by common interest 

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(212) 805-0300

I2FQPRO6 Summation - Mr. Robbins

of assisting PREPA. No analysis. Not a single scrap of paper 

was devoted to showing that PREPA could not operate unless 

these particular terms were provided. And as a result, the 

terms are lopsidedly favorable to PREPA at the plain 

disadvantage of the Commonwealth and its creditors. 

How so? Well, first and foremost, the loans can be

used for any ineligible use including paying PREPA's creditors 

so long as the Oversight Board and AAFAF agree. Now, today we 

heard perhaps the Oversight Board would think it essential to 

come back to court for approval. And that's good news because 

the terms of the order did not suggest that to us. And 

certainly nothing in PROMESA would suggest that the

Commonwealth's resources could be used this way. 

In our view, by the way, this problem would be 

exacerbated if the Court were to accept the submission of the 

PREPA bondholders that the Court eliminate the priming lien. 

That, in substance, in our view would be little more than a 

thinly veiled means of using the Commonwealth proceeds to pay 

PREPA bondholders. No lender in its right mind would proceed 

on that basis. 

But the remaining terms of the DIP are equally subject 

to avoidance and all of this, your Honor, let me just 

reiterate, is why the proviso needs to be added to the text of 

paragraph four so that there is no preclusive effect in the 

Commonwealth case. 

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(212) 805-0300

I2FQPRO6 Summation - Mr. Robbins

For example, the definition of the security that the 

Commonwealth gets is limited only to revenues, and that's a 

much narrower lien than you would expect given the credit 

worthiness and the risk of lending to PREPA. There are all 

other non-market terms the Court has heard at great length. 

By PREPA's own admission, the market would demand far 

more than zero to three percent interest given its current 

conditions. This too amounts to a transfer of value from the 

Commonwealth as lender to PREPA and ultimately its bondholders. 

I share the view expressed by one of the other 

Objectors that Mr. Bienenstock in his argument asking you to 

simply look at what the Commonwealth could earn if it put its 

money in T-bills is not much of an analogy when you consider 

the competing risk or putting your money at PREPA. 

Mr. Mondell candidly acknowledged he's never seen a

DIP with a zero percent interest would never advise private 

clients to lend on that basis provided no analysis of the need 

for PREPA to receive a loan on that basis in order to operate. 

So too for the 30-year maturity, Mr. Mondell never seen 

anything close to a DIP on these terms. 

All of these reasons, your Honor, which I don't need 

to rehearse further, are reasons why this order should not have 

and cannot lawfully have any preclusive effect in the 

Commonwealth case where there is apt to be avoidance litigation 

arising from the very DIP you are being asked to approve. We 

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SOUTHERN DISTRICT REPORTERS, P.C.

(212) 805-0300

I2FQPRO6 Summation - Mr. Robbins

would ask you to modify paragraph four by striking language 

that is overbroad and adding the proviso that I have quoted at 

the outset. 

All of that brings me, your Honor, to the second of

the two offending provisions. Paragraph A of the proposed 

order recites that PREPA "requires the financing under the 

facility to finance operating expenses" and that the financing 

under the facility is necessary to the continued operation of 

the debtor. 

We do not think the evidence supports the proposition 

that these particular terms are necessary to the continued 

operation of PREPA. At most, the evidence you've heard is that 

PREPA needs financing, and we accept that proposition as an 

original matter, but the notion that it needs these particular 

terms has not been proved. Nobody has done that work. Nobody 

has done that analysis, and the negotiation such as it was was 

not conceived in a way that made those questions germane much 

less determinative. And there is no reason to include this 

finding. If, as Mr. Bienenstock correctly pointed out, there 

were only two inquiries under 364(d)(1) and (d)(2) and whether 

these particular terms are required to run PREPA is not germane 

to either one of these inquiries. There is no reason to make 

that finding and every reason not to, because, again, we will 

find such -- we will discover that findings along those lines 

are quoted back to us. 

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(212) 805-0300

I2FQPRO6 Summation - Mr. Robbins

Later in this case, whether it's in an avoidance 

action in the Commonwealth case or whether it's in confirmation 

where the question is whether the proposed plan of adjustment 

is fair and equitable under the Code, overlending after all to 

a distressed instrumentality does not maximize Commonwealth 

creditor recoveries, and we don't want a finding which is as a 

matter of law irrelevant to the question under 364 coming back 

to haunt us or operate as some kind of collateral estoppel or 

other preclusion in the Commonwealth case. 

Because neither the language in 4 or in (a) is 

necessary to the two questions this Court needs to answer, we 

would ask you not to go beyond it. I think consistent with 

this Court's rulings, which at every stage I would respectfully 

suggest have not sought to answer questions unpresented, have 

not taken on questions that stray beyond what is fairly 

presented by the statute. These are findings that are in a 

sense dangerous dictum. They go beyond what 364 requires. 

They have potential preclusive effect in a proceeding that is 

not before you today, but which, given the terms of this DIP, 

are quite apt before you some day. I'd like to make sure that 

nothing happens today has any preclusive effect on the 

Commonwealth Title III case where we have an important stake as 

GO creditors. 

So, just to sum up, all you need to do, your Honor, to 

satisfy our clients on these issues is to see to it that 

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SOUTHERN DISTRICT REPORTERS, P.C.

(212) 805-0300

I2FQPRO6 Summation - Ms. Miller

paragraph four is revised to take out preclusive effect, adds 

the proviso that we asked the Oversight Board to put in, and 

which they said in their intervention papers they agreed with, 

and to take out what we think is extraneous language in 

paragraph A regarding the necessity for these terms and 

conditions. 

And with that, I'm happy to yield the balance of my

time to counsel for Ambac. 

THE COURT: Thank you. 

Ms. Ng, What was the balance that time? 

THE DEPUTY CLERK: 9 minutes, 15 seconds.

THE COURT: I had counsel for Ambac down for five

minutes, so we'll call it 14 minutes and ten seconds. 

MS. MILLER: Good afternoon, your Honor. Atara

Miller, Milbank, Tweed Hadley & McCloy on behalf of Ambac. I

appreciate Mr. Robbins --

THE COURT: You can start talking.

MS. MILLER: I was just going to thank Mr. Robbins for

ceding his time, but also say that clearly we've been spending

either too much or just the right amount of time speaking to

each other because he covered the vast majority of what I

wanted to say, so I will need far less than the five minutes

that I had allocated.

But I want to address one point, which is a comment

that the Oversight Board made or Movants made in one of their 

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(212) 805-0300

I2FQPRO6 Summation - Ms. Miller

briefs that I think was kind of highlighted during a lot of 

what happened today where I at least felt a little bit whipped 

up by everybody coming up and arguing both sides of "this is 

terrible for PREPA" and also "this is terrible for the 

Commonwealth." And it would seem from most perspectives and 

most transactions that the deal is either good for one side and 

bad for the other or vice versa. 

And so what I want to really highlight here is that

this is, as we've heard, not an ordinary transaction, so it is 

in fact the case I believe that the DIP that's being proposed 

is bad for both PREPA creditors and also very bad for 

Commonwealth creditors. I think Mr. Ellenberg really hit the 

point where he said and I think it's highlighted that "this DIP 

is being proposed to achieve strategic goals of the

Commonwealth and Oversight Board that are entirely unrelated to 

the needs of PREPA." We heard today testimony that the actual 

amount is divorced what PREPA's actual needs are or will be in 

the foreseeable future and also the interests of the 

Commonwealth. 

What else is going on? I don't know. There was a lot 

of deliberate process privilege asserted and so inquiry into 

that wasn't permitted. But what I do know is that contrary to 

the very broad assertion by the Movant that under Section 305 

they actually have no need to get any protection from this 

Court with respect to common law creditors. As you heard from 

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(212) 805-0300

I2FQPRO6 Summation - Ms. Miller

Mr. Robbins, they in fact seek to preclude subsequent challenge 

by Commonwealth creditors in paragraph four. 

Mr. Robbins pointed out that the Oversight Board, and 

Movant seems to agree with that, and I think in fact in their 

opposition papers they said "I don't know what the Commonwealth 

creditors and intervenors are even complaining about. This 

provision protects them. This is intended to ensure that 

transfers from PREPA are not challenged and the Commonwealth 

gets the money back. And I agree that is what it should do. 

But when a simple drafting change was proposed and in multiple 

rounds not incorporated, it makes me question whether that's in 

fact the motive. 

That takes me back to a comment that was made by 

Mr. Portela on Exhibit P, which is in evidence, which is his 

email, at the very beginning at the DIP process right as they 

were starting to think about -- where it became clear that the 

CDL was not going to happen directly to PREPA, and they were 

going to have to come up with an alternative in late December, 

and in his email to Gary Grippo of the U.S. Treasury, which he 

was asked about earlier, in the second paragraph, he 

specifically explains that despite what they believe 305 allows 

them to do with respect to Commonwealth property, they still 

want to bring the motion to this Court and get it approved not 

just to protect themselves from PREPA creditors but

specifically "in order to deal with the Commonwealth 

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(212) 805-0300

I2FQPRO6 Summation - Mr. Nies

bondholders who will not favor the loan to PREPA." That's why 

paragraph four stays in the proposed order, and there's been a 

refusal consistently to include a proviso to carve out any 

subsequent challenge by Commonwealth bondholders. 

And with that, I rest. Thank you, your Honor. 

THE COURT: Thank you, Ms. Miller.

And now counsel for Arc. Five minutes. 

MR. NIES: Thank you, your Honor.

Robert Nies from the law firm of Chiesa, Shahinian & 

Giantomasi on behalf of Arc American. 

Arc American is a family-owned and operated company

headquartered in Indiana. It was dispatched early in this case 

in October to Puerto Rico to provide emergency storm 

restoration services principally to restore and repair the main 

transmission lines for PREPA, and almost instantly and greatly 

benefiting both PREPA and the people of Puerto Rico. 

We are a voice that is not heard in this proceeding

today. We are a subcontractor of Whitefish that provided 

emergent services that were beneficial and are unpaid for. Arc 

American is owed approximately $19 million and is being caught 

in the middle of this debate for financing because we've heard 

a lot today, rightfully so, about the concerns of the priming 

liens of the bondholders. 

What we haven't heard too much about is the 

superpriority administrative expense that's granted to the 

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SOUTHERN DISTRICT REPORTERS, P.C.

(212) 805-0300

I2FQPRO6 Summation - Mr. Nies

repayment of the Commonwealth loan of a billion dollars. That 

billion dollars would be put in place of and in front of all 

administrative creditors, including Arc. 

Not surprisingly, from all the attorneys sitting in

this room, we have heard virtually nothing about the carveout 

of professional fees. That's an unlimited carveout that would 

be paid. If I could just put it in perspective. A creditor 

today making a decision whether to provide essential services 

to PREPA has in front of it an opportunity for revenues plus a 

billion dollar loan to be paid on its administrative expense 

going forward. It can make a business decision that that's a 

pretty good deal. I'm willing to step up and take the 

likelihood I'm going to get paid from the financing comes in 

here. 

Arc American was denied that right. Arc America came 

in and, you know, if anybody advises vendors or contractors in 

bankruptcy and they ask whether or not you should be providing 

services to a debtor-in-possession, usually the person's advice 

is either on a cash payment only or cash on delivery, but then 

if you get to the point where they are clearly understanding 

administrate expense, what you advise the client is "don't 

worry you'll get paid with the professionals in the case." So 

if they are going to paid at the end of the case, you're going 

to get paid at the end of the case. The way it's structured 

now with this superiorpriority administrative expense that 

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(212) 805-0300

I2FQPRO6 Summation - Mr. Nies

carves out an unlimited amount for professionals is that those 

professionals are getting paid for services they've already 

rendered and that they will render in the future. Arc 

American, who has already put shovels in the ground and 

unwillingly extend credit to the tune of about $19 million is 

told by the debtor "Don't worry, you can file an administrative 

claim, and if we confirm a plan, you'll get paid. 

We've also heard a lot of talk today about fairness, 

about the Commonwealth stepping up when it didn't have to step 

up. Those words apply to Arc American. That's exactly what it 

did. It's caught in a difficult place. A natural question 

might be: What about FEMA? What about FEMA? It's been two 

and a half months, Arc has not been paid for its services for 

the work that it's done, and the reality is if there is no 

provision -- I like what was said earlier that your Honor can 

give a thumbs up or a thumbs down or can suggest that there's a 

problem with the financing that is being provided that needs to 

be cured. And there needs to be some type of remedy provided 

to the subcontractors, Arc American in particular who provided 

work, who are unpaid, and who are at risk at the end of this 

case of not getting paid. 

The testimony was clear, the only way you're going to 

get paid in this case is if there is a sale of PREPA. Not a 

shred of evidence was admitted to show what the sale of PREPA 

might result in the way of proceeds to pay claims, particularly 

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I2FQPRO6 Summation - Ms. Valle-Castro

administrative claims. This case is administratively solvent, 

and to require Arc America to wait until the end is simply 

unfair. 

Thank you, your Honor 

THE COURT: Thank you.

And now I have counsel for Whitefish, and I understand 

that counsel for Whitefish may be speaking from Puerto Rico. 

Is there someone in San Juan? 

MS. VALLE CASTRO: Good afternoon. Yes, your Honor,

good afternoon. Luisa Valle-Castro from the firm of Conde &

Associate on behalf of Whitefish Energy Holding LLC. 

If I may proceed? 

THE COURT: Yes. Yes. I was going to say I don't

think you have lights there, so we will set the clock here for

five minutes, and when you're one minute away from the five

minutes, I'll give you a little warning. All right?

MS. VALLE CASTRO: That's no problem, your Honor. I

believe it will be less than five minutes.

As stated, your Honor, Whitefish and subcontractors

were one of the first who came to the island after Hurricane 

Maria hit. We are post-petition creditor for PREPA, which is 

related to the restoration of the backbone of the power grid, 

which is the transmission lines. 

We do not oppose or object to the financing. 

Nevertheless, we have some concerns regarding the terms that 

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I2FQPRO6 Summation - Ms. Valle-Castro

were included in the original documents; namely, terms that are 

related to how the facility was going to be treated. That's 

why we filed our limited objection on February 1, which is 

Docket 571, and thereafter, after having reviewed the credit 

agreement, we also filed a supplemental objection on Docket 648 

on February 9. 

We have considered the omnibus reply, which has 

addressed at Docket 388 three of our key issues. We also 

considered Mr. Filsinger second supplemental declaration as 

well as the testimony that was provided today by all of the 

witnesses that have come before the Court. 

We understand that the three key issues have been 

addressed in Exhibit A to the omnibus reply, which are, namely, 

first, to the extent that Whitefish has an administrative 

expenses, it will be satisfied in accordance with PROMESA. 

Second, that the payment of expenses that are 

obligated by FEMA is going to be permitted under credit 

agreement, and that such payments are not subject to the 

facility's variance test. 

And, foremost, that the Commonwealth will only effect 

PREPA's revenues. And according to the Court order that was 

previously entered, it cannot extend to FEMA funds in the 

segregated FEMA accounts. I believe with these clarifications 

that are included in Exhibit A to the omnibus reply and to the 

testimony that was provided today, our concerns have been 

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I2FQPRO6 

addressed, and we therefore have no objection to the facility 

being granted. 

THE COURT: Thank you.

MS. VALLE CASTRO: Thank you, your Honor. 

THE COURT: I think that takes me through all of the

objectors.

Is there anyone else expected to speak for an 

objector? All right. So before we -- how much time do you 

expect to take for the rebuttal, Mr. Bienenstock. 

MR. BIENENSTOCK: I'm not usually a good guesser, but

30, 40 minutes.

THE COURT: Then we will take a ten minute break

before you start.

MR. BIENENSTOCK: Whatever I have, I have to ask the

Court for whatever I have, Mr. Friedman I ceded some time to.

Five or ten minutes.

MR. FRIEDMAN: Five minutes.

THE COURT: That's right, Ms. Wolf was going to take

her five minutes after that.

MR. BIENENSTOCK: She can start. It might be best

after we come back if she starts.

THE COURT: Why don't you work that out in the break

and it's sounding like we're looking at about 50 minutes

altogether or thereabouts. See you all in ten.

(Recess) 

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I2FQPRO6 Summation - Ms. Wolf

THE COURT: So we will begin with Ms. Wolf for five

minutes. 

MS. WOLF: Thank you, your Honor. My name is Amy Wolf

from Wachtell Lipton Rosen & Katz. Counsel to Scotiabank as

agents for the fuel line lenders.

The fuel line lenders are a group of banks that lent 

money to PREPA for petition to buy fuel oil. In the credit 

agreement, it was represented and understood and was the basis 

of the financing that of course financing the purchase of fuel 

oil was a current expense. That is not an issue that we are in 

any way asking the Court to rule on today. 

I rise because there have been some proclamations made 

by bondholders counsel about current expenses and gross 

revenues that I think should be corrected. 

The first one being counsel for National argued that 

repayment of a current expense as opposed to the current 

expense itself, repayment of a current expense or financing of 

a current expense is not a current expense. Providing the 

Court with no citations, I am not aware that there is a such 

citation. That is an issue on which we disagree and which will 

at some point be before the Court. It is certainly not an 

issue as to which it was clear in the way it was presented to 

the Court by bondholders' counsel. 

(Continued on next page)

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I2FYPRO7 Summation - Ms. Wolf

MS. WOLF: More significantly, all of bondholders'

counsel proclaimed that it is undeniable that what they have

are gross revenues, not net revenues. In support of that, they

invoke Section 701 of the trust agreement which states: "Such

principal interest and premium will be payable solely from the

Revenues, and said revenues are hereby pledged to the payment

thereof in the manner and to the extent hereinafter

particularly specified."

Interestingly, the opinion of counsel that the

bondholders receive is page 18 -- the definition of the term

opinion of counsel, the term opinion of counsel, dropping down

ii's, includes that "This agreement creates a legally valid and

effective pledge of the net revenues, subject to the 1947

indenture and of the money, securities, and funds held or set

aside under this agreement as security for the bonds."

So what was held and set aside as security for the

bonds. That is provided on page 51 in Section 507(h), which

states that "The monies in the sinking fund shall be held by

the trustee in trust," skipping a little bit, "and shall be

applied as hereinafter provided with respect to such funds and,

pending such application, shall be subject to a lien and charge

in favor of the holders of the bonds issued and outstanding of

this agreement."

So here they get a lien. What do they get a lien on,

the monies in the sinking fund. So the way the agreement is

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I2FYPRO7 Summation - Ms. Wolf

structured, is that there is this general fund that's been

talked about -- and the general fund is the in hands of PREPA.

It's not until the current expenses get paid and the funds come

out of the general fund and down into this series of funds that

will be located at the trustee that the bondholders' lien is a

charge on those funds.

One word that we never heard from the bondholders

today, although they talked about how clear it was, what kind

of lien they had -- the word "perfection" never appeared in

anyone's remarks, and that's for good reason.

Because even if they have some language in which they

say, oh, I got a gross revenues lien, they clearly didn't have

a perfected gross revenues lien because cash can only be

perfected by possession.

And until the cash went through this sinking fund and 

down into the various funds that were present at the trustee, 

they had no possession. At best, they had an unperfected gross 

revenues lien. We think they got -- as is clear from the 

opinion of counsel they received, they were getting a net 

revenues lien, and that's what they perfected. 

So, again, these are issues that as between the

bondholders and the fuel line lenders, we will live to fight

another day, but it's important because of the statements that

were made to the Court that those things be clarified. Thank

you very much, your Honor.

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I2FYPRO7 Rebuttal - Mr. Friedman

THE COURT: Thank you, Ms. Wolf.

Mr. Friedman, I have you down for eight minutes.

MR. FRIEDMAN: Yes, your Honor. Good evening,

your Honor. It's Peter Friedman. Just like I had to correct

myself, I'll now have to correct opposing counsel.

Your Honor, Ms. Wolf discussed some of the legal

misstatements that you've heard. I'd like to discuss some of

the factual misstatements you've heard.

So let me say loud and clear that some of the things

you heard from counsel are directly contradicted, not by me but

by facts in the record. You heard from counsel for National

that the Commonwealth owes hundreds of millions of dollars to

PREPA. Not true.

How do we know this. Let's look at the record, 

Mr. Filsinger's second supplemental declaration, paragraph 7, 

under the heading Central Government Agencies and Public 

Corporations. It's painful, but I'm going to read it: "As 

stated herein, the central government agencies paid virtually 

all of the past amounts they owed PREPA and prepaid a 

significant portion of their budgeted amounts for electricity 

for fiscal year 2018. The debtor believes that the central 

government agencies in total have paid substantially all of the 

receivables owed to PREPA." 

So who owes the money. Well, let's look at paragraph

8 of Mr. Filsinger's second supplemental declaration:

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I2FYPRO7 Rebuttal - Mr. Friedman

"According to the debtor's records, public corporations owed

the debtor approximately $233 million as of December 31, 2017.

Of that amount, $169 million represents receivables over 120

days past due. PREPA's records do not clearly indicate which

of those receivables are disputed."

So what you heard about the Commonwealth creating this

situation, that there are these massive pockets of money that

can just be paid, isn't true, and it's confirmed by Exhibit 23.

Now I know you've asked the opponents to provide a 

translated copy of that exhibit. What you'll see when it's 

translated, under the line "Entity," which indicates who owes 

the money, it's corporación. 

Your Honor, those are public corporations. They're

the ones that owe $25 million past 120 days due, $29 million, 

$28 million, $27 million, $15 million when you look at the line 

items for the money that's owed. 

So what are the objectors telling you? What they're

telling you is they want the Commonwealth to use its own money

to pay somebody else's debts rather than make a loan that has

some security. Why is that justified?

Can you imagine what we would hear from the GOs if

that was the path that the Commonwealth took. Instead, the

Commonwealth did the prudent thing, which was instead of paying

the debts of public corporations for which it's not liable, it

made a loan.

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(212) 805-0300

I2FYPRO7 Rebuttal - Mr. Friedman

The other facts I think you need to hear, your Honor,

come from the Mondell declaration. The Mondell declaration

addresses the argument that you can simply walk over to --

PREPA can simply walk over to GBD and take money out of it.

Again, it's painful, but I'm going to read it: "I 

understand that certain creditors," Mr. Mondell says in 

paragraph 6 of his supplemental declaration. 

He says: "I understand that certain creditors have

asserted that PREPA can increase its short-term liquidity by 

making immediate or near-term withdrawals from amounts it has 

on deposit that the government developed for Puerto Rico. This 

is not so," he testifies. 

"GBD is an insolvent public instrumentality in the 

process of winding down its operations and resolving creditor 

claims through the recently enacted GBD Restructuring Act, Act 

number 109-2017, and Title VI process under PROMESA. 

"In light of its fiscal situation, GBD is currently

operating pursuant to various laws and executive orders that 

limit disbursements by GBD and prohibit deposit withdrawals. 

"GBD's creditors, of which PREPA is one, are 

collectively owed more than $7.3 billion. This includes more 

than $3.5 billion in deposits almost entirely from public 

entities such as municipalities, public corporations, and other 

government entities and more than $3.7 billion in publicly held 

debt. 

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I2FYPRO7 Rebuttal - Mr. Bienenstock

"As of December 31, 2017, however, GBD's unrestricted

cash was less than 5 percent of the $7.3 billion in competing

claims. Moreover, there are multiple competing lawsuits

requesting disbursements of GBD deposits which GBD is not able

to honor.

"Upon completions of GBD's restructuring, PREPA and

all other creditors of GBD will be able to obtain recoveries on 

amounts owed to them by GBD in accordance with the treatment to 

be given to each pursuant to Act number 109-2017, but such 

amounts cannot be disbursed to PREPA or to any other creditor 

of GBD until the resolution of the multiple competing claims, 

creditor claims, and litigation." 

That's Mr. Mondell's testimony, and there's nothing in

the record beside it. Your Honor, I have nothing further.

THE COURT: Thank you.

Mr. Bienenstock. I have you down for 40 minutes.

MR. BIENENSTOCK: Thank you, your Honor.

Good evening, Judge. Martin Bienenstock for the

Oversight Board and as representative of Title III debtors.

I'm going to try and go in order to the objectors. I'll be as

brief as I can be.

Initially, Mr. Mayer for the ad hoc PREPA bondholders

started by saying that no one contacted them for a

counterproposal until February 2. On the day we filed our

motion, which was, I believe, January 27, I had multiple

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I2FYPRO7 Rebuttal - Mr. Bienenstock

emails, as Mr. Mayer knows, with his partner. She wanted to

know the terms of the loan we had, and I gave them to her and

solicited a counterproposal. So that was back I think it was

minutes after we filed our motion.

THE COURT: Would you mind speaking a little bit more

directly into the mic. Thank you.

MR. BIENENSTOCK: Sure.

So it was a surprise yesterday morning to receive

suddenly the proposal from them that they hadn't communicated

with me since I invited it from them. And it was really --

I'll get to this in another context -- the small print in the

back where they had -- it seemed like they had a lot of Exhibit

As.

One was an Exhibit A summary of terms. Then there was 

another Exhibit A for covenants that they were going to put in 

the loan agreement, and the covenants do everything from 

basically give the required lenders control over PREPA -- they 

control rates. They control licenses, sales, assignments, 

rentals, and virtually everything else. 

I raise this, Judge, because we've been accused of

having some strategy or tactic in mind. I don't know what that

is. All you have to do is read the competing proposal that the

ad hoc bondholder group provided. 

And their tactic, albeit in small print not elucidated 

in their motion, is very clear, which is to use a competitive 

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I2FYPRO7 Rebuttal - Mr. Bienenstock

proposal to essentially give themselves the receiver they 

wanted or trustee and total control. 

What's problematic about that is that the Oversight

Board and the government have both agreed that PREPA needs a

transformation. Whether it's to liquid natural gas or another

form of energy generation, it needs a transformation to

something efficient that can produce electricity at low cost so

doing business and living on the island can be a plus and will

generate further interest and development. That's what's

needed most. Cost savings only go so far.

If we had any type of regiment at PREPA, including one

through a loan agreement, that bars it and sets up obstacles to

doing the right thing in terms of transformation, it could

affect literally the success of this entire rehabilitation

effort.

Second on the competing proposal, Mr. Mayer said that

it's really $524 million available. Now, I don't know, because

the documents they filed this morning were filed as I was

getting out of the subway to come to court, but even if they

made their first 2 percent reduction in their loan something

that will be paid back to them later, the $524 million is still

carrying the same $114 million of interest payments that don't

exist under the Commonwealth proposal which costs about $17

million in interest.

So you have to deduct from the $524 million the $114

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I2FYPRO7 Rebuttal - Mr. Bienenstock

million which leaves you with $410 million of availability.

That's already too little. Then I don't believe he said the

extension fee, which was about another $12 million, was going

to be capitalized. So now you're under $400 million. So the

notion that it's really a $524 million facility is just not

consistent with the record in this case.

In terms of our motion having set up an auction, I

think your Honor's questions caused Mr. Mayer to backtrack into

saying, well, what he really meant was your Honor could deny

our financing and then approve theirs.

No one has applied for approval of theirs, and we 

can't for, among other reasons, it's too small and it gives 

away control to a small group of required lenders which could 

inhibit or prevent the transformation. 

Additionally, as Mr. Mayer and everyone else here well

knows, when there is an auction in a restructuring case, there

is an order, and the order sets bidding procedures and all

kinds of protocol of procedures, and there is nothing like that

here. This was just one of several things that came out of

whole cloth from the objectors' responses earlier.

The next point that the ad hoc group made is that the

Commonwealth loan is a fake, their term, not mine. The billion

dollars is a fake because the principal amount availability is

fake.

Your Honor, there is nothing in the record to support

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I2FYPRO7 Rebuttal - Mr. Bienenstock

that type of hyperbole and that type of language. The

Commonwealth -- I think it's obvious -- cannot survive unless

its people have power. And if PREPA needs a billion dollars,

the Commonwealth is going to make sure that a billion dollars

is available.

Now, whether it has it sitting in the bank today that

it can use or whether it's going to have to get some of it from

the federal government, that's another issue. But to say it's

a fake, that it doesn't fully intend to comply with the credit

agreement, is nonsense and I guess, for present purposes, is

just not supported by this record except that Mr. Mayer said

it's a fake, but there's nothing in the record to support that.

The notion that we can readjust the financing tomorrow

is just all wrong. Your Honor, I think, as our pleadings have

made clear from our first, the Commonwealth did not want to

have to make this loan. The Commonwealth was hoping that the

federal government would make the loan directly to PREPA.

Barring that, we hoped the federal government would

make the loan to the Commonwealth with permission to the

Commonwealth to pass it onto PREPA. Your Honor heard evidence

that that is being worked on, and we hope that will come true.

If that occurs, we do intend -- and we've made it 

clear from the outset -- that we do intend to take the loan 

from the federal government to repay whatever the Commonwealth 

has extended on the loan and then to extend a new loan to 

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I2FYPRO7 Rebuttal - Mr. Bienenstock

PREPA. 

That loan may have a higher interest rate, or it may

not. That loan, we believe, also may be subject to

forgiveness. The federal government, unlike the Commonwealth,

unlike private lenders and hedge funds, frequently forgives

loans to municipalities under the right circumstances, and

that's one important reason why we want the loan to come from

the federal government, because we may well qualify for

forgiveness, and that would benefit both PREPA and the

Commonwealth. In that context, we would be able to pass

through a new loan from the federal government.

As I agreed before and as I pointed out, 6(a) already

says, any material amendment is subject to notice, presentment,

etc. We are willing, your Honor, to add to in paragraph 6(a)

of the proposed financing order after the words "material

amendment" to add "or material waiver or material modification"

so that Mr. Mayer can sleep tonight that we weren't going to

call an amendment a waiver and modification and say we didn't

agree to come back for that. So anything material under those

headings we're willing to apply the same procedure to.

Now on to the issue of adequate protection,

your Honor. We made the case in our briefs that if vendors

could survive and would be patient, then this loan wouldn't be

necessary because PREPA could simply go on incurring vendor

debt and debt for all current expenses, and when revenues come

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I2FYPRO7 Rebuttal - Mr. Bienenstock

in ultimately, they would then pay off the vendor debt and

anything else constituting current expenses.

The existing secured claimants at PREPA, the PREPA

bondholders who are objecting, would be behind PREPA's right to

take revenues, which, as Ms. Wolf pointed out, are not

encumbered, but to take them, whether they're encumbered or

not, and to use them to pay current expenses because that's

what the trust agreement says PREPA can do. Current expenses

come first.

Because vendors can't survive without being paid for

inordinate times -- and even if they could, they're not all

willing to consent to wait forever -- that's why the

Commonwealth has needed to make this loan, so that fuel line

lenders and others will continue supplying PREPA what it needs

to generate power.

We challenged all of the objectors in our briefs, tell

us why we're wrong. Tell us why, given that you're already

behind all current expenses, our coming in to supply cash on an

interim basis so that the vendors don't have to wait makes you

any worse off because we will now go first. Just like before

we come in, the vendors go first and all other current expense

holders go first.

We challenged everyone in this courtroom to tell us

why we're wrong. Your Honor, I don't believe a single objector

has provided you a pleading explaining why we're wrong. So

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that's reason number one why they are not suffering a

diminution in value under Bankruptcy Code Section 361, which is

the only basis for adequate protection, to offset a diminution

in value.

THE COURT: So I take it you explicitly disagree with

the thesis advanced -- I don't know whether it was by Mr. Mayer

or one of his colleagues -- that adequate protection under 364

is something affirmative and is not merely measured by

diminution in value.

MR. BIENENSTOCK: Your Honor, I'm again glad you

mentioned it because in my own mind, I was saying, should I go

out of order and deal with it or not. Since your Honor raised

it, this is a great time.

Your Honor, there is one definition of adequate

protection in the bankruptcy code. It's in Section 361, and

there are three subdivisions, and they clearly each provide

that adequate protection is to compensate for a diminution in

value.

The notion your Honor heard this afternoon and that

all of us heard this afternoon, that there is one test for

Section 362 stay relief motions but there is a special test

that Congress kept secret for Section 364, adequate protection

test, is made of whole cloth. There is no authority in the

world that said there is one adequate protection under 362 and

another under 364.

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People can come up here and say all kinds of things,

but citing authority for it is another matter. And why would

Congress have written a definition of adequate protection into

361, used the term in 362(d), used it again in 364(d), and not

tell anyone that when it used the same term that it defined in

361, that it actually meant that they would have different

meanings each time. It makes no sense. This is pretty simple

statutory interpretation. So that was just again, your Honor,

whole cloth.

Mr. Berezin, representing National, argued that the

Commonwealth owed PREPA hundreds of millions. Mr. Friedman

answered that and said that the Commonwealth could simply pay

the bills tomorrow.

I guess it was Mr. Friedman who made the point -- and

I'll make it again -- a lot of objectors said things having no

basis in the record, in the evidentiary record of this hearing.

It was sort of obvious in Mr. Berezin's presentation when he

didn't cite to the record that most of what he was saying is

not in the record, both law and facts.

There is something more basic though I wanted to make

about the point he made because National is not the only party

and objector to say, oh, just tell the municipalities to pay

their bills. Oh, just tell the Commonwealth to pay their

bills. Tell PREPA to take its money out of GBD.

I think collectively all of us here have perhaps the

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distinction of living at a time when we're at the turning

point. Up until May 10, 20 years ago when any government had a

problem, the solution was borrow more money and pay your debts.

Your friendly investment banker will arrange it for you.

We're at the turning point. It's regrettable, but

we're there. We're at the time when you can't just say, pay

your debts, because none of the objectors who said that pointed

to money that the municipalities have, that PREPA has, that GBD

has to pay their debts. If it were that simple, we all

wouldn't be here.

Congress declared a state of emergency that wrote it 

into Section 405(d) of PROMESA in Puerto Rico. Does it have 

enough to provide essential services. The answer is not 

because someone has a legal obligation, just pay it. You have 

to show they can pay it. 

Similarly, someone made the argument, one of the 

objectors, that, well, PREPA can just raise its rates. It goes 

back to the old argument whether their rate covenant is a piece 

of collateral entitled to adequate protection which we've 

answered many times and I won't repeat now, but I want to make 

a different point now. 

Raising rates when businesses are leaving, when

they're comparing how much does it cost to pay taxes and do

business in Puerto Rico, especially with the new tax reform

that hurt Puerto Rico a lot, it matters what the electric rate

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is. Again, we're at the turning point. You can't just say,

raise the price. You'll raise more revenue. If it were that

easy, we would have done it. So these vassal notions of look

at all the alternatives that PREPA has -- they're not in the

record. They don't exist.

Now, Mr. Ellenberg, representing Assured, really

harped on the notion that this is a manmade self-fulfilling

prophecy. Your Honor, I guess -- I know the crisis managers in

the room -- that they would applaud and cheer because if you

ask them what is the cause of any financial distress, it's

always management.

I don't personally agree with that all the time, but 

the fact is that all of the restructuring cases in the federal 

courts today, including this one, are certainly because of 

mistakes, bad things, misjudgments that happened in the past. 

That is hardly a reason not to deal with the present, 

which Mr. Ellenberg seemed to ignore. It just doesn't make a 

difference in the context of the instant financing motion that 

the problem was created by -- even if it was created by bad 

management. 

As he knows, there's been a new governor in the last

year. The Oversight Board has only been around since August 31

of 2016. They're not the ones who created these problems.

The people in government for the most part today are 

not the ones that created these problems. It just has nothing 

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to do with the notion of whether your Honor should grant the 

motion. 

Now, a point he made was look at all these claw-back

revenues that the Commonwealth is holding onto. Well, first of

all, they're no longer appropriating these taxes to HTA and

other municipalities, and clawback only exists under the

Constitution in Puerto Rico when there has been an

appropriation in excess of revenues.

But, when we look at past claw-back revenues and the

failure to allocate now, the budget is still getting into

balance with the need for substantial cuts in expenses. So,

again, we're at the tipping point.

For Mr. Ellenberg to argue, well, if you give HTA some

of its claw-back revenues, then it could pay PREPA. Yes, but

where are we going to get that money from? It's going to come

from someone else who needs it to pay welfare, Medicare,

electricity, police, teachers, something. It's not coming out

of nowhere.

We're at the tipping point where every dollar you take 

comes from somewhere that hurts. So you just can't point your 

finger and say, well, give me my claw-back revenues, and 

everything will be fine. 

GBD is a perfect example. It's insolvent. It's doing

a Title VI restructuring, God willing. A deposit doesn't mean

you have a pot of gold sitting at GBD. It means you have a

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claim, like an unsecured creditor.

We all have checking accounts. There is not cash in 

the bank to satisfy all our checking accounts. We have claims. 

Fortunately, entities like JP Morgan can honor those claims 

when we write checks, but it's not like the cash is sitting 

there. In GBD's case, there are more claims than cash. That's 

why it's doing a Title VI restructuring. 

Since that was raised by several objectors,

your Honor, they know that PREPA took out of GBD something like

$324 million while it was insolvent and has PREPA's exposure

back to GBD. So the notion that even if GBD had the money to

honor its deposit, it should pay it is a question. People are

going to litigate those issues.

In our informative motion last night, we explained why

the competing proposal was really a priming lien. It took the

same monies that a priming lien would take. So I won't repeat

that now. Since it was challenged by the objectors, I'll just

refer the Court, if it's okay, to the informative motion.

THE COURT: And I have reviewed it.

MR. BIENENSTOCK: Thank you.

Now, Knighthead took the position that the movants are

obligated to show that the loan from the Commonwealth wouldn't

be available wrought the priming. So let's analyze what

Knighthead is saying.

Let's play a game of dare with the Commonwealth. The

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Court should say, I'm not going to approve your loan unless you

get rid of priming. Now what do you want to do.

It's an interesting proposition. The Commonwealth has

to make all kinds of governmental decisions, and sometimes I

know the GO objectors here don't like this, but sometimes it

gives things away. It gives things to people who need welfare.

It gives things to people who need Medicare. It pays pensions

of poor people so they don't starve on the street.

It could say, well, we need power, or else we turn out

the lights. So we're going to give PREPA money. That is a

potential decision that the Commonwealth could have made.

The Commonwealth also could have said, we're going to 

provide PREPA money, but we want a market rate of interest. We 

want liens, not just priming liens on the net revenues, but we 

want liens on everything else. It could have driven a much 

tougher bargain. 

So what Knighthead is really putting to the Court is

does your Honor want and does your Honor think that Congress

intended that you will become the government and decide what

governmental decision it should have made and how it should

balance all the competing interests.

I submit, your Honor, that there is nothing in Section 

364 that requires you to do that. It's very clear. (d)(1)says 

is the credit otherwise available, is such credit available 

otherwise. It doesn't say play a game of dare with the party 

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who is giving such credit. It's a matter of will other people 

come and do better. 

So Knighthead is really asking your Honor to change

the law and say, instead of seeing if other people will do 

better, you should say to the person who is doing it, will you 

do it on better terms. We all know no court, no court, has 

ever made that ruling, and there is no basis or good reason for 

this Court to do it. Under (d)(2), that's just the adequate 

protection argument or standard that I think we've already 

covered, but it is important. 

Aside from the current expense argument, which really 

demonstrates they're in no need of anything special because 

they were behind current expenses in the first place, we do 

have the testimony of Andy Wolf and of Mr. Filsinger showing 

that all stakeholders are better off, and there is nothing in 

the record, your Honor, rebutting that, absolutely nothing. 

You can read Mr. Spencer's declarations from cover to

cover. No language about collateral having any value or

identifying any diminution. There is nothing in the record

controverting what Mr. Wolf and Mr. Filsinger have put in

there.

U.S. Bank said the Commonwealth wants the power of

attorney to do a new deal and that the Oversight Board and

PREPA are violating the trust agreement.

I explained that the transaction is set up so that if

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we're fortunate enough to get a CDL, Community Disaster Loan,

from the federal government which may be forgiven, we can pass

that on to PREPA, and it may raise or lower the interest rate.

It may also and likely would create the prospect of

forgiveness.

But the notion that maybe U.S. Bank or another

objector mentioned that our intention was to refinance with a

hedge fund at some much higher rate of interest and to jam that

through was never the intention of the Oversight Board.

Now, the GO objectors raise an interesting issue.

They moved to intervene, your Honor, and we opposed it, and

they won, and we lost. If I remember correctly, your Honor's

ruling was that you were allowing them to intervene because the

outcome could have a preclusive impact on them.

They've put nothing into this record, and yet now they 

say, thanks for letting us intervene, but we didn't really want 

to be here. We want to make sure we can go back to the 

Commonwealth Title III case and make our points there and try 

to undo this loan because we may claim that this loan at a 

below-market interest rate should be avoided. 

Well, your Honor, I think that's why your Honor let

them in here. If that's the case they want to make, let them

make a case. They didn't. Now they're saying to your Honor,

you know, having looked around, we'd like to go to another

ballpark. It might have the same judge, but it would be a

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different atmosphere. We'd like to do it again later.

Your Honor, we don't think that's fair.

THE COURT: Well, for the avoidance of doubt, then you

don't think that I'm fair because I did not expect to have

prospective avoidance arguments litigated in this one-day trial

here this afternoon. I allowed them to intervene to argue that

they shouldn't be precluded from doing something else, and

that's what they did.

MR. BIENENSTOCK: Okay. I hadn't understood that.

While I think that PROMESA Sections 303 and 305 and the absence

of Section 363 of the bankruptcy code makes clear that the

Commonwealth is completely within its rights to make this loan

and it's not subject to challenge, if your Honor's idea is that

they could challenge it, so be it, and the order will be

revised accordingly.

We believe the argument that the order improperly says

that PREPA needs funds on these terms is just wrong. These

were the best terms provided. And again, this raises the old

issue or the issue I covered a few minutes ago that a party is

entitled to ask the Court to see if the party making the loan

will agree to do it on better terms, even though no one else is

there doing it on better terms.

That's not the standard, and if the Court agrees with

us on that, we believe that there is nothing wrong with

paragraph A of the proposed order.

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AMBAC argued that the entire Commonwealth loan is for

a strategic goal of the Commonwealth and the Oversight Board.

As your Honor has heard, the PREPA creditors of course would

like to get rid of the priming lien. The GO creditors would

like us to have a better, more expansive lien and a higher

interest rate.

If there is a strategic goal we had, it was to try to 

be fair to everyone. We knew that we weren't going to satisfy 

everyone, but in the best thinking and efforts of the Oversight 

Board and the government, we thought we reached the right 

balance. 

As far as Arc's objection is concerned, it is

definitely sympathetic to hear any creditor, especially who

came in the aftermath of the hurricane who hasn't been paid --

and we hope he does get paid. But in terms of Arc's having a

right to prevent the super-priority and the priming lien here,

that's basically necessities to keep things going.

Regrettably -- I know they made a comment about how

the professionals took care of themselves but not the vendors.

The fact is that the professionals get paid relatively on an

interim basis as hopefully vendors do here on out. The

carve-out is really for future expenses that may be needed if

the worst happens, which we hope will not happen.

But Arc is basically identifying the fact that it's

painful to deal with the prospect of administrative

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insolvencies, and a line always has to be drawn, after which

new providers of goods and services, money, get priority.

That's what's happening here.

It's hard, and we acknowledge that, but that's the way 

the system has to work. We can't carve-out exceptions for 

creditors who came along beforehand, and we appreciate 

Whitefish's support of our motion. 

Unless the Court has other questions, I guess I'm five

minutes short of my allotment.

THE COURT: So you're giving it to me?

MR. BIENENSTOCK: Yes.

THE COURT: Thank you.

I am going to take another break of ten minutes and

expect to render a ruling when we come back. Thank you.

(Recess)

THE COURT: Please be seated.

I will now make an oral ruling. I reserve the right

to make non-substantive corrections in the transcript that's

prepared.

Before the Court is a motion pursuant to 11 U.S. Code,

Section 364(c) and (d) as incorporated into PROMESA in which

Joint Movants AAFAF and the Oversight Board seek approval of a

$1 billion revolving credit facility to be extended by the

Commonwealth to PREPA on a super-priority and priming lien

basis with other material feature including, but not limited

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to, a 0 initial interest rate rising to 3 percent over time, a

30-year maturity subject to confirmation payment requirements

and an acceleration provision of the credit agreement, term

modification, and limited automatic stay relief provisions not

requiring additional court approval. That's at least as it was

initially proposed.

The Court has jurisdiction of this matter pursuant to

Section 306(a) of PROMESA, and venue is proper under Section

307(a) of PROMESA. The Court has reviewed thoroughly the

pre-hearing submissions and has attended carefully to the

testimony and evidence introduced here today.

The Court finds that the movants have established that

PREPA is currently on the brink of a severe cash flow crisis

and that operations will have to be sharply curtailed and,

within a month or so, shut down in the absence of a significant

injection of cash.

Such curtailment and shutdown would have a drastic 

impact from humanitarian, economic recovery, and debt 

readjustment perspectives on Puerto Rico and all of her 

stakeholders. Such eventualities must be avoided. 

At the outset of these cases, I noted that failure was

not an option for Puerto Rico. I went on to state that the

lights could not be turned off in Puerto Rico. That was well

before any of us could imagine that in the then near term a

hurricane of unprecedented magnitude would leave Puerto Rico in

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utter darkness. Since the hurricane, PREPA has endeavored to

restore energy in Puerto Rico, and significant progress has

been made.

However, today the Court is faced with a question that

has grave implications that would jeopardize the electricity in

Puerto Rico and leave millions of American citizens in darkness

once again.

The legal questions in the factual context placed

before the Court today are difficult ones, and it is not with

any ease or sense of satisfaction that I have come to the

conclusion that the movants have not established the need for

or even the legality of approval today of a $1 billion facility

on the terms that are currently proposed.

The most basic predicate for the approval of credit

with super-priority administrative status is that the debtor

demonstrate that it is unable to obtain unsecured credit

allowable as an ordinary administrative expense.

Here movants have proffered no evidence of any attempt 

to negotiate a credit facility with the Commonwealth or any 

other entity that would provide for unsecured credit allowable 

as an administrative expense, and so the super-priority aspect 

of the application should be denied for this reason alone. Nor 

have movants demonstrated that there was any effort to 

negotiate a facility without priming liens. 

Rather, as Mr. Mondell stated clearly and simply, the 

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construction of the financing proposal before the Court was a 

collaborative effort in which all participants pursued a single 

salutary goal. 

As admirable as such a cooperative approach might be

under other circumstances in aid of other aspects of Puerto

Rico's renewal and debt adjustment process, it does not meet

the threshold requirements of Section 364 and does not provide

the required predicate for Court approval of the proposed

credit facility.

The Court will hold the motion in abeyance without

prejudice to an amendment in the short term limited to a

smaller draw-dawn amount and administrative super-priority and

without prejudice to a possible future request for additional

funding and/or priming liens on a more appropriate record.

In anticipation of one or both of these eventualities,

the Court will speak further briefly on other issues that have

been addressed here that will be material to its consideration

of such further steps.

First, to the extent that the request for a larger

facility is to be pursued, the Court will expect a record

demonstrating far more robust efforts to solicit third-party 

financing on terms that do not include super-priority or

security provisions.

Second, as to the standard of review of an application

that does cross the Section 364 threshold, the Court concludes

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that a business judgment standard focused solely on rationality

from a PREPA business point of view is inappropriate and that

fairness to the body of PREPA stakeholders and, in particular,

the bondholders, must be considered in light of the fact that

this is a transaction in which the parties to the proposed

credit are closely related and in which the decision-making is

intertwined.

Provisions of the current proposal that appear 

problematic from this more holistic perspective include but are 

not limited to failure to provide sufficient demonstration that 

the size of the proposed loan is appropriately tailored to 

PREPA's actual needs and that, particularly given the proposal 

to draw down hundreds of millions of dollars to create an 

operating reserve account, the risk of a large outstanding 

balance on the eve of plan confirmation giving the Commonwealth 

outsize influence over PREPA's plan of adjustment is justified. 

The limited relief from the automatic stay has not been 

demonstrated to be entirely fair to all the PREPA 

constituencies either. 

Given the urgency of the financial needs as presented 

in the declarations and live testimony, the Court would be 

prepared to entertain favorably in the near term an amended 

proposal seeking approval of an unsecured administrative 

expense priority facility of up to $300 million upon a 

demonstration that the Commonwealth will not lend on ordinary 

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unsecured administrative expense status terms. 

The notion that this question needs to be asked may be 

unusual, but this record is devoid of negotiation history, and 

the evidence is that this proposal was the product of a 

collaborative process, and that is why I impose this 

requirement. 

This near-term provision comes with the expectation of

further development of the record concerning the availability

of further unsecured financing and facts that would address the

fairness issues the Court has identified, all of this in aid of

consideration, somewhat further out, of an application for

approval of a larger facility with priority and/or priming

provisions.

For the near-term amendment, I would expect that the

proposed order would be modified in several ways: First, that

the modifications proposed by the ad hoc GO group to eliminate

the preclusive provisions would be made.

Second, that paragraph 6 would be further amended to 

make clear that any material change in terms, however 

accomplished, would require Court approval on notice. 

Third -- and this may already be in there -- but the 

vendor-protective provisions described by Whitefish should be 

included. Generally, the Court expects that all findings that 

are not essential for 364(c) purposes would be stripped out, 

and that would include the 364(e) finding. 

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The Oversight Board and AAFAF would be expected to

consult with interested parties and work out a schedule for

such short- and longer-term applications if they are to be

initiated, and I would expect a status report on financing in

March if no further long-term financing and motion practice has

been initiated before then.

So, in part, in order to avoid the need for renewal of

a 14-day period and all of the delays that would be inherent in

that, the Court will hold the current motion in abeyance

pending the anticipated amendment. 

If the movants decide not to pursue that and want an 

outright denial, you can let me know, but this seems to be the 

more expedient course. That is my ruling. 

Mr. Bienenstock.

MR. BIENENSTOCK: Your Honor, I might not have heard

correctly or not. But when your Honor was mentioning what the

Court would entertain, I wasn't clear as to whether the Court

would entertain -- I know it was unsecured, but was it a

super-priority?

THE COURT: Unsecured administrative expense

super-priority of up to $300 million.

MR. BIENENSTOCK: Thank you.

THE COURT: Thank you, all. I particularly thank you

for your focus and the efficiency with which you presented your

evidence and arguments today. I am sure that I will be hearing

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from you. Safe travels. We're adjourned.

(Adjourned)

(Continued on next page) 

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EXHIBITS 

Exhibit No. Received 

 1 and 11 through 17 . . . . . . . . . . . . .16

 Q . . . . . . . . . . . . . . . . . . . . . .75

 9, 10, 29, 30, 31, 32, 33, 42, and 36 . . . .87

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INDEX OF EXAMINATION 

Examination of: Page 

TODD W. FILSINGER 

Cross By Mr. Horowitz . . . . . . . . . . . . .17

Cross By Mr. Burke . . . . . . . . . . . . . . .39

Redirect By Mr. Finger . . . . . . . . . . . . .44

 GERARDO JOSE PORTELA FRANCO 

 Cross By Mr. Horowitz . . . . . . . . . . . . .57

 Cross By Mr. Robbins . . . . . . . . . . . . . .75

Redirect By Mr. Friedman . . . . . . . . . . . .82

DUSTIN L. MONDELL 

Cross By Mr. Berezin . . . . . . . . . . . . . .87

Cross By Mr. Robbins . . . . . . . . . . . . . 103

Redirect By Mr. Davis . . . . . . . . . . . . 110

 STEPHEN J. SPENCER 

Cross By Mr. Finger . . . . . . . . . . . . . 126

EXHIBITS 

Exhibit No. Received 

 J . . . . . . . . . . . . . . . . . . . . . .27

 DD . . . . . . . . . . . . . . . . . . . . .28

 3 and 8 . . . . . . . . . . . . . . . . . . .86

 7 . . . . . . . . . . . . . . . . . . . . . .98

 W . . . . . . . . . . . . . . . . . . . . . 103

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 AA . . . . . . . . . . . . . . . . . . . . 104

16 . . . . . . . . . . . . . . . . . . . . . . 125 

O . . . . . . . . . . . . . . . . . . . . . . 127 

 Movant 2 57

 Movant 24, 25, 26, 27, 28 122 

 Movant 40 and 41 123

 Movant 19 123

 Objector K 59

 Objector E 60

 Objector L 64

 Objector N 68

 Objector P 71

 Objector A 123

 Objector B 124

 Objector D 125

 Objector C and F 127

 Objector U 127

 Objector S 127

 Objector T 127

 Objector Y 128

 Objector GG 128

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UNITED STATES DISTRICT COURT) 

 ) ss. 

OF PUERTO RICO ) 

REPORTERS' CERTIFICATE

I, Kelly Surina and Alena Lynch, do hereby certify 

that the above and foregoing, consisting of the preceding 239 

pages, constitutes a true and accurate transcript of my 

stenographic notes and is a full, true and complete transcript 

of the proceedings to the best of our ability. 

Dated this 15th day of February, 2018. 

S/Kelly Surina__________ 

Kelly Surina, RMR, CSR, RPR, CRR 

S/Alena Lynch____________ 

 Alena Lynch, RMR, CSR, RPR 

 Official Court Reporters 

 500 Pearl Street 

New York, NY 10007 

212-805-0320 

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