Nuevamente el desempeño de LUMA esta sobre el tapete. Los alcaldes se quejan de que no les contestan sus preguntas, que LUMA les pide que puntualicen las zonas con problemas y cuando estos deciden active brigadas para restablecer servicio, esta los amenaza con denunciarlos. Irrespectivo de la prudencia de personas fuera del sistema de distribución hacer conexiones, los alcaldes responden al relamo de sus constituyentes que desesperadamente necesitan el servicio. Me parece que amenazarlos con denuncias criminales no es una actitud ni prudente ni razonable.

Ante esta situación, nuevamente escuchamos reclamos de sacar a Luma. Irrespectivo de si esto es una buena idea no, ¿se puede cancelar el contrato ante las quejas de los alcaldes y el público en general? Lo primero que tenemos que hacer es mirar el contrato.

Asumiendo que las quejas de los alcaldes y la alegada falta de personal suficiente sea un “failure to perform a material obligation”, bajon el Artículo 14.1(d) contrato, P3 tendría que mandar una notificación de esa falta. Luma entonces tendría 60 días para curar la falta y si está trabajando de buena fe en ello, habría que darle 30 días más. Si a juicio del P3 LUMA no a curada la falta, antes de que el Gobierno pudiese cancelar el contrato por esa razón, habría que entrar en un periodo de “Dispute Resolution” bajo el Artículo 15 del contrato. Bajo el Artículo 15.3(2) este período sería de 30 días. Si la disputa no se resuelve, se va a mediación bajo el Artículo 15.5 del contrato bajo los Mediation Rules of the International Chamber of Commerce por un período de 90 días, el cual puede ser mayor por acuerdo de las partes. Si no se logra resolución en ese periodo, entonces la mediación termina. Al expirar el periodo, cualquiera de las partes puede ir al Tribunal de Primera Instancia, lo cual puede tardar varios años antes de que este decida si se puede cancelar el contrato.

¿Es esta la única forma de salir de LUMA? No necesariamente. Debido al fracaso de la mediación con los acreedores de la AEE, no hay manera de que el Tribunal Federal pueda aprobar un plan de ajuste en o antes del 30 de noviembre de 2022, fecha en que el contrato expiraría. ¿Qué problemas podría traer esto? Aparte de que habría que pagarle a LUMA el “Transition Period” lo cual el Gobernador ha dicho podría ser $180-200 millones,  está la Junta de Supervición Fiscal. Una y otra vez, la Junta le ha dicho a la Juez Swain que el contrato de LUMA es uno de sus grandes logros. La Junta probablemente insista con el Gobierno que extienda la fecha del contrato, pero si el Gobierno quiere salir de LUMA, puede rehusarse y está en buen momento para hacerlo.

Faltan 66 días para la expiración del contrato. Si el Gobierno se mantiene callado y tranquilo, el tiempo será menor. La Junta tendría que radicar un injunction con la Juez Swain, lo cual es factible pero eso le daría la oportunidad al Gobierno de acumular la evidencia de los fallos de LUMA que lo llevan a rehusarse a extender el periodo. Creo que el Gobierno tendría un buen caso para la denegación de ese injunction. Claro, eso es siempre y cuando el Gobierno quiera salir de LUMA.  


                                                                        May you live in interesting times. Chinese proverb

At 12:02 am of September 17, 2022, with Tropical Storm Fiona about to strike Puerto Rico, the Financial Oversight and Management Board (the Board) filed a motion informing the Title III Court that it believed that the path forward for PREPA was to litigate the bondholders alleged security interests, the allowability of their claims pursuant to section 927 of the Bankruptcy Code and the alleged seniority of the fuel line claims.

I confess I was surprised by the Board’s motion. I was inclined to believe a settlement was in the works. Obviously I was wrong.  This means, irrespective of the manner in which it evolves, there will be years of litigation in the PREPA Title III and beyond. I will attempt to provide a background to this mess.

Around July 1, 2014, PREPA drew $41 million from its debt service reserve and immediately creditors and analysts pondered whether this was a technical default. Subsequently, negotiations between PREPA and its creditors began, and in September of 2014, Liza Donahue was appointed restructuring Officer at PREPA This move was dictated by bondholders. Ms. Donahue continued negotiations with bondholders in September 2015 with a 15% haircut. By this time, however, Congress had already introduced PROMESA and on June 30, 2016, it was signed into law by President Obama. PREPA missed its July 1, 2016 payment pursuant to section 405 of PROMESA. Subsequently, then Disgraced Governor Rosselló renegotiated the deal by April of 2016 The Board, in a 4-3 vote, however, decided to ignore section 104(i)(3) of PROMESA and filed for Title III protection on July 2, 2016

During the Title III proceedings, the bondholders asked Judge Swain to lift the stay for the appointment of a receiver for PREPA. Judge Swain denied the relief, partly claiming section 305 of PROMESA precluded her from doing so. Bondholders appealed and in FOMB v. Ad Hoc Group of PREPA Bondholders, 899 F.3d 13 (1st Cir. 2018) reversed Judge Swain, explaining that she could lift the stay in order to have a different judge determine whether a receiver was to be appointed. The First Circuit also emphasized that the lifting of the stay required a showing that movant had a lien that needed adequate protection and that the Title III Court could also determine the powers of the receiver. This decision will have great importance as we will soon see.

With this reversal, the Board quickly engaged bondholders in negotiations and by May of 2019 had reached a Restructuring Support Agreement with them As different groups joined this agreement, parts of it were modified, etc. By October of 2019, the Board filed a Bankruptcy Rule 9019 motion for the approval of the RSA. The Board subsequently alleged that it was trying to obtain the Legislature’s approval of laws for the RSA and that this, coupled with earthquakes, the Covid-19 Pandemic, caused the postponements of the 9019 motion. I find it doubtful given the Board’s claims in the Commonwealth plan of adjustment controversies where it claimed it did not need it but that is what it claimed.  

Tellingly, the Unsecured Creditors Committee (UCC) filed several motions claiming that the RSA was dead, and the Board opposed them saying that its attention was in the restructuring of the Commonwealth and negotiating with the Legislature. Every time Judge Swain swept away the UCC’s objections.

Things were coasting along when PREPA bondholders filed a motion pursuant to PROMESA section 312 requesting that the Court appoint a mediation team on February 18, 2022. The Board opposed the motion on February 28, 2022, stating, inter alia, at page 3 of its motion “[h]igher oil prices are now causing higher electricity rates independent of the increased rates imposed by the RSA, and likely by any restructuring. That underscores the need for prudence and evaluation rather than a rush to reach and consummate a deal that serves only one constituency and could prove too costly for PREPA post-emergence.” AAFAF and other stakeholders opposed the motion.

On March 8, 2022, the Governor announced it would withdraw from the RSA and Judge Swain denied the PREPA bondholders’ motion. The Court, however, stated that it would entertain mediation that was economically feasible. It also stated that “[u]ntil recently, the Oversight Board and the government entities’ words and actions gave the Court reason to expect that a plan of adjustment would be forthcoming promptly and that no interruption of the oversight engagement efforts would hinder the process.”

Subsequently, PREPA, the Board, the UCC, Bondholders, Utier (the PREPA union) and the PREPA retirement fund, went to mediation. This mediation was extended several times, over the objection of the UCC, the Utier and PREPA’s retirement fund, who preferred to litigate different issues of bondholders’ rights.

When the decision by the Board was announced, Justin Peterson, a member of the Board, took to tweeter to express his disappointment on the Board’s decision. He also said that “rolling the dice on litigation instead of making a deal means that this will cost Puerto Rico even more.” In another tweet he said “To kick things off, consider this: now the pensions are on the table. Bondholders will come for everything.” Most interesting to me was this tweet: “The centerpiece of the FOMB proposed litigation schedule is alien challenge of bondholder claims. Everyone should understand this is a radical move by the Board and an attack on the entire system  of municipal finance in the United States.”

What can we expect from all this? Judge Swain, on Saturday July 17, 2022, a few hours after the Board’s motion, ordered the parties to file any oppositions by Monday September 19, replies by September 20 and be ready for argument during the Omnibus of Wednesday, September 21, 2022.

It is clear that the Bondholders will file a motion to dismiss the Title III bankruptcy. Section 930(a) of the Bankruptcy Code states that if a plan of adjustment cannot be filed, the case must be dismissed. In addition, Bondholders will request the lifting of the stay for the appointment of a receiver for PREPA. I do not think the Judge will dismiss the Title III but we must remember the case is over 5 years old. The longest Chapter 9 case I can remember is San Bernardino, which lasted 6 years. Even if the Court were to adopt the Board’s schedule, a hearing of the summary judgment motions would be held around April of 2023. Giving the Court time to evaluate the motions, she would decide the issues by fall of 2023 and the losing party would immediately appeal. This could take between six months to a year, meaning summer or fall of 2024 for the dust to settle and determine whether a plan of adjustment could be filed. Yes, could. Even with the issues decided, there is no guarantee a confirmable plan of adjustment could be achieved.

In addition, the problem with litigation is that you may win, or you may lose. Even if the Board wins, this does not mean PREPA will not have to pay bondholders but could mean that their claims could be substantially impaired as unsecured creditors. It could also mean that more money could go to Utier and the PREPA Retirement Fund. On the other hand, if bondholders win, it will mean that they would have to be paid in full. Have no doubt that after not being paid for several years, bondholders will want their pound of flesh. In addition, it is likely that after such a victory, Bondholders will gain a receiver to increase the PREPA rates in order to pay them. This would mean substantial increase of the rates. Moreover, even if the Board wins, it would mean an increase in the rates to a lessor degree.

If the Court were to dismiss the Title III, many things will happen. Not having the protection of the automatic stay, PREPA would have a receiver appointed. Moreover, this would not mean the end of the challenge to the bonds but would shift it from Judge Swain to some other Court, most likely Federal Court in Puerto Rico. Several years of litigation would ensue before the issue of the liens would be decided.

In any of the two scenarios, with or without Title III, LUMA, the administrator of PREPA’s distribution system, could decide to let the contract expire by November 30, 2022. This would put in jeopardy the reconstruction of the electric grid, require AAFAF to get another company to handle the system and substantially increase the future cost to PREPA. Governor Pierluisi recently stated that instead of the $115 million LUMA charges, it would be charging between $180-200 million for its services during the transition.

From what the Board wrote in February 2022, it seems the RSA ceased being a good idea due to the increase of the fuel costs due to the war in Ukraine. Although this may be true, an increase in fuel costs was foreseeable at some point in time. Hence, contrary to what the Board said for a long time, the RSA was not a good idea. Its actions, however, are risking a substantial increase in rates as I explain supra, something we won’t know until later. It is my belief, however, that this stance is nothing more than a ploy to extract more concessions form bondholders. That is why the Board hedged its bet by also requesting  that the mediation team be standby. The question is whether it will be available. Now we must wait and see what Judge Swain decides.


Para muchos LUMA se tiene que ir. Para otros, se tiene que quedar. La pregunta es, ¿qué puede pasar? Para ello, como diría mi maestra de matemáticas en la elemental, Mrs. Martínez (de muy grata recordación), hay que tener unos “given”. Estos “given”  son los siguientes:

  • El gobernador o las P3 le enviaron una misiva a LUMA que se puede interpretar como una comunicación bajo la sección 14.1(c) del contrato, aduciendo alguna falla sobre áreas materiales;
  • Que se le concedieron los 60 días de la sección prorrogables por 30 días adicionales si LUMA de buena fe está trabajando para remediar los señalamientos;
  • Que la Junta de Supervisión Fiscal no va a permitir la cancelación del contrato al Gobierno a menos que haya un operador listo y dispuestos a tomar riendas de la transmisión y distribución

Esos noventa días coinciden con la fecha de 30 noviembre cuando las partes tienen que decidir si continúan con el contrato. La pregunta, nuevamente, ¿qué puede pasar?

Escenario 1:

El 9 de septiembre de 2022, el equipo de mediación del caso de la AEE y/o la Junta y los bonistas anuncian que tienen un acuerdo para un plan de ajuste mayormente consensual. Digo mayormente ya que dudo muchísimo que se le ofrezca a la Utier y el Retiro de la AEE algo que estén dispuestos a aceptar. En ese caso, la Juez Swain impondrá un calendario para las vistas de confirmación que serían para diciembre/enero/febrero. La Junta obligará al Gobierno a extender la fecha del 30 de noviembre sobre el contrato de LUMA. Esto no quiere decir que en el future ante incumplimientos diversos de LUMA no se pueda cancelar el contrato, pero PR debe tener un sustituto.

Este escenario se divide a su vez en dos. Si el plan de ajuste se confirma, con toda probabilidad el contrato de LUMA se convalide. Si el plan de ajuste no se confirma por alguna razón de peso, la sección 930(a) de Quiebras indica que se desestima el caso. Los bonistas podrían solicitar un síndico para la AEE y si 25% o más de ellos los solicita, el Tribunal lo tiene que conceder. En ese caso, es probable que LUMA decida irse.

Escenario 2:

El 9 de septiembre de 2022, el equipo de mediación del caso de la AEE y/o la Junta y los bonistas anuncian que no hay plan de ajuste consensual. Aquí la cosa se pone interesante. La Junta, el Unsecured Creditors Committee, la Utier y el Retiro podrían pedir que se litigue si los bonistas tienen gravamen sobre la tarifa. Los bonistas solicitarán que se desestime la quiebra y el nombramiento de un síndico.

Si la Juez Swain decide litigar los asuntos, podría tomar más de un año, sin garantía de que la AEE gane. Ante ese escenario, es probable que LUMA simplemente decida irse. Si desestiman la quiebra, es probable que LUMA decida irse.

Escenario 3:

En o antes del 9 de septiembre de 2022, el equipo de mediación solicita más tiempo. La Juez Swain puede concederlo o no. Si lo hace, no creo sea más de 30 días y vuelven los escenarios 1 y 2. Si decide no hacerlo, viene el escenario 2.

Como vemos, la fecha importante es el 9 de septiembre, no el 30 de noviembre. Más aún, si LUMA sigue fallando, lo cual es factible, para cancelar el contrato PR TIENE  que tener un substitute para la empresa. El plan fiscal del ELA y de la AEE, ambos requieren la privatización del Sistema de transmisión y distribución y eso NO VA A CAMBIAR quiéranlo o no los políticos u otros grupos. Si yo fuera las P3, estaría ya en conversaciones con un posible substituto. De igual forma, es vital que la P3 supervise cuidadosamente el desempeño de LUMA. Esta tiene que mejorar sustancialmente o irse.