PRB 17-04780 3803 - Order Concerning Bondholders' Unsecured Net Revenue Claim Es

Case:17-04780-LTS Doc#:3803 Filed:06/26/23 Entered:06/26/23 14:57:50 Desc: Main
Document Page 1 of 47
UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF PUERTO RICO
In re:
THE FINANCIAL OVERSIGHT AND MANAGEMENT PROMESA
BOARD FOR PUERTO RICO, Title III
as representative of
THE COMMONWEALTH OF PUERTO RICO et al., No. 17 BK 3283-LTS
(Jointly Administered)
Debtors. 1
In re:
THE FINANCIAL OVERSIGHT AND MANAGEMENT No. 17 BK 4780-LTS
BOARD FOR PUERTO RICO,
PUERTO RICO ELECTRIC POWER AUTHORITY,
Debtor.
THE FINANCIAL OVERSIGHT AND MANAGEMENT
BOARD FOR PUERTO RICO, Adv. Proc. No. 19-00391-LTS
PUERTO RICO POWER ELECTRIC AUTHORITY,
Plaintiff/Counterclaim-Defendant,
1
The Debtors in these Title III Cases, along with each Debtor’s respective Title III case
number and the last four (4) digits of each Debtor’s federal tax identification number, as
applicable, are the (i) Commonwealth of Puerto Rico (the “Commonwealth”)
(Bankruptcy Case No. 17-BK-3283-LTS) (Last Four Digits of Federal Tax ID: 3481);
(ii) Puerto Rico Sales Tax Financing Corporation (“COFINA”) (Bankruptcy Case No. 17-
BK-3284-LTS) (Last Four Digits of Federal Tax ID: 8474); (iii) Puerto Rico Highways
and Transportation Authority (“HTA”) (Bankruptcy Case No. 17-BK-3567-LTS) (Last
Four Digits of Federal Tax ID: 3808); (iv) Employees Retirement System of the
Government of the Commonwealth of Puerto Rico (“ERS”) (Bankruptcy Case No. 17-
BK-3566-LTS) (Last Four Digits of Federal Tax ID: 9686); (v) Puerto Rico Electric
Power Authority (“PREPA”) (Bankruptcy Case No. 17-BK-4780-LTS) (Last Four Digits
of Federal Tax ID: 3747); and (vi) Puerto Rico Public Buildings Authority (“PBA”)
(Bankruptcy Case No. 19-BK-5523-LTS) (Last Four Digits of Federal Tax ID: 3801)
(Title III case numbers are listed as Bankruptcy Case numbers due to software
limitations).
230626 ORD RE CLAIM ESTIMATION VERSION JUNE 26, 2023 1

PUERTO RICO FISCAL AGENCY AND FINANCIAL

ADVISORY AUTHORITY, THE OFFICIAL COMMITTEE
OF UNSECURED CREDITORS OF ALL TITLE III
DEBTORS, CORTLAND CAPITAL MARKET SERVICES,
SOLA LTD., SOLUS OPPORTUNITIES FUND 5 LP,
ULTRA MASTER LTD, ULTRA NB LLC, UNION DE
TRABAJADORES DE LA INDUSTRIA ELECTRICA Y
RIEGO INC., AND SISTEMA DE RETIRO DE LOS
EMPLEADOS DE LA AUTORIDAD DE ENERGIA
ELECTICA,
Intervenor-Plaintiffs,
-v-
U.S. BANK NATIONAL ASSOCIATION, AS TRUSTEE,
Defendant/Counterclaim-Plaintiff,
THE AD HOC GROUP OF PREPA BONDHOLDERS,
ASSURED GUARANTY CORP., ASSURED GUARANTY
MUNICIPAL CORP., NATIONAL PUBLIC FINANCE
GUARANTEE CORPORATION, AND SYNCORA
GUARANTEE, INC.,
Intervenor-Defendants/Counterclaim-Plaintiffs.
ORDER CONCERNING BONDHOLDERS’ UNSECURED NET REVENUE CLAIM ESTIMATION

APPEARANCES:
OF COUNSEL FOR TORO COLÓN MULLET P.S.C.
A&S LEGAL STUDIO, PSC By: Manuel Fernández-Bared
By: Luis F. del Valle-Emmanuelli Linette Figueroa-Torres
434 Avenida Hostos Nayda Perez-Roman
San Juan, PR 00918 P.O. Box 195383
San Juan, PR 00919-5383
PROSKAUER ROSE LLP
By: Martin J. Bienenstock KRAMER LEVIN NAFTALIS & FRANKEL
Ehud Barak LLP
Margaret Dale By: Amy Caton
Jeffrey W. Levitan Thomas Moers Mayer
Michael T. Mervis Alice J. Byowitz
Daniel S. Desatnik 1177 Avenue of the Americas
Elliot R. Stevens New York, New York 10036
Eleven Times Square
New York, NY 10036 and
and Gary A. Orseck

Matthew M. Madden
Steven O. Weise 2000 K Street NW, 4th Floor
2029 Century Park East, Suite 2400 Washington DC 20006
Los Angeles, CA 90067
Counsel for the Ad Hoc Group of PREPA
and Bondholders
Paul V. Possinger REICHARD & ESCALERA, LLC

70 West Madison, Suite 3800 By: Rafael Escalera
Chicago, IL 60602 Sylvia M. Arizmendi
Carlos. R. Rivera-Ortiz
and 255 Ponce de León Avenue
MCS Plaza, 10th Floor
Jared M. DuBosar San Juan, PR 00917-1913
2255 Glades Road, Suite 421 Atrium
Boca Raton, FL 33431 QUINN EMANUEL URQUHART &
SULLIVAN, LLP
Attorneys for the Financial By: Susheel Kirpalani
Oversight and Management Board Daniel Salinas
as Representative for PREPA Eric Kay
51 Madison Avenue, 22nd Floor
CASILLAS, SANTIAGO & TORRES LLC New York, New York 10010-1603
By: Juan J. Casillas Ayala
Israel Fernández Rodríguez Counsel for Syncora Guarantee, Inc.
Juan C. Nieves González
Cristina B. Fernández Niggemann CASELLAS ALCOVER & BURGOS P.S.C.
PO Box 195075 By: Heriberto Burgos Pérez

San Juan, PR 00919 Ricardo F. Casellas-Sánchez

Diana Pérez-Seda
PAUL HASTINGS LLP P.O. Box 364924
By: Luc A. Despins San Juan, PR 00936-4924
Nicholas A. Bassett
G. Alexander Bongartz CADWALADER, WICKERSHAM & TAFT
200 Park Avenue LLP
New York, New York 10166 By: Howard R. Hawkins, Jr.
Mark C. Ellenberg
Counsel to the Official Committee of Casey J. Servais
Unsecured Creditors William J. Natbony
Thomas J. Curtin
MARINI PIETRANTONI MUÑIZ LLC 200 Liberty Street
By: Luis C. Marini-Biaggi New York, New York 10281
Carolina Velaz-Rivero
250 Ponce de León Ave., Suite 900 Counsel for Assured Guaranty Corp. and
San Juan, Puerto Rico 00918 Assured Guaranty Municipal Corp.
O’MELVENY & MYERS LLP RIVERA, TULLA AND FERRER, LLC

By: John J. Rapisardi By: Eric A. Tulla
Maria J. DiConza Rivera Tulla & Ferrer Building
Gabriel L. Olivera 50 Quisqueya Street
7 Times Square San Juan, PR 00917-1212
New York, NY 10036
MASLON LLP
and By: Clark T. Whitmore
Michael C. McCarthy
Peter Friedman John Duffey
1625 Eye Street, NW Jason M. Reed
Washington, DC 20006 90 South Seventh Street, Suite 3300
Minneapolis, MN 55402
and
Attorneys for U.S. Bank National Association,
Elizabeth L. McKeen in its Capacity as Trustee
Ashley M. Pavel
610 Newport Center Drive, 17th Floor ORTIZ MENDOZA & FARINACCI
Newport Beach, CA 92660 FERNÓS, LLC
By: Rafael A. Ortiz-Mendoza
Attorneys for the Puerto Rico Fiscal Agency Edificio Banco Cooperativo Plaza
and Financial Advisory Authority 623 Ponce de León Ave., Suite 701-B
San Juan, PR 00917-4820
MCCONNELL VALDÉS LLC
By: Nayuan Zouairabani Co-counsel to SREAEE
270 Muñoz Rivera Avenue, Suite 7
Hato Rey, Puerto Rico 00918 BUFETE EMMANUELLI, C.S.P.
By: Rolando Emmanuelli-Jiménez

WACHTELL, LIPTON, ROSEN & KATZ Jessica E. Méndez-Colberg

By: Richard G. Mason Zoé C. Negrón-Comas
Amy R. Wolf P.O. Box 10779
Emil A. Kleinhaus Ponce, Puerto Rico 00732
Angela K. Herring
Michael H. Cassel Counsel UTIER
51 West 52nd Street Co-counsel to SREAEE
New York, New York 10019
Attorneys for Cortland Capital Market

Services LLC, as Administrative Agent
SIMPSON THACHER & BARTLETT LLP

By: Nicholas Baker
425 Lexington Avenue
New York, New York 10017
Attorneys for Cortland Capital Market

Services LLC, as Administrative Agent and
SOLA LTD, Solus Opportunities Fund 5 LP,
Ultra Master LTD and Ultra NB LLC

LAURA TAYLOR SWAIN, United States District Judge
On March 22, 2023, the Court issued its Opinion and Order Granting in Part and
Denying in Part the Financial Oversight and Management Board for Puerto Rico’s Motion for
Summary Judgment and the Defendant’s and Intervenor-Defendants’ Cross-Motion for Summary
Judgment (Docket Entry No. 147) 2 (the “Summary Judgment Order”). 3 In the Summary
Judgment Order, addressing cross-motions for summary judgment on Counts I-VII of the
Oversight Board’s First Amended Complaint Objecting to Defendant’s Claims and Seeking
Related Relief (Docket Entry No. 26) (the “FAC”), and Counts I & II of the counterclaim
complaint included in the Bondholder Defendants’ 4 Defendant’s and Intervenor-Defendants’
Answer, Affirmative Defenses, and Counterclaims (Docket Entry No. 47) (the “Defendants’
Answer and Counterclaim Complaint”), the Court held, inter alia, that:
(a) the Trust Agreement granted the Bondholders security interests

only in moneys actually deposited to the Sinking Fund, Self-
insurance Fund, Capital Improvement Fund, Reserve Maintenance
Fund, and Construction Fund (as defined in the Trust Agreement);
(b) the Bondholders have perfected their liens in the Sinking Fund,
Self-insurance Fund, and Reserve Maintenance Fund, over which
the Trustee has established control (as discussed below);[5] (c) the
2
Unless otherwise noted, all references herein to Docket Entry Nos. are references to
Adversary Proceeding No. 19-00391.
3
All capitalized words used but not defined herein shall have the meanings ascribed to
them in the Summary Judgment Order or in any specific document the Court is citing.
4
U.S. Bank National Association as Trustee (the “Trustee”), the Ad Hoc Group of PREPA
Bondholders (the “Ad Hoc Group” or the “AHG”), Assured Guaranty Corp. and Assured
Guaranty Municipal Corp. (“Assured”), National Public Finance Guarantee Corporation
(“National”), and Syncora Guarantee Inc. (“Syncora,” and together with the Trustee, Ad
Hoc Group, and Assured, the “Bondholders” or the “Defendants”).
5
The Court declined to address the Bondholders’ possible perfection of their liens on the
Capital Improvement Fund and Construction Fund, because the record before the Court
provided no evidence from either party as to the form of the assets comprising those
Funds and their custodial status, and means of perfection may vary with the form of the
asset in question. Subsequent to the ruling, the parties have attempted to work through
those lien perfection issues, including with respect to the Reserve Maintenance Fund,

Bondholders have no security interest in the covenants and remedies

provided for by the Trust Agreement; but (d) based on PREPA’s
payment and equitable relief covenants in the Trust Agreement, the
Bondholders have an unsecured claim (within the meaning of
11 U.S.C. § 101(5)(B)) to be liquidated by reference to the value of
future Net Revenues (as defined in the Trust Agreement) that would,
under the waterfall provisions of the Trust Agreement and
applicable nonbankruptcy law, have become collateral upon being
deposited in the specified funds and payable to the Bondholders over
the remainder of the term of the Bonds (the “Unsecured Net
Revenue Claim”).
(Summary Judgment Order at 13-14 (emphasis added).) The Court held that the value of the
Unsecured Net Revenue Claim must be determined “either consensually or through proceedings
under section 502 of the Bankruptcy Code.” 6 (Summary Judgment Order at 62, 70.) The parties
have not reached consensus, and the Court now proceeds, after briefing and an evidentiary
hearing, to estimate the value of the Unsecured Net Revenue Claim.
The Court has subject matter jurisdiction of this matter pursuant to section 306(a)
of PROMESA. 48 U.S.C. § 2166(a). The Court has considered carefully all the parties’
submissions, 7 and for the following reasons the Court’s estimation of the value of the Unsecured
which Fund’s inclusion as within the control of the Trustee was due to a misstatement by
the Oversight Board’s counsel.
6
References herein to the provisions of Title 11 of the United States Code (the
“Bankruptcy Code”) are to sections made applicable in these cases by section 301 of the
Puerto Rico Oversight, Management, and Economic Stability Act (“PROMESA”).
48 U.S.C. § 2161. The Federal Rules of Bankruptcy Procedure (the “Bankruptcy Rules”)
are made applicable in these Title III cases by section 310 of PROMESA. 48 U.S.C.
§ 2170. PROMESA is codified at 48 U.S.C. section 2101 et seq. References herein to
PROMESA section numbers are to the uncodified version of the legislation.
7
The Court has also received and reviewed, inter alia, the following pleadings: SREAEE’s
Substantive Opening Brief in Support of Estimation of the Unsecured Net Revenue Claim
(Docket Entry No. 187) (the “SREAEE 502 Brief”); UTIER’s Substantive Opening Brief
for Estimation of the Unsecured Net Revenue Claim and Joinder to SRAEE’s Substantive
Opening Brief (Docket Entry No.188) (the “UTIER 502 Brief”); Memorandum of the
Financial Oversight and Management Board for Puerto Rico in Support of Estimation of
Unsecured Net Revenue Claim (Docket Entry No. 192) (the “FOMB 502 Brief”); Joinder
of the Puerto Rico Fiscal Agency and Financial Advisory Authority to the Legal

Net Revenue Claim as of July 3, 2017 (the “Estimation Date”), 8 is $2,388,000,000.00.
I.
PROCEDURAL BACKGROUND AND PRE-HEARING GUIDANCE ON CLAIM ESTIMATION
The factual background underlying this adversary proceeding is set forth in the
Summary Judgment Order; the Court assumes readers’ familiarity with that Order. (See
Summary Judgment Order at 14-19.) In addition to the summarized holding above, the Court
made the following statements in the Summary Judgment Order with respect to valuing the
Arguments in the Memorandum of the Financial Oversight and Management Board for
Puerto Rico in Support of Estimation of Unsecured Net Revenue Claim (Docket Entry
No. 195) (the “AAFAF 502 Joinder”); Limited Joinder and Reservation of Rights of
Intervenor-Plaintiff Official Committee of Unsecured Creditors in Support of
Memorandum of Financial Oversight and Management Board for Puerto Rico in Support
of Estimation of Unsecured Net Revenue Claim (Docket Entry No. 196) (the “UCC 502
Joinder”); The PREPA Bond Trustee’s and PREPA Bondholders’ Opening Brief in
Support of their Proposed Estimation of their Unsecured Net Revenue Claim (Docket
Entry No. 197) (the “Defendants’ 502 Brief”); Motion to Inform and Reservation of
Rights of the Ad Hoc Committee of National Claim Assignees (the “AHC RoR”) (Docket
Entry No. 199 in Adv. Proc. No. 19-00391 and Docket Entry No. 3488 in Case No. 17-
4780); Limited Response of Fuel Line Lenders Concerning Estimation of Unsecured Net
Revenue Claim (Docket Entry No. 220) (the “FLL Response”); SREAEE’s Response
Brief in Support of Estimation of the Unsecured Net Revenue Claim (Docket Entry
No. 221) (the “SREAEE Response”); UTIER’s Response Brief in Support of Estimation
of the Unsecured Net Revenue Claim (Docket Entry No. 223) (the “UTIER Response”);
Response to the Plaintiff’s and Plaintiff-Intervenors’ Opening Briefs in Support of their
Proposed Estimation of the Unsecured Net Revenue Claim (Docket Entry No. 225) (the
“Defendants’ Response”); Response of the Financial Oversight and Management Board
for Puerto Rico in Support of Estimation of Unsecured Net Revenue Claim [ECF
No. 192] (Docket Entry No. 226) (the “FOMB Response”); Intervenor-Plaintiff Official
Committee of Unsecured Creditors’ Response Brief in Connection with Estimation of
Unsecured Net Revenue Claim (Docket Entry No. 230) (the “UCC Response”).
Additionally, in response to the Court’s Order Concerning PREPA Trust Agreement
(Docket Entry No. 115), the Oversight Board and the Defendants filed an agreed-upon
conformed trust agreement as Exhibit A to their Joint Informative Motion Submitting
Conformed Trust Agreement in Response to January 5, 2023 Order Concerning PREPA
Trust Agreement [ECF No. 115] (Docket Entry No. 118 Ex. A) (the “Trust Agreement”).
8
The parties’ experts have agreed that July 3, 2017, the date on which PREPA filed its
Title III petition, is the appropriate reference date for claim estimation. (See infra
section II.D; see also 11 U.S.C. § 502(b).)

Unsecured Net Revenue Claim:
• By operation of the remedies of the Trust Agreement, providing the

means to potentially generate moneys from outside of the liened
Funds by a judgment for specific performance, and by virtue of
section 101(5)(b) of the Bankruptcy Code, the Bondholders are
entitled to a general unsecured claim. (Summary Judgment Order
at 59.)
• In the event that the Bondholders obtained specific performance and
a receiver raised rates to satisfy payment of the Bonds, the Revenues
received would not be paid ahead of Current Expenses, and the
receiver would not have the freedom to charge rates that are not
“reasonable” ((TA § 502) 22 L.P.R.A. § 196(l)) or be completely
untethered from the Trust Agreement—any such remedies and
Revenues would still be subject to the payment restrictions and
priorities of the Trust Agreement. (E.g., TA §§ 503, 506-507.) Any
equitable claim reduced to payment arising from the Trust
Agreement must have no greater value than the value that could
be achieved through the application of the equitable remedies to
fulfill the Trust Agreement’s unsecured covenant to pay the
Bonds from the Net Revenues of the System. (Summary
Judgment Order at 60 (emphasis added).)
• The value of the Unsecured Net Revenue Claim must be
determined with reference to the value of Net Revenues that
would, under the waterfall provisions of the Trust Agreement
and applicable nonbankruptcy law, have become collateral
upon being deposited in the specified funds and payable to the
Bondholders over the remainder of the term of the Bonds.
Valuing the Unsecured Net Revenue Claim may also require
accounting for the likelihood of payment of the Bondholders’ claim
in relation to claims higher up the Trust Agreement’s payment
waterfall. Cf. In re Hemingway Transp., Inc., 993 F.2d 915, 923
(1st Cir. 1993) (to value a contingent claim, the court discounts the
claim’s value to “reflect the uncertainty of the contingency”). In its
reply, the Committee articulated a potential measure of the
Bondholders’ Unsecured Net Revenue Claim as “a right to payment
in an amount equal to the present value of the future net revenues
that PREPA may generate” or “what someone would pay now for
the right to potentially receive net revenue payments from PREPA
in the future, taking into account the enormous difficulties and
legion of uncertainties affecting, and limiting, PREPA’s ability to
generate any such net revenues.” (UCC Reply ¶ 24 (emphasis in
original).) That said, the Court will not predetermine the method of
valuation or the appropriate time at which valuation should be
gauged before all parties can be heard from on the matter.

Accordingly, the unsecured portion of the Master PREPA Bond

Claim is a general unsecured claim, the value of which must be
determined hereafter, either consensually or through proceedings
under section 502 of the Bankruptcy Code. (Summary Judgment
Order at 61-62 (emphasis added).)
• Summary judgment with respect to Count I of the Defendants’
Answer and Counterclaim Complaint, seeking a “Declaratory
Judgment that Under the Trust Agreement the Trustee Has Recourse
to the Sinking Fund and the Right to Obtain Specific Performance
of Covenants to Fund the Sinking Fund, and in the Event of Default
Has Recourse to All PREPA Revenues and Other Moneys[,]” is
granted to the extent that the Court hereby declares that (i) the
Defendants have recourse to the Sinking Fund, in which the Trustee
has a valid, perfected lien, and (ii) the Defendants have recourse as
to any deficiency in the form of a general unsecured claim under
section 101(5)(b) of the Bankruptcy Code arising from
liquidation of the value of the Trust Agreement’s equitable
remedies related to specific performance, and is denied in all
other respects, without prejudice to proceedings to determine the
amount of the unsecured claim. (Summary Judgment Order at 65-66
(emphasis added).)
The Court ordered the parties to return to mediation, and directed the parties to
meet and confer and file a joint report addressing “the nature, scope, and scheduling of further
proceedings that they may believe are necessary in connection with the further resolution of this
adversary proceeding” and “what discovery issues, if any, remain to be resolved in light” of the
Summary Judgment Order. (Summary Judgment Order at 70.)
After the Court issued the Summary Judgment Order, the Defendants filed the
Trustee’s and PREPA Bondholders’ Urgent Motion for Limited Clarification (the
“Reconsideration Motion”) (Docket Entry No. 150), as well as a Court-ordered joint report, the
Amended Joint Informative Motion in Response to Summary Judgment Order (the “Informative
Motion”) (Docket Entry No. 153). In the Reconsideration Motion, the Defendants sought
“clarification” with respect to the phrase “over the remainder of the term of the Bonds,”
requesting that the Court either replace the phrase with “at any time” or omit the phrase

altogether. (Clarification Mot. ¶ 1.) On March 31, 2023, the Court issued its Order (I) Denying
the Trustee’s and PREPA Bondholders’ Urgent Motion for Limited Clarification and the Urgent
Motion for Expedited Consideration Thereof, and (II) Setting Deadlines and Providing Relief
Concerning the Amended Joint Informative Motion in Response to Summary Judgment Order
(Docket Entry No. 154) (the “Denial Order”). In the Denial Order, the Court denied the
Bondholders’ request and directed the parties to file their “respective proposed procedures for
estimation along with their respective proposed timelines to accomplish estimation[.]” (Denial
Order at 5.) With respect to the Unsecured Net Revenue Claim, the Court stated:
• [T]he Court expects the parties to address the impact of the Trust
Agreement, economic projections, relevant contingencies, and any
relevant bankruptcy and nonbankruptcy law on the estimation
of the claim. The Court will look to the parties to provide legal,
factual, and methodological support for their valuation positions in
any section 502 proceedings . . . .
(Denial Order at 4-5 (emphasis added).) On April 13, 2023, the Court issued its Order
Regarding Claim Estimation and Briefing (Docket Entry No.168) (the “502 Hearing Order”),
setting a timeline and procedures for discovery and briefing with respect to a claim estimation
hearing. (502 Hr’g Order ¶¶ 1-3.) With respect to the Unsecured Net Revenue Claim, the Court
stated:
• First, the Court rejects Defendants’ contention that estimation of

the Unsecured Net Revenue Claim under section 502(c)(2) [of the
Bankruptcy Code] is unnecessary, as well as Defendants’
contention that the proper measure of the Unsecured Net
Revenue Claim is the face value of the Bonds. (See Defs.
Proposal ¶¶ 13, 19.) Defendants’ disagreement with the holdings of
the Summary Judgment Order is noted, and they may argue any such
matter at the appropriate time on appeal. As stated in the Summary
Judgment Order, the Court will take into account for purposes of the
section 502 determination the “payment restrictions and priorities of
the Trust Agreement.” (Summary Judgment Order at 60 (emphasis
in original).) Defendants’ proposed estimate(s) must address those
matters. Second, in the [Informative Motion], the parties expressed

disagreement as to the meaning of the phrase “the term of the

Bonds” as used in the Summary Judgment Order. (See Summary
Judgment Order at 61.) Such disagreement led the Defendants to
file the [Reconsideration Motion], which the Court thereafter
denied. (Denial Order at 4-5.) Because further briefing of the
parties’ extreme and irreconcilable proffered definitions of the
phrase “the term of the Bonds” would not be helpful to the Court,
the Court provides the following guidance: the Court did not use the
term simply to refer to the stated maturity date of each Bond. Nor
did the Court conclude that the Bonds have effectively no
expiration because the ability to collect on the Bonds
purportedly has no expiration. Non-bankruptcy law imposes
functional time constraints on the ability to collect on debts. When
formulating their positions as to the remainder of the term of the
Bonds, the Court advises the parties to consider the period of time
during which the Bondholders would be in a position to realize legal
or equitable relief in aid of recovery, taking into consideration any
limitations imposed by the terms of the Trust Agreement as well as
applicable non-bankruptcy law, such as relevant statutes of
limitations and limitations on the collectability of judgments.
(502 Hr’g Order at 4-5 (emphasis added).) The Court further directed the parties once more to
return to mediation. (502 Hr’g Order ¶ 4.)
The Bondholders also filed a motion requesting immediate certification of the
Summary Judgment Order to the Court of Appeals for the First Circuit (the “First Circuit”),
seeking review of, inter alia, the ruling that the Master PREPA Bond Claim is not a secured
claim with respect to all present and future revenues of PREPA. (See generally Urgent Motion
Requesting Certification of This Court’s March 22, 2023 Summary Judgment Order for
Immediate Appeal Pursuant to PROMESA § 306(e)(3)-(4) (the “Defendants’ Certification
Motion”) (Docket Entry No. 155).) The Defendants’ Certification Motion was joined in part by
the Official Committee of Unsecured Creditors (the “Committee”), which sought review based
on its position that the Unsecured Net Revenue Claim is payable solely from special revenues
and therefore the Bondholders are barred from recourse by section 927 of the Bankruptcy Code.
(See generally Intervenor-Plaintiff Official Committee of Unsecured Creditors’ (A) Partial

Joinder in PREPA Bond Trustee’s and PREPA Bondholders’ Urgent Motion Requesting
Certification of this Court’s March 22, 2023 Summary Judgment Order for Immediate Appeal
Pursuant to PROMESA § 306(e)(3)-(4) and (B) Request for Certification of Such Order
Pursuant to PROMESA § 306(e)(3)-(4) (the “UCC Certification Motion”) (Docket Entry
No. 167).) In the certification motions, both the Bondholders and the Committee also argued
that the Court should stay the estimation proceeding. (UCC Cert. Mot. ¶ 7; Defs. Cert. Mot. ¶ 8.)
On May 3, 2023, the Court issued its Order Denying Certification of the Court’s
March 22, 2023 Summary Judgment Order for Interlocutory Appeal (Docket Entry No. 182) (the
“Certification Denial Order”).
On May 18, 2023, the Court issued its Notice Concerning Section 502 Hearing
and Omnibus Hearing (Docket Entry No. 215), setting the dates for the claim estimation hearing.
On May 24, 2023, the Court issued its Further Order Concerning Section 502
Hearing (Docket Entry No. 234) (the “Further Order”) directing the parties’ expert witnesses to
proffer their direct testimony for the hearing in the form of declarations. (Further Order at 1.)
On May 30, 2023, the Court issued its Order Regarding Procedures for the
June 6-8, 2023 Claim Estimation Hearing (Docket Entry No. 238) (the “502 Hearing Procedures
Order”), defining the structure of the claim estimation hearing and topics to be addressed in the
hearing. In the order, the Court designated time for oral argument of specified issues and
directed the parties to address certain issues in cross-examination of certain witnesses. (502 Hr’g
Procs. Order ¶¶ 5, 6(c).)
The following parties filed briefs and/or reservation of rights in connection with
the 502 Hearing: Plaintiffs, Defendants, the Committee, the Puerto Rico Fiscal Agency and
Financial Advisory Authority (“AAFAF”), Cortland Capital Market Services LLC, as

Administrative Agent and SOLA LTD, Solus Opportunities Fund 5 LP, Ultra Master LTD, and
Ultra NB LLC (together, the “Fuel Line Lenders”), Sistema de Retiro de los Empleados de la
Autoridad de Energia Eléctrica (“SREAEE”); the Unión de Trabajadores de la Industria Eléctrica
y Riego, Inc. (“UTIER”); and BlackRock. 9
From June 6-8, 2023, the Court held a hearing on claim (the “502 Hearing”)
comprising: a day of opening statements and oral argument (June 6, 2023 502 Hearing
Transcript, the “June 6 Tr.”), a day of cross-examination and redirect of certain witnesses whose
declarations were received in evidence (June 7, 2023 502 Hearing Transcript, the “June 7 Tr.”),
and a day of closing argument (June 8, 2023 Hearing Transcript, the “June 8 Tr.”). The
following witnesses testified at the 502 Hearing: Mr. David Plastino on behalf of the Plaintiffs,
Dr. Maureen Chakraborty on behalf of the Defendants, Dr. Susan Tierney on behalf of the
Defendants, Mr. John Young on behalf of the Defendants, Ms. Julia Frayer on behalf of the
Committee, and Mr. Scott Martinez on behalf of the Committee. 10
9
BlackRock Advisors, LLC and BlackRock Financial Management, Inc. (together
“BlackRock”) filed a reservation of rights with respect to the current proposed PREPA
Plan. (Docket Entry No. 3700 in Case No. 17-4780.) BlackRock purports to reserve its
right to argue that, if the claim is estimated at less than full face value plus interest,
certain 2016 Bonds it holds should, by virtue of PREPA’s financial distress at the time
they were issued, be analogized to postpetition Debtor-in-Possession financing and,
through application of the Court’s equitable powers, be granted priority and paid in full,
even if the other outstanding PREPA Bonds are not. The Court makes no limitation on
its claim estimation ruling to accommodate this purported reservation of rights and notes
that, in submissions raising this argument for consideration at the 502 Hearing that were
later withdrawn, BlackRock had identified no legal authority or contractual basis for the
treatment it sought. (See Docket Entry No. 204.)
10
The Plaintiffs filed the Declaration of David Plastino (Docket Entry No. 282-1) (the
“Plastino Declaration”). The Defendants filed the following declarations: Direct
Testimony Expert Declaration of Maureen M. Chakraborty, Ph.D. (Docket Entry
No. 245-1) (the “Chakraborty Declaration); and Direct Testimony Expert Declaration of
Susan Tierney, Ph.D. (Docket Entry No. 245-2) (the “Tierney Declaration”). The
Committee filed the following declarations Declaration of Julia Frayer Pursuant to
Order Regarding Procedures for the June 6-8, 2023 Claim Estimation Hearing (Docket

II.
DISCUSSION
Section 502(a) of the Bankruptcy Code provides that: “A claim or interest, proof
of which is filed under section 501 of this title, is deemed allowed, unless a party in
interest . . . objects.” 11 U.S.C.A. § 502(a) (Westlaw through P.L. 118-6).
Section 502(b) of the Bankruptcy Code provides that, subject to certain
exceptions, if an objection to the claim is lodged: “the court, after notice and a hearing, shall
determine the amount of such claim in lawful currency of the United States as of the date of the
filing of the petition, and shall allow such claim in such amount . . . .” Id. § 502(b).
Section 502(c) of the Bankruptcy Code provides:
(c) There shall be estimated for purpose of allowance under

this section—
(1) any contingent or unliquidated claim, the fixing

or liquidation of which, as the case may be, would
unduly delay the administration of the case; or
(2) any right to payment arising from a right to an

equitable remedy for breach of performance.
Id. § 502(c).
A. Applicable Law
1. Procedures for Conducting a Claim Estimation Hearing Under

Section 502(c) of the Bankruptcy Code
The Court’s estimation methodology follows from the conclusions reached in the
Summary Judgment Order and the Court’s subsequent guidance, reproduced in relevant part
above. In brief, the system revenues from which PREPA has pledged to repay the Bonds are
Entry No. 243-1) (the “Frayer Declaration”) and Declaration of Scott R. Martinez
Pursuant to Order Regarding Procedures for the June 6-8, 2023 Claim Estimation
Hearing (Docket Entry No. 243-2) (the “Martinez Declaration).

collectable only through certain subaccounts (a “Sinking Fund” and certain other funds) in which
PREPA has given a security interest, those accounts are funded only after the payment of certain
other obligations and expenses, and the Bondholders would have to use the equitable remedies of
specific performance and appointment of a receiver in accordance with the Trust Agreement and
statutory provisions (significantly, the Puerto Rico Electric Power Authority Act, Act No. 83-1941,
codified at 22 L.P.R.A. §§ 191-240) to enforce PREPA’s unsecured covenants to pay the
Bondholders the net revenues in accordance with the payment provisions of the Trust Agreement.
To estimate these rights to payment under Section 502(c) of the Bankruptcy Code, the Court
considered evidence as to types and projections of future revenues and of other calls on the
waterfall that would reduce the amounts payable to the accounts from which the Bondholders have
a right to be paid, in order to arrive at an estimation of the Estimation Date value of the amounts
likely to be available for Bondholder payment through these mechanisms.
Courts have recognized that “neither the Code nor the Federal Rules of
Bankruptcy Procedure provides any procedures or guidelines for estimation, and a bankruptcy
court has wide discretion in accomplishing it.” In re Chemtura Corp., 448 B.R. 635, 648 (Bankr.
S.D.N.Y. 2011) (internal citations omitted). “In estimating a claim, the bankruptcy court should
use whatever method is best suited to the circumstances.” Addison v. Langston (In re Brints
Cotton Mktg., Inc.), 737 F.2d 1338, 1341 (5th Cir. 1984) (internal cites and quotation omitted).
Courts may employ a variety of means, including a “summary trial, a full-blown evidentiary
hearing, or the review of pleadings and briefs followed by oral argument of counsel,” In re AMR
Corp., Case No. 11-15463 (SHL), 2021 WL 2954824, at *4 (Bankr. S.D.N.Y. 2021) (collecting
cases), and have specifically recognized that it is often “inappropriate to hold time-consuming
proceedings which would defeat the very purpose of 11 U.S.C. § 502(c)(1) to avoid undue

delay.” In re Adelphia Bus. Sols., Inc., 341 B.R. 415, 432 (Bankr. S.D.N.Y. 2003) (citation
omitted). See also In re Lionel L.L.C., 2007 WL 2261539, at *5 (Bankr. S.D.N.Y. Aug. 3,
2007). “Thus, a truncated process under Section 502(c) ‘has been found to be consistent with the
dictates of due process of law.’” In re AMR Corp., 2021 WL 2954824, at *4 (internal citations
omitted).
Here, the Court solicited input from the parties (see, e.g., Docket Entry Nos. 162,
163) and adopted a process similar to the parties’ proposals with briefing, discovery, and a three-
day hearing including oral argument and cross-examination, with few restraints on what the parties
could argue or present. (See, e.g., Docket Entry No. 168.) The Court considered carefully each
of the submissions and observed the demeanor and evaluated the credibility of the testifying
witnesses.
2. The Burden of Proof in a Claim Estimation Hearing Under Section 502(c)

of the Bankruptcy Code
Because the estimation of a claim is situated within the claim objection process,
some courts have looked to the burden of proof that governs the claim objection process when
addressing parties’ burden of proof in estimation. 11 See, e.g., In re Loucheschi LLC, 471 B.R.
777, 779 (Bankr. D. Mass. 2012); In re FRG Ltd. P’ship, 121 B.R. 451, 456 (Bankr. E.D. Pa.
1990) (in holding that the allocation of the burden of proof in estimating a Rule 3018(a) claim
allowance is the same as in deciding objections to proofs of claim, the court stated that “[w]e
cannot imagine any reason for allocating the burdens of proof differently in a proceeding to
estimate claims than in a proceeding to finally determine the merits of a proof of claim. The
11
The Court notes that burden of proof has not been addressed specifically in most
estimation cases, and it is not clear that the Court has to address evidentiary burden at all
in the context of an estimation hearing where the prediction of hypothetical outcomes is
committed to the Court’s discretion.

estimation process is merely a microcosm of the ordinary claims-determination process.”); In re
Benanti, No. 15-71018, 2018 WL 1801194, at *6 (Bankr. C.D. Ill. Apr. 13, 2018) (holding that
“the allocation of the burdens of proof in a proceeding to estimate a contingent claim [under
section 502(c)] is the same as a proceeding to determine the allowability of a claim.”). The First
Circuit has held that, in order to successfully challenge the prima facie validity of a proof of
claim, the objecting party must proffer “substantial evidence.” In re Hemingway Transp., Inc.,
993 F.2d 915, 925 (1st Cir. 1993); see also In re Nelson, 621 B.R. 542, 553 (B.A.P. 1st Cir.
2020). Thus, for purposes of this estimation, the Plaintiffs were required, in the first instance, to
present substantial evidence “to overcome the presumption of validity” of the Bondholders’
claim that they are entitled to the full outstanding amount of the Bonds plus prepetition interest
in order to shift the burden to the Bondholders to “prove [their] claim.” In re Loucheschi LLC,
471 B.R. at 779.
Here, the Plaintiffs, in their evidentiary submissions and presentation in
connection with the hearing, presented substantial evidence sufficient to meet their burden of
rebutting through expert testimony the prima facie validity of Bondholders’ claim that they are
entitled to allowance of the Unsecured Net Revenue Claim in the full face value amount of the
outstanding Bonds plus outstanding prepetition interest, shifting the burden back to the
Bondholders in the estimation proceeding. See In re Benanti, 2018 WL 1801194, at *1. The
Court credits the testimony of the Oversight Board’s expert Mr. David Plastino and his
estimation approach, including the assumptions he applied in reaching his opinion. Mr. Plastino
has credibly predicted both that the net revenues which could be available to pay on the Bonds
would be substantially less than predicted by the Bondholders’ expert and that significant risks
could have existed creating obstacles for a receiver seeking to maximize funds available for debt

service, including immediate needs to make capital expenditures on infrastructure to keep
PREPA operating and generating revenues well into the future. The Bondholders “therefore had
the burden of proving the validity” of their claims by a “preponderance of the truncated evidence
presented at the hearing.” 12 In re FRG Ltd. P’ship, 121 B.R. at 456. “Generally, a
preponderance of the evidence is that evidence which is of greater weight or more convincing.”
In re Empresas Omajede Inc., 537 B.R. 63, 92 (Bankr. D.P.R. 2015) (internal citations omitted).
It was ultimately the Bondholders’ “burden to prove the amount of [their] claim in the face of
evidence calling it into question.” In re Benanti, 2018 WL 1801194, at *12.
3. Applicable Legal Standard for Estimation of a Claim Under

Section 502(c) of the Bankruptcy Code
(a) Standards
“The goal of estimation is to reach a reasonable valuation of the claim as of the
date of the bankruptcy filing.” In re Texans CUSO Ins. Grp., LLC, 426 B.R. 194, 204 (Bankr.
N.D. Tex. 2010) (emphasis added) (citing Owens Corning v. Credit Suisse First Bos., 322 B.R.
719, 721-22 (D. Del. 2005)). In Bittner v. Borne Chem. Co., Inc., the Third Circuit held that,
“Where there is sufficient evidence on which to base a reasonable estimate of the claim, the
12
The Bondholders, at the 502 Hearing, argued that the Plaintiffs are relying on affirmative
defenses, and thus the burden of proof as to these defenses lies with the Plaintiffs. (See
June 6 Tr. 17:23-20:18). The Bondholders are correct that, to the extent an objecting
party bases an objection to the claim on an affirmative defense, the objecting party carries
the burden of proof. See In re Bavelis, 490 B.R. 258, 308 (Bankr. S.D. Ohio 2013).
However, unlike in the cases cited by the Bondholders, which did not involve claim
estimation, the Plaintiffs are not relying on affirmative defenses to defeat the claim in its
entirety; rather, the Plaintiffs make arguments (as do the Bondholders) as to how any
relevant statute of limitations and the like should be considered in this estimation
proceeding to appropriately value the claim, not to expunge it. The Court therefore holds
that, notwithstanding the questions of law presented to the Court by virtue of arguments
made by both parties, the burden of persuasion is with the Bondholders and the
affirmative defense burden does not apply here.

bankruptcy judge should determine the value. In so doing, the court is bound by the legal rules
which may govern the ultimate value of the claim. For example, when the claim is based on
an alleged breach of contract, the court must estimate its worth in accordance with accepted
contract law. . . . However, there are no other limitations on the court’s authority to evaluate the
claim save those general principles which should inform all decisions made pursuant to the
[Bankruptcy] Code.” 691 F.2d 134, 135 (3d Cir. 1982) (emphasis added) (internal citation
omitted). State law generally governs, and “claims are to be valued as of the petition date.”
Owens Corning, 322 B.R. at 721-22 (emphasis added).
Bankruptcy courts have wide discretion in estimating claims. See In re Chemtura
Corp., 448 B.R. 635, 648 (Bankr. S.D.N.Y. 2011); In re Windsor Plumbing Supply Co. Inc.,
170 B.R. 503, 520 (Bankr. E.D.N.Y. 1994) (“In determining exactly how to estimate the value of
a claim, the bankruptcy court has broad discretion.”); In re Woodruff, 600 B.R. 616, 637 (Bankr.
N.D. Ill. 2019) (“[W]hile the estimation of a contingent claim is a fact intensive analysis, the
manner in which that analysis is done is generally left to the discretion of the court.”). “The
court need not don the garb of the clairvoyant; rather, all that is required is a rough estimate.” In
re Thomson McKinnon Sec., Inc., 191 B.R. 976, 989 (Bankr. S.D.N.Y. 1996). “An estimate
necessarily implies no certainty; it is not a finding or a fixing of an exact amount. It is merely
the court’s best estimate for the purpose of permitting the case to go forward and thus not unduly
delaying the matter.” In re Windsor Plumbing Supply Co., Inc., 170 B.R. at 521 (quoting In re
Nova Real Estate Inv. Tr., 23 B.R. 62, 66 (Bankr. E.D. Va. 1982)). Courts do not need to make
traditional findings of fact in connection with estimation hearings. See In re Chemtura Corp.,
448 B.R. at 640. “An estimator of claims must take into account the likelihood that each party’s
version might or might not be accepted by a trier of fact. The estimated value of a claim is then

the amount of the claim diminished by probability that it may be sustainable only in part or not
at all.” Id. at 648.
(b) Amount vs. Value
The Bondholders argue that it is inappropriate for the Court to discount their
claim to present value. Their argument is based upon In re Oakwood Homes Corp., wherein the
Court of Appeals for the Third Circuit held that Bankruptcy Code section 502(b)’s direction to
“determine the amount” of objected-to claims “as of the date of the filing of the petition” does
not require that all claims involving a stream of payments be discounted to present value. (Defs.
502 Br. ¶ 58 (citing 449 F.3d 588, 600-01 (3d Cir. 2006)).) They point out that, in Oakwood, the
Third Circuit “noted that this language was ambiguous in light of the use of the word ‘amount’
rather than ‘value.’ ‘[W]here the Bankruptcy Code intends a court to discount something to
present value, the Code clearly uses the term ‘value, as of’ a certain date.’” (Defs. 502 Br. ¶ 58
(citing 499 F.3d at 597).) The Bondholders argue that the amount of their claim is properly set at
the face value of the outstanding Bond obligations (without future interest, as provided by
section 502(b)(2) of the Bankruptcy Code) plus interest on the Bonds due and owing as of the
July 3, 2017 Estimation Date, that, accordingly, the section 502(b)(2) disallowance of unmatured
postpetition interest constitutes a reduction of the claim to present value, and that to further
discount the claim to reflect the time value of the future stream of payments on the Bonds would
constitute a forbidden double-discounting. The Bondholders point to the Third Circuit’s
statement that: “[W]hether a court applies § 502(b)(2) to disallow unmatured interest, or
discounts the entire amount (i.e., principal plus interest) to present value—as long as the court
performs only one such operation and not both, the result is the same.” Oakwood, 499 F.3d
at 600.

The concept is sound, but the Bondholders’ application of it in this instance
misapprehends this Court’s guidance on how the claim is to be valued. With respect to the use
of the words “amount” vs. “value,” the Bondholders argue that the allowed amount of a debt-
bearing instrument should be (can only be) the “full face amount” of unpaid debt. However, in
the Summary Judgment Order, the Court did not hold that, based upon the terms of the Trust
Agreement, the Bondholders have a claim amounting to the full face amount of the Bonds. As
can be seen in the Court’s guidance to the parties, substantially reproduced above, the Court held
that “the Defendants have recourse as to any deficiency in the form of a general unsecured claim
under section 101(5)(b) of the Bankruptcy Code 13 arising from liquidation of the value of the
Trust Agreement’s equitable remedies related to specific performance,” which “equitable claim
reduced to payment arising from the Trust Agreement must have no greater value than the value
that could be achieved through the application of the equitable remedies to fulfill the Trust
Agreement’s unsecured covenant to pay the Bonds from the Net Revenues of the System.”
(Summary Judgment Order at 60, 65-66.) Further, the 502 Hearing Order explained that “the
Court rejects Defendants’ contention that estimation of the Unsecured Net Revenue Claim under
section 502(c)(2) is unnecessary, as well as Defendants’ contention that the proper measure of
the Unsecured Net Revenue Claim is the face value of the Bonds.” (502 Hr’g Order ¶ 4.)
Counsel for the Bondholders correctly recognized that the Summary Judgment
Order did not “make the bonds disappear.” (June 8 Tr. 76:4-5.) Nor, by defining the claim
entirely by what could be collected through the equitable remedies and collection waterfall
13
Section 101(5)(B) provides: “The term “claim” means— . . . (B) right to an equitable
remedy for breach of performance if such breach gives rise to a right to payment, whether
or not such right to an equitable remedy is reduced to judgment, fixed, contingent,
matured, unmatured, disputed, undisputed, secured, or unsecured.” 11 U.S.C.A.
§ 101(5)(B) (Westlaw through P.L. 118-6).

provided by the Trust Agreement, did the Court in any way purport to render the Bonds
irrelevant. As stated by counsel to the Committee at the 502 Hearing, the Unsecured Net
Revenue Claim “results from the exercise of equitable remedies”: “[The Bondholders’] right to
payment is not the amount of principal and interest on the bond, but, as your Honor has said, it’s
the value of a future stream of cash flows represented by net revenues that might be generated by
PREPA.” (June 8 Tr. 138:5-10.)
In other words, the value of the claim is calculated by reference to, and is capped
by, the face amount of the financial undertaking in the Trust Agreement (subject to the
unmatured interest limitation of section 502(b)(2) of the Bankruptcy Code), but its basis is the
cumulative amount of payments the Court estimates could be recovered over time by the
Bondholders through a receiver’s efforts to effectuate specific performance of PREPA’s
undertaking to pay. The Court estimates the economic value, as of the Estimation Date, of that
future stream of payments in determining the estimated value of the Unsecured Net Revenue
Claim. That estimate will constitute the operative amount of the claim for purposes of these
Title III proceedings.
(c) Valuation as of the July 3, 2017 Estimation Date
Certain opinions, briefs, and plans of adjustment (including the current proposed
PREPA Plan) have perhaps not in practice observed the clear distinctions between “amount” and
“value” drawn by the Third Circuit, while others have drawn certain distinctions. An earlier
Third Circuit holding, in Bittner v. Borne Chem. Co., stated that at an estimation proceeding the
“bankruptcy judge should determine the value” of the claim. 691 F.2d at 135. The Bankruptcy
Court for the Southern District of New York held that an estimation determines the “estimated
value of a claim” which is the “amount of the claim diminished by probability that it may be
sustainable only in part or not at all.” In re Chemtura Corp., 448 B.R. at 648. Most helpfully,

the Honorable Barbara J. Houser, then the Chief Judge of the Bankruptcy Court for the Northern
District of Texas, has put forward the following definition, which the Court adopts as its goal in
the estimation process: “a reasonable valuation of the claim as of the date of the bankruptcy
filing.” In re Texans CUSO Ins. Grp., LLC, 426 B.R. at 204 (emphasis added).
(d) No Double-Discounting
As explained above and in the Summary Judgment Order, the Unsecured Net
Revenue Claim will be determined by quantifying the cumulative amounts of net revenues that
the Court estimates could be channeled through the Sinking Fund and Specified Funds through
use of the equitable remedies provided for under the Trust Agreement. Because the revenue
stream would necessarily be paid out over time, the Court will also apply an appropriate present
value factor in determining the estimated value of the Unsecured Net Revenue Claim. The
Bondholders are correct that it would be improper to impose a double discount by present-
valuing a claim whose amount is determined solely by the terms of an interest-bearing debt
instrument whose unmatured interest has already been disallowed pursuant to section 502(b)(2)
of the Bankruptcy Code. The Court takes this concern very seriously and has considered
carefully the Bondholders’ argument that discounting for present value as part of the process of
quantifying the Unsecured Net Revenue Claim would constitute double-counting. However, the
concern is inapposite here. With respect to valuing the Unsecured Net Revenue Claim, the
Bondholders confuse their theory of their claim with the claim as defined by the Summary
Judgment Order and the Court’s subsequent statements as to the nature of the estimation process,
as quoted above.
As explained above, the Unsecured Net Revenue Claim will be valued based upon
an estimated revenue stream. That revenue stream is not determined by the face value of the

Bonds and a stated interest rate. 14 Accordingly, to avoid a windfall to the Bondholders, the
application of a present value factor to the projected future net revenue stream is appropriate.
4. Choice of Law and Relevance of Statutes of Limitations
(a) New York vs. Puerto Rico Law
The parties disagree as to whether New York or Puerto Rico law governs the
equitable remedies provided by the Trust Agreement. Section 804 of the Trust Agreement
(Enforcement of remedies) provides that the Trustee may enforce its rights and the Bondholders’
rights under applicable laws or under the Trust Agreement by “such suits, actions or special
proceedings” either for “the appointment of a receiver as authorized by the Authority Act or for
the specific performance of any covenant or agreement contained” in the Trust Agreement. (TA
§ 804.) The Oversight Board, citing section 1301 of the Trust Agreement, argues that these
remedies are governed by New York law. (See June 6 Tr. 51:15-20, 52:13-17, 53:18-20; FOMB
502 Br. ¶ 23.) Section 1301 provides that: “The laws of the Commonwealth of Puerto Rico shall
govern the construction of this [Trust] Agreement, except that the rights, limitations of rights,
immunities, duties and obligations of the Trustee shall be governed by the laws of the State of
New York.”
The Oversight Board argues that section 1301 should be read to mean that the
14
With this in mind, the Bondholders’ argument that the claim is not contingent because
there is no dispute as to liability or amount (the amount being the full face value of the
claim), is inapposite. (Defs. 502 Br. ¶ 52.) The Bondholders’ arguments might pertain to
a circumstance where the amount of the claim was set by the Court at face value. Here,
however, Court has stated clearly that it is not estimating the claim under
section 501(c)(1) of the Bankruptcy Code (estimating a contingent claim), but instead
under section 501(c)(2) (right to payment arising from equitable remedies). Accordingly,
the value of the estimated claim is entirely determined by the contingencies that would
reasonably affect the ability of PREPA or a receiver to generate and pay over net
revenues, which, when run through the payment waterfall of the Trust Agreement, would
be rendered collateral upon deposit into the Sinking Fund and Specified Funds.

Trustee’s remedies are governed by New York law. (See June 6 Tr. 51:15-20, 52:13-17,
53:18-20; FOMB 502 Br. ¶ 23.) Under New York law, a money judgment is a prerequisite to
obtaining a receiver, and money judgments are presumed to be paid and satisfied after the
expiration of twenty years after the last written acknowledgment or voluntary payment made by
the judgment creditor. See N.Y. C.P.L.R. §§ 211(b), 5228. The Oversight Board contends that
receiver-directed payments through the waterfall provisions would not constitute written
acknowledgements or voluntary payments by PREPA, and therefore that a receiver would
remain in place for no more than twenty years. (See June 6 Tr. 69:12-19; FOMB 502 Br. ¶ 23
n.10.) The Bondholders argue, among other things, that section 1301 selects New York law to
govern only the Trustee’s obligations as a trustee and the Trustee’s protections against liability in
carrying out such obligations, and that Puerto Rico law governs the rights and obligations of the
parties, including the appointment and powers of a receiver. (See June 6 Tr. 63:16-25, 64:1;
Defs. Resp. ¶ 14.) The Court finds the Bondholders’ arguments more persuasive for the
following reasons.
Because the laws of Puerto Rico govern the construction of the Trust Agreement,
the Court must look to Puerto Rico law when interpreting the contractual terms of the Trust
Agreement. Article 1233 of the Puerto Rico Civil Code provides that, “[i]f the terms of a
contract are clear and leave no doubt as to the intentions of the contracting parties, the literal
sense of its stipulations shall be observed. If the words should appear contrary to the evident
intention of the contracting parties, the intention shall prevail.” 31 L.P.R.A. § 3471. The Court
finds the language of section 1301 to be clear in stating that Puerto Rico law governs the parties’
rights and remedies in enforcing the terms of the contract and that New York trustee law governs
the Trustee’s rights and obligations as a trustee.

To the extent that the section is considered ambiguous, the same interpretation
would result. When construing a contract under Puerto Rico law, the stipulations “should be
interpreted in relation to one another, giving to those that are doubtful the meaning which may
appear from the consideration of all of them together.” 31 L.P.R.A. § 3475; see also Rishell v.
Med. Card Sys., Inc., 982 F. Supp. 2d 142, 153 (D.P.R. 2013); Entact Servs., LLC,
526 F. Supp. 2d 213, 221-22 (D.P.R. 2007). In light of the Trust Agreement’s various references
to the Authority Act, particularly in section 804, which speaks of the appointment of a receiver
“as authorized by the Authority Act,” even if the stand-alone meaning of section 1301 were
unclear, section 1301’s language read in the context of the agreement as a whole points to its
invocation of New York law as governing only the rights, limitations of rights, immunities,
duties and obligations of the Trustee in that capacity. Thus, the Court holds that Puerto Rico law
governs the equitable remedies provided by the Trust Agreement and rejects the Oversight
Board’s contention that New York law imposes procedural and temporal limits on the projected
revenues that can be taken into consideration in estimating the value of the Unsecured Net
Revenue Claim.
(b) Puerto Rico Statute of Limitations
The Oversight Board also argues that, if Puerto Rico law governs the PREPA-
Bondholder relationship, 31 L.P.R.A. section 5294, in light of the case F.D.I.C. v. Talleres
Industriales De P.R., supplies a fifteen-year statute of limitations for both bringing an action and
enforcing an action, including equitable actions, that would apply to the duration of an order
appointing a receiver. (See June 6 Tr. 54:15-21, 55:9-11, 56:9-18; FOMB 502 Br. ¶ 25 (citing
Civ. No. 87-1484(JP), 1994 WL 577882 (D.P.R. Oct. 18, 1994).) The Oversight Board therefore
argues that a receiver’s appointment could last for no more than fifteen years. The Bondholders,
on the other hand, argue that 31 L.P.R.A section 5294 only governs the time to commence an

enforcement action, and that it has nothing to do with the duration of a receiver’s power to set
and collect rates once appointed. (See June 6 Tr. 65:22-25, 66:1-3; Defs. Resp. ¶ 16.) The
Bondholders contend that 22 L.P.R.A section 207 allows a receiver to remain in place until all
amounts due on the Bonds are paid. (See June 6 Tr. 39:19-21, 41:1-5, 13-14, 44:8-17, 65:19-24;
Defs. Resp. ¶ 16.)
The Court is not persuaded by the Oversight Board’s argument that section 5294
imposes a strict fifteen-year time limit on the duration of a receivership. Indeed, the Court has
found, and the parties have cited, no legal basis for the proposition that an order under
22 L.P.R.A section 207 appointing a receiver would require a money judgment triggering the
applicability of 31 L.P.R.A section 5294. Thus, as Puerto Rico supplies the substantive law
governing the estimation of the claim, no party has identified a statute of limitations that
specifically limits the potential duration of a receivership.
B. Estimating the Unsecured Net Revenue Claim
1. Defining the Unsecured Net Revenue Claim
After hearing extensive argument from all parties on how to properly define the
Bondholders’ claim, the Court defines the Unsecured Net Revenue Claim for the purposes of
estimation as the Bondholders’ right to payment in an amount equal to the present value, as of
the Estimation Date, of the future revenues (net of operating and other expenses properly payable
before service of the Bond debt) that a receiver could reasonably and foreseeably have directed
to the Sinking Fund and Specified Funds in carrying out specific performance of PREPA’s
undertakings, set forth in the Trust Agreement, as to the application of System Revenues.
Here, both the Oversight Board and the Bondholders undertook to project net
revenues that would become available over time, beginning from the July 3, 2017 Estimation
Date and looking forward, for application to the reduction of the outstanding Bond debt through

the specific Funds in which the Bondholders have a security interest. Mr. Plastino and Dr.
Chakraborty utilized competing methodologies to calculate the projected incremental revenue a
receiver could reasonably raise by charging rate increases to residential, commercial, and
industrial customers. In particular, Dr. Chakraborty’s calculation was based on a volumetric
charge rate using a load forecast model created by Dr. Susan Tierney. The load forecast model
contemplated various factual assumptions and data points to determine the earliest available year
when the Unsecured Net Revenue Claim could be paid in full. Mr. Plastino’s model was based
on a formula that used a fixed charge rate to determine rate increases that all customers would
pay over time. Mr. Plastino created system analyses that include calculations from FY 2018-
2118 (100 years) (Plastino Decl. Ex. A, App. 3-1) and Dr. Chakraborty created system analyses
that included calculations from FY 2018-2069 (51 years) (Chakraborty Decl. Ex. C6A).
2. Scope of Equitable Remedies Under the Bonds
At the 502 Hearing, the Bondholders’ expert Dr. Chakraborty stated that she
extended her analysis for fifty-one years because it would “theoretically capture the length of a
term of a long-term bond.” (June 7, 2023 Hr’g Tr. 128:21.) Of course, under each of the several
scenarios Dr. Chakraborty presented, the Bonds were fully paid within that time. (June 7
Tr. 128:25-129:2.) Dr. Chakraborty acknowledged that the Bonds were trading at a high yield-
to-maturity of 10.3% as of July 2017 because of the market’s assessment of a heightened risk of
non-payment, but disagreed with using this yield-to-maturity as a present value discount rate in
the estimation process in the absence of an adjustment for the expected risk of default to properly
reflect the cost of capital; instead, Dr. Chakraborty added together the yield as of 2017 on a
BAA-rated bond and a “risk premium to reflect the fact that under receivership, the credit rating
of PREPA would be higher than a BAA-rated bond[,]” arriving at a 5.05% discount rate. (June 7

Tr. 100:5-14, 108:1-15.) 15 Despite the nuances and perhaps philosophically divergent views
expressed with respect to the use of yield-to-maturity for discounting or not in this instance, 16 it
appears more likely that Dr. Chakraborty’s disagreement with factoring the risk of default into
the discount rate for the Bonds stems from her assumption that full payment on the Bonds was an
inevitability.
Dr. Chakraborty’s assumption of predictable full payment appears to rest to a
significant extent on predicate assumptions that (a) appointment of a receiver would have been
an inevitability, and (b) a receiver in Puerto Rico would be not be bound by constraints imposed
on PREPA by the Authority Act, including the requirement to charge “just and reasonable rates”
and to bring rate cases before the Puerto Rico Energy Bureau (“PREB”) for approval. See, e.g.,
22 L.P.R.A. § 196. Her starting point was based not upon an analysis of the Bonds and the
realities faced by Puerto Rico that would have affected collection on the Bonds, but rather the
instruction of counsel “to assume that the receiver would be able to raise rates” without
functional constraint. (June 7 Tr. 97:24-98:4, 99:14-20.) The failure to account for
contingencies that could impede collection undermines all of the Bondholders’ projections.
15
Mr. Plastino arrived at his proposed present value discount rate by considering the cost of
debt for several other regulated mainland electric utilities. (See Plastino Decl. Ex. A
¶ 28.) While Mr. Plastino described this comparison as yielding a “conservatively low”
rate, Ms. Frayer persuasively argued that both experts’ proposed rates were
inappropriately low for valuing the claim, based upon her “last two and a half decades
working on these issues, and knowledge of what is appropriate for cost-to-capital for an
island utility, for what kind of returns investors might be able to get in lieu of investing in
an instrument that’s composed of these types of risky cash flows[.]” (June 7 Tr. 194:24-
195:4.)
16
The Court also puts aside the parties’ dispute as to whether Dr. Chakraborty arrived at her
calculations by referencing data that was only available in 2023. (See, e.g., June 7
Tr. 100:21-101:19.)

(a) Swift and Unbridled Appointment of a Receiver Was Not

Inevitable as of the Estimation Date
Responding to the Court’s guidance, the parties have proposed valuations of the
equitable remedies for specific performance available under the Trust Agreement. The
Bondholders and Oversight Board have both assumed the swift appointment of a receiver as an
inevitability, but have not convinced the Court that this would necessarily be the case. A
receiver would not be appointed in a vacuum without any opposition or litigation, and the Court
explicitly instructed the parties to account for the impact of actual foreseeable risks and
impediments arising from “any relevant bankruptcy and nonbankruptcy law on the estimation of
the claim.” (Denial Order at 4.) The Committee and its expert Ms. Frayer have pointed to
several of these contingencies, as has AAFAF. The extreme and unlikely speed with which the
Oversight Board accounts for a receiver’s appointment was assumed by the Oversight Board in
order to give the Bondholders the benefit of the doubt wherever possible (FOMB 502 Br. ¶ 27),
but the Committee, UTIER, and SREAEE have aptly noted that the benefit of the doubt in equity
is not deserved where the Bondholders assert that their desired receiver would not be bound
by equitable restraints and considerations. As explained below, the Court has, in reaching its
estimate, taken into account a factor that recognizes the risk that the parties’ experts’
assumptions that a receiver could be in place and channeling the projected net revenue amounts
into Bondholder payments within as little as twelve to eighteen months could be, in a
word, wrong.
(b) A Receiver Would Have No Greater Powers than PREPA
Further, and importantly, a receiver would operate subject, once appointed, to
legal constraints. It would not have, as the Committee characterized them, “superpowers”—
instead, as stated by counsel to the Oversight Board and AAFAF, a receiver would step into the

shoes of PREPA and have “no greater powers” but would instead be “bound by the same laws
and agreements as PREPA” and would have “to live as AAFAF has and as the government has
in applicable non-bankruptcy law under the Board.” (June 6 Tr. 28:2-3, 94:13-14.)
In the Summary Judgment Order, the Court, acknowledging the terms of the
Authority Act, stated that a receiver could charge only “reasonable” rates (Summary Judgment
Order at 60), but the Bondholders have read this statement out of the Order as something the
Court “posited” or “suggested.” (Defs. 502 Br. ¶¶ 34, 42.) Alternatively, the Bondholders read
the requirement to set “just and reasonable” rates solely to mean rates sufficient to pay their
debts and read out any responsibility to the citizenry. (Defs. 502 Br. ¶ 34 n.6 (asserting a “lack
of legal impediments to the receiver increasing rates as necessary to pay the debt”).) The Court
now states clearly, for the avoidance of doubt, that, if appointed pursuant to 22 L.P.R.A. § 207, a
receiver would be subject to the rest of the Authority Act, including section 196 thereof, which
includes no exceptions relating to the party in control of PREPA’s operations and provides that:
[PREPA] shall offer and provide services at the lowest reasonable

cost, through just and reasonable rates, consistent with sound
fiscal and operational practices that provide for a reliable, adequate,
and nondiscriminatory service that is consistent with the protection
of the environment, as well as nonprofitable, and focused on citizen
participation and its customers. . . . .
Its undertakings as a public corporation shall be characterized

by efficiency, the promotion of renewable energy use, energy
conservation, and efficiency, excellence in customer service, and the
conservation and protection of the economic and environmental
resources of Puerto Rico. PREPA shall be responsible for acting
consistent with the public policy on energy of the Commonwealth
of Puerto Rico, the public interest, and for complying with all the
applicable rules and regulations of the Energy Commission and
CEPPO. . . . . PREPA shall be required to coordinate any
necessary efforts with the Commission, CEPPO, and any other
entity or person to achieve the purposes of §§ 191-217 of this title
and of any statute related to the public policy on energy of
Puerto Rico . . . .

The remedies available by law to require the Authority’s compliance

with the mandates of §§ 191-217 of this title, the well-being of
Puerto Rico, and the protection of customers shall not be limited in
any way. [PREPA] is hereby granted and shall have and may
exercise all rights and powers necessary or convenient to carry out
the aforementioned purposes, including (but without limiting the
generality of the foregoing) the following: . . . .
(d) complete control and supervision of any undertaking built or

acquired by it, including the power to determine the nature of and
the need to incur all expenditures and the manner in which such
expenditures shall be incurred, authorized, and defrayed; Provided,
That all actions of PREPA’s management and employees and its
Governing Board shall be subject to the provisions of the
Government Ethics Act, and its highest fiduciary duties with the
People of Puerto Rico. . . . .
(l) PREPA shall be responsible for providing reliable electric

power, contributing to the general well-being and sustainable
future of the People of Puerto Rico, maximizing benefits, and
minimizing the social, environmental, and economic impact. It
shall offer and provide services at the lowest reasonable cost,
through just and reasonable rates, consistent with sound fiscal
and operational practices that provide for a reliable, adequate,
and nondiscriminatory service that is consistent with the
protection of the environment, as well as nonprofitable, and
focused on citizen participation and its customers.
22 L.P.R.A. § 196 (emphasis added).
The Bondholders argue that, under section 207 of the Authority Act, an appointed
receiver of PREPA’s undertakings that “enter[s] into and take[s]” control of such undertakings
“deems” what is “reasonable,” to the exclusion of any other limitations in the Authority Act
simply because a receiver would be appointed pursuant to “a different section of the Authority
Act[.]” (Defs. 502 Br. ¶ 42, 44.) This is a misreading of the statute; there is nothing in the text
of the Authority Act that exempts a receiver acting in PREPA’s stead from PREPA’s mandates
under the Authority Act and the Bondholders have presented no reasonable argument that a
Puerto Rico court would attempt to abrogate such fundamental obligations of PREPA in any

order appointing a receiver. The relevant portion of the Authority Act’s receivership provision
provides in pertinent part that, following appointment of a receiver of the undertakings:
(b) The receiver so appointed shall forthwith, directly or by his

agents and attorneys, enter into and upon and take possession of
such undertakings and each and every part thereof, and may
exclude the Authority, its Board, officers, agents, and employees
and all persons claiming under them, wholly therefrom and shall
have, hold, use, operate, manage, and control the same and each and
every part thereof, and, in the name of the Authority or otherwise,
as the receiver may deem best, shall exercise all the rights and
powers of [PREPA] with respect to such undertakings as
[PREPA] itself might do. Such receiver shall maintain, restore,
insure, and keep insured, such undertakings and from time to time
shall make all such necessary or proper repairs as such receiver may
deem expedient, shall establish, levy, maintain, and collect such
rates, fees, rentals, and other charges in connection with such
undertakings as such receiver may deem necessary, proper and
reasonable, and shall collect and receive all income and revenues
and deposit the same in a separate account and apply the income
and revenues so collected and received in such manner as the
court shall direct.
22 L.P.R.A. § 207(b) (emphasis added).
The receivership remedy provided by the Authority Act is a powerful tool,
certainly. But any receiver would be constrained to manage and control PREPA’s undertakings
“as the Authority itself might do” and apply income and revenues in such manner as an
appointing “court shall direct[.]” Id. The Bondholders have provided no legal basis for their
contention that the equitable considerations, requirements to set the lowest reasonable cost, and
fiduciary duties established by the Authority Act would not bind the receiver as well.
Finally, the Bondholders suggest that the distinction is without a difference
because, under Dr. Chakraborty’s calculations, and because it is improper for the Court to
consider anything except the unimpeded best-case scenario, PREPA will be creating a
remarkable excess of net revenues within a few years. (See, e.g., Defs. 502 Br. ¶ 34 n.6.) As
explained below, the Court finds Mr. Plastino’s methodology persuasive. Nor does the Court

find credible the Bondholders’ hypothesis that a receiver would immediately have been able to
revolutionize PREPA and achieve never-before-seen synergies. And, as explained above, the
Bondholders’ assumption that the existence of equitable duties would be immaterial to a court
appointing a receiver in equity is erroneous.
(c) A Receiver Would Have Faced Extreme and Possibly Successful

Opposition Were it to Attempt to Proceed as the Bondholders
Contemplate
The Court instructed the parties “to address the impact of the Trust Agreement,
economic projections, relevant contingencies, and any relevant bankruptcy and
nonbankruptcy law on the estimation of the claim.” (Denial Order at 4 (emphasis added).) The
parties were free, even after the Court provided subsequent guidance, to argue that different
factors should predominate, and the Court did not foreclose any argument to that effect.
However, at the 502 Hearing, the Bondholders not only denied, at least some of
the time, that a receiver would be required to behave equitably, but stated, incorrectly, that the
Court had directed the parties that the existence of PROMESA should not be considered when
estimating the claim. (June 8 Tr. 72:14-20 (“It is clearly not what the Court had in mind when it
set up this estimation hearing, and so we need to treat this estimation as if PROMESA did not
exist and as if the Board did not exist. We are supposed to look at what a receiver would be able
to accomplish in a non-bankruptcy environment with respect to the collection of net revenues
under the trust agreement. That is our mission here.”).) Counsel to Assured stated: “This is
about what a receiver, acting under the trust agreement, would have been able to accomplish
without the Board being around.” (June 8 Tr. 80:11-13.)
But the Oversight Board was around, and PROMESA, enacted well in advance of
the July 3, 2017 Estimation Date, is a relevant law that would have affected what rates could
have been charged and net revenues collected thereafter.

The Bondholders have also urged the Court to ignore efforts that would have
certainly been undertaken under Act 2-2017, the law authorizing AAFAF to enforce compliance
with fiscal plans enacted by the Oversight Board, characterizing any potential such legal
challenges as “lawless behavior.” (June 8 Tr. 124:24.) As counsel to AAFAF noted at the 502
Hearing: “when you get the receiver in place, the receiver steps into the shoes of PREPA, no
greater powers. What does that mean? That means the receiver has to live as AAFAF has and as
the government has in applicable non-bankruptcy law under the Board. And the Board gets to set
a budget every year.” (June 6 Tr. 28:1-6.) The Court notes, in addition, that many unsuccessful
attempts have been made to evade compliance with the Oversight Board’s certified fiscal plans.
Several other legal risks were discussed that the Court cannot ignore, including the effect of a
prepetition moratorium act, 17 which, by limiting dedication of funds, might have crippled the
channeling of net revenues, the only revenues to which the Bondholders are entitled, into
payment accounts in accordance with the Trust Agreement. (FOMB Resp. ¶ 32.) Importantly,
government action limiting revenue generation, or mandating capital expenditures, could have
depressed or eliminated entirely net revenue cash flow that could be directed to Bond payments.
In other words, the risk is not only that payment to the Bondholders would be proscribed, the risk
is also that, for legitimate and legal reasons, net revenues would not be generated.
Any receiver would also have been required to litigate lengthy and contentious
17
In 2018, this Court held that the Puerto Rico Financial Emergency and Fiscal
Responsibility Act (Act No. 5-2017) (the “Amended Moratorium Act”) was not
preempted by PROMESA, despite section 303(1) of PROMESA’s requirement that
“territory” moratorium laws may not bind creditors nonconsensually. (See Docket Entry
No. 156 in Adv. Proc. No. 17-00159 (the “Moratorium Order”) at 31-36.) See 48 U.S.C.
§ 2163(1). The Amended Moratorium Act authorized the Governor of Puerto Rico to
declare a state of emergency and prioritize payment of “essential services” over “covered
obligations.” (Moratorium Order at 7-8.)

rate cases before Puerto Rico Energy Bureau, which it would not necessarily win. The concept
that the main or sole priority of PREB would be, or is statutorily mandated to be, to meet Bond
payment obligations (as the Bondholders urge (Defs. 502 Br. ¶ 44)) is contradicted by, for one, a
2015 resolution, wherein PREC 18 denied a rate increase requested by National 19 because the
information presented was “mostly focused on PREPA’s obligations to its bondholders and
creditors, which does not provide the complete information of PREPA’s operational condition.”
Resolution, No. CEPR-QR-2015-0002, available at
https://energia.pr.gov/en/dockets/?docket=cepr-qr-2015-0002. The Court finds no reason to
believe that the priorities imposed by the Authority Act would have changed after the Estimation
Date and notes that PREC stated, closer in time to the July 3, 2017 Estimation Date, that
“Raising PREPA’s rates sufficiently to pay the principal and interest currently due on that debt
would burden Puerto Rico’s economy intolerably.” (UCC Resp. ¶ 26 (quoting PREC Ruling,
dated Jan. 10, 2017 ¶ 17 (filed at Docket Entry No. 1707-7 in Case No. 17-4780)).)
Accordingly, the effect of, inter alia, the Oversight Board’s discretionary
budgeting authority and public policy with respect to PREPA’s obligation to update its aging
infrastructure are proper factors for consideration in estimating the claim. Any factor that
reasonably could have affected the claim’s value as of the Estimation Date is proper for
consideration in estimating the claim. The Bondholders can argue that legal challenges to
18
The Puerto Rico Energy Commission (“PREC”) became the Puerto Rico Energy Bureau
(“PREB”) and was consolidated with other governmental entities under the Public
Service Regulatory Board.
19
National Public Finance Guarantee Corporation (“National”) is a monoline insurer of
insured Bonds and a defendant in this adversary proceeding. After National entered into
a plan support agreement with the Oversight Board as sole Title III representative of
PREPA, this Court stayed this adversary proceeding and certain other matters with
respect to National pending further order of the Court. (See Docket Entry No. 148.)

placing a receiver or to the receiver’s exercise of authority would have been unsuccessful, but the
Court will not ignore their likelihood, and the Bondholders cannot make the risk of any
challenge’s success improper for consideration by calling it “lawless.”
(d) The Bondholders Have Not Supported their Prediction that a

Receiver Would (or Could) Take the Actions Necessary to Pay the
Bonds in Full
As noted above, the Bondholders argue that there would not have been any legal
or practical impediments to the receiver increasing rates as necessary to pay the Bonds. (Defs.
502 Br. ¶ 34 n.6.) However, Mr. John Young, the Bondholders’ expert on receiverships,
presented a very different picture, one contradictory to the assumptions underlying
Dr. Chakraborty’s projections. Mr. Young presented a picture of a receiver bound to consider all
stakeholders, pay all debts, and take reasonable steps towards those goals in conformance with
applicable law. Furthermore, in response to thorough questioning by the Oversight Board,
AAFAF, and the Committee, Mr. Young acknowledged a complete lack of familiarity with the
legal and practical circumstances of PREPA and Puerto Rico, except to say that “the components
of expense of all the utilities are basically the same.” (June 7 Tr. 174:3-4.)
The relevant gravamen of Mr. Young’s testimony was that he did not know what
powers a court order appointing a PREPA receiver could or could not grant, legally or
practically. At the same time, Mr. Young’s testimony concerning his tenure as the receiver of
the Environmental Services Department of Jefferson County, Alabama, shows that in his actual,
and unfortunately unsuccessful, efforts to keep the department out of bankruptcy, he did not take
the radical actions or achieve the remarkable efficiencies of the Bondholders’ hypothetical
receiver. Despite being unconstrained by a regulator such as PREB and the obligation to bring
rate cases, Mr. Young testified that he adopted a gradual and responsible approach based upon
affordability concerns that did not result in an immediate turnaround. (June 7 Tr. 162:25-

164:14.) Rather than serving at the behest of one constituency, a responsible receiver would, in
Mr. Young’s words, “develop a plan, and prioritize where the current resources go, and
hopefully generate enough future resources to meet all its obligations.” (June 7 Tr. 168:11-13.)
Mr. Young’s testimony, as was illustrated by a helpful chart used by the
Committee at closing, substantially undermined Dr. Chakraborty’s projections by countering her
assumptions of an entirely unrestrained receiver, or a receiver who would act without restraint
even in the absence of regulatory strictures. (June 8 Tr. 52:7-54:4, 55:16-56:22.)
The effect of these contradictions and unknowns in connection with the potential
ability of a receiver to raise rates meaningfully and at the rapid pace posited by Dr. Chakraborty
renders the Bondholders’ scenarios manifestly unlikely and unreasonable. Given the dire
financial condition of PREPA at the time of the Title III filing and the circumstances surrounding
the appointment, installation, and subsequent herculean tasks necessary to achieve the required
outcomes, the Court is not persuaded PREPA would ever have generated sufficient net revenues
to pay off the Bonds in a reasonably foreseeable time frame—much less in five years as was
proffered in Dr. Chakraborty’s most unrestrained model. Accordingly, the Bondholders have
failed to support their proposed claim estimation by a preponderance of the evidence.
(e) A Receiver May Not Have Been in Place Forever
Although the Authority Act implies that a receiver appointed under 22 L.P.R.A.
section 207 can remain in place for as long as the debts on the Bonds are due, the Court notes,
and considers generally in connection with its estimation determination, the possibility that a
Puerto Rico court might have imposed some form of temporal limit. See, e.g., In re Pac. Gas &
Elec. Co., 295 B.R. 635, 642-43 (Bankr. N.D. Cal. 2003) (court limited its predictions as to what
a judge or jury might have concluded from the evidence presented where application of the
parties’ legal theories to the unique facts of the case went beyond the reported cases). A Puerto

Rico court would ultimately have discretion and control over the degree to which, and how, an
equitable remedy could be deployed to serve the interests of the Bondholders and the people of
Puerto Rico. See, e.g., Irizarry Rivera v. WEUC FM. 88.9, JPE2000-0119, 2004 WL 2419011,
at *5 (P.R. Cir. Aug. 25, 2004) (stating, with respect to a contract that did not have a fixed term
but provided that it would continue until further notice, that “We are of the opinion that, in these
circumstances, the Tribunal [lower court] could fix a limit for the obligation, and validate its
termination[].”)
The possibility that a court might have imposed a temporal limit on the tenure of a
receiver is heightened by the fact that the entire purpose of the enforcement of the equitable
remedy of a receiver in this scenario is to satisfy a debt, which, as discussed above, is only one of
the objectives imposed upon PREPA or any receiver by the Authority Act. The Court considers
this possibility in estimating the Unsecured Net Revenue Claim, and notes that is well within its
discretion to do so.
(f) Conclusions With Respect to a Hypothetical Receiver
For the reasons stated above, the Court concludes that the Bondholders’ experts
have failed to accord the appropriate weight to the legal and practical risks attendant upon the
appointment of a receiver and the ability of a receiver to ever—under the confines of the Trust
Agreement and Authority Act, or in the responsible performance of its duties—raise rates
sufficiently to pay off the Bonds in full. The Bondholders objected to the Oversight Board’s
expert’s valuation of the majority of these risks at 1% or less as being arbitrary, overstated, and
double-counted. (Defs. Resp. ¶ 52.) 20 Mr. Plastino explained that, by including a one-percent
20
The Court attaches no significance to the Oversight Board’s non-inclusion of these
factors in the filed PREPA Best Interest Test (which was taking very different
considerations into account in connection with confirmation requirements for the

factor for such risks in his computations, he was identifying as important considerations, rather
than quantifying, such risks, because the occurrence of any of them could materially, if not
wholly, eliminate Bondholder recoveries. (See FOMB 502 Br. ¶ 62.) The Court’s incorporation
of relevant risks and contingencies into the estimation of a claim need not be precise: “An
estimate necessarily implies no certainty; it is not a finding or a fixing of an exact amount.” In re
AMR Corp., 2021 WL 2954824, at *4 (citations omitted). “The estimated value of a claim is
then the amount of the claim diminished by probability that it may be sustainable only in part or
not at all.” In re Chemtura Corp., 448 B.R. at 648.
The Oversight Board has further argued that the Unsecured Net Revenue Claim
“should be discounted based on the [risks] unique to PREPA and not modeled into PREPA’s
revenues and expenses nor included in the present value discount[.]” (FOMB 502 Br. ¶ 62.)
Accordingly, the Court has separated out the risks discussed above, and has considered and
disagrees with each of the Bondholders’ counterarguments, including that risks have been
double-counted, and indeed believes that both the Bondholders and the Oversight Board have
significantly understated the challenges and limitations that a receiver would face in being
appointed and effecting the changes urged by the Bondholders as inevitable.
The Court, having considered thoroughly the record, the parties’ arguments, and
its knowledge of the legal and experiential contours of Puerto Rico’s debt crisis, takes the risks
of legal and Oversight Board and other government action impediments to a receiver’s net
revenue production efforts into account in estimating the value of the Unsecured Net Revenue
Claim by applying a significant—but nonetheless conservative—flat 20% reduction to the
proposed plan of adjustment), and applies its own independent analysis. (See, e.g., Defs.
Resp. ¶ 9 (citing Docket Entry No. 23412).)

computed present value of the Unsecured Net Revenue Claim to reflect the material uncertainties
that a receiver would be appointed, could act as the Bondholders propose under the Trust
Agreement and Authority Act or any order issued by a Puerto Rico court, or would adopt the
views of and take the actions urged by the Bondholders if appointed.
C. The Court’s Value Estimate is Based on a One Hundred-Year Projection of

Receiver Activity and Net Revenue Collections
Even putting aside the possibility that a court in Puerto Rico would impose some
form of temporal limit on a receivership, the Court finds that much uncertainty exists as to years
far into the future, and therefore the Court does not find it proper to entertain extensive
speculation as to net revenue forecasts beyond the one hundred years for which Mr. Plastino has
provided calculations. 21 See, e.g., In re Oldco M Corp., 438 B.R. 775, 787 (Bankr. S.D.N.Y.
2010) (discussing United States v. LTV Corp. (In re Chateaugay Corp.), 944 F.2d 997 (2d Cir.
1991)), in which court indicated that costs underlining administrative expense claims under
section 503 of the Bankruptcy Code that are not “merely speculative” can be estimated under
section 502(c)); see also In re Pac. Gas & Elec. Co., 295 B.R. at 643 (acknowledging that,
because the court’s decision in estimation depended on its predictions as to future circumstances,
court found the process too uncertain and therefore limited its predictions). The Oversight Board
has argued that looking to models utilizing projections of more than twenty-five years may be
excessively speculative, and additionally noted that in an ordinary business case under
Chapter 11 predicting beyond five years is seen as too speculative. (See June 8 Tr. 42:6-8,
19-22, 43:7-15.) The Bondholders’ expert, Dr. Chakraborty, testified that fifty years
21
Mr. Plastino has provided projected Bondholder recoveries spanning FY 2018-FY 2118
(Plastino Decl. Ex. A, App. 3-1), Dr. Chakraborty provided forecasts spanning FY 2018-
FY 2069 (Chakraborty Decl. Ex. C6A).

theoretically captures the length of a term of a long-term bond and that modeling past fifty years
would have meant going beyond the maturity of such a bond. (See June 7 Tr. 128:20-24.)
The Court finds that, in light of the many assumptions, risks, and variables the
parties’ experts have sought to account for in order to arrive at reasoned forecasts, calculating
beyond fifty years is significantly speculative. It is uncertain, so far into the future, what
PREPA’s cash flow would be, and whether PREPA would, across that time period, evade impact
from major natural disasters or other critical disruptions including fundamental changes to
energy consumption, political structure, and the island’s economic stability.
Importantly, the Bondholders, and their experts, have not convinced the Court that
PREPA, as it existed on the July 3, 2017 Estimation Date, would ever have succeeded in paying
off the Bonds. However, the Court will give the Bondholders the benefit of an appropriately
contingency-adjusted valuation based on twice Dr. Chakraborty’s fifty-year length of a long-term
bond—Mr. Plastino’s one hundred-year net revenue forecast, from FY 2018-FY 2118.
D. Value of the Unsecured Net Revenue Claim as of the Petition Date
The Owens Corning court stated: “The Court’s task at this juncture is to decide
how well the expert witnesses have accorded appropriate weight to the various factors discussed
above. In undertaking this comparative assessment, however, I prefer to avoid specific
mathematical calculations: since mathematical precision cannot be achieved in the prediction
being undertaken, it is important that we not pretend to have achieved mathematical accuracy.”
322 B.R. at 725. These remarks capture well the challenge at hand and the appropriate approach
to quantifying the estimate.
At the 502 Hearing, the Court heard testimony from witnesses proffered by the
Oversight Board, the Bondholders, and the Committee. (See June 7 Tr.) The Oversight Board
presented the testimony of Mr. David Plastino, an economist who specializes in valuation and

financial econometrics. (Plastino Decl. Ex. A ¶ 2.) The Bondholders presented the testimony of
Dr. Maureen Chakraborty, an economist who specializes in economics, finance, accounting, and
valuation. (Chakraborty Decl. ¶ 1.) The Committee presented the testimony of Ms. Julia Frayer,
an economist who specializes in conducting economic analyses and evaluations of infrastructure
assets. (Frayer Decl. ¶ 2.) While additional witnesses testified at the 502 Hearing, Mr. Plastino,
Dr. Chakraborty, and Ms. Frayer were the expert witnesses who had formulated holistic
estimation models and proffered comparative assessments to defend certain disparities
among them.
Although the methodologies employed by each of the experts to develop their
models are divergent in some respects, there are several key areas where Mr. Plastino,
Dr. Chakraborty, and Ms. Frayer agree. These points of agreement provide the Court with a
sufficient analytical framework to estimate the Unsecured Net Revenue Claim. The experts
agree that the claim should be valued as of the Estimation Date. (Plastino Decl. ¶ 3; Chakraborty
Decl. ¶ 3.) The estimation should be “forward-looking” and only rely on information reasonably
available as of the Estimation Date. (June 7 Tr. 63:5-9, 72:18-22). While the experts disagree
on whether a fixed charge, volumetric charge, or a blend of the two charges should be applied by
way of supplement to address the liability on the outstanding Bonds, the experts agree that a rate
increase formula is necessary to project the incremental revenue a receiver could reasonably
raise from changes in the amounts charged to residential, commercial, and industrial customers.
(Plastino Decl. Ex. 1 ¶¶ 35-36; Chakraborty Decl. ¶ 7.) Mr. Plastino and Dr. Chakraborty

generally agree that expenses 22 detailed in the 2017 PREPA Fiscal Plan 23 should be deducted
from the revenues PREPA could have reasonably collected from incremental rate increases.
(June 7 Tr. 38:2-5; Chakraborty Decl. ¶ 8.) Mr. Plastino and Dr. Chakraborty both extend
PREPA’s revenue and expense projections to estimate future streams of cash flows a receiver
may be able to recover. (Plastino Decl. Ex. A, App. 3; Chakraborty Decl. App. C3.) Lastly, the
calculations conducted by the experts include a discount rate to be applied to the future streams
of cash flow. (Plastino Decl. ¶ 28; Chakraborty Decl. ¶¶ 16-17.) Dr. Chakraborty applies a
5.05% discount rate and Mr. Plastino applies a 6.5% discount rate. (June 7 Tr. 46:6-13,
100:5-8.) Ms. Frayer agrees that a discount rate should be applied; however, she suggests that a
higher discount rate in the range between 8.46% to 16.65% is appropriate. 24 (June 7
Tr. 194:18-20, 198-199; Frayer Decl. ¶ 9.)
The Court has determined, after consideration of the evidence and expert
testimony, that Mr. Plastino’s model is the most appropriate model as it contemplates a net
revenue stream that is set to be derived and paid through a method that should be relatively
affordable for ratepayers, reflects the impact of system maintenance and improvements that will
22
While the experts debate the exact costs of certain operational expenses, capital expenses,
and the definition of Current Expenses, the Court need not settle these issues in the
context of claim estimation. Mr. Plastino and Dr. Chakraborty provide sensitivity
analyses that contemplate scenarios ranging from no payment to full payment of capital
expenses associated with long-term operational capacity (i.e., the financing the Aguirre
Offshore Gas Plant (“AOGP”)). (Plastino Decl. Ex. 1, App. 3-1; Chakraborty Decl.,
Figure 1.) The record contains sufficient evidence to identify appropriate estimates of
operational expenses for consideration in the Court’s Section 502(c) determination.
23
(Plastino Decl. Ex. 3.)
24
The discount rate selected by the Court is not based on Ms. Frayer’s analysis. Rather, the
Court’s conclusion is drawn from evidentiary submissions and testimony identifying
market rates at the relevant time for securities with similar risk profiles that were
compiled by a consultant as reasonable guideposts for a discount rate to be applied to the
projected future streams of cash flows a receiver may be able to recover.

be required to keep the system generating revenues over a lengthy period, and includes a present
value discount factor for the time value of money and general market perceptions of risk. The
Court is not persuaded, however, that the discount rates proposed by Dr. Chakraborty (5.05%)
and Mr. Plastino (6.5%) are adequate. Ms. Frayer provided persuasive testimony and evidentiary
support for a finding that the discount rates proposed would be “unrealistic” given PREPA’s
financial distress and the existing market conditions in 2017. (June 7 Tr. 198:19-25, 199:1-15,
19-25.) Additionally, Ms. Frayer pointed to contemporaneous data from similarly situated
Caribbean islands with investor-owned electric utilities to show that a rational investor would
have had explored “other opportunities” for investment given PREPA’s significant risk profile.
(June 7 Tr. 199:1-15, 19-25.) In sum, the discount rates proposed by Dr. Chakraborty and Mr.
Plastino do not adequately represent certain economic risk factors associated with the projected
cashflows that could be generated by ratepayers. While the Court declines to adopt the discount
rates proffered by Dr. Chakraborty and Mr. Plastino, the record does not support Ms. Frayer’s
proposed discount rate in the range of 8.46% to 16.65%, 25 as a reasonable substitution. The
Court instead concludes that a discount rate of 7% should be applied to determine the present
value of the net revenue cash flow projected out over the 100-year period. That discounted cash
flow, using Dr. Plastino’s base-case incremental revenues over a period of one hundred years and
a discount rate of 7%, would be $2,985,000,000.00 before Dr. Plastino’s placeholder reduction
of 4% for additional types of risks. (Plastino Decl. Ex. A, App. 3-1.)
Having determined that a receiver would likely have faced significant legal
opposition and regulatory roadblocks (supra section II.B.2), the Court notes that the statistical
models proffered by the Oversight Board, the Bondholders, and the Committee do not
25
(Frayer Decl. ¶ 9.)

adequately account for these additional risk factors that could impair the receiver’s ability to
carry out certain duties. Dr. Plastino’s computations reflect them only as part of a 4%
placeholder reduction and the others do not treat them at all. The Court, as explained above,
finds a 20% reduction for risk of success in achieving the projected cash flow through the actions
of a receiver and other equitable remedies appropriate. Accordingly, the Court will apply an
additional 20% reduction for risks associated with the appointment of a receiver.
CUMULATIVE AFTER
CASH FLOW, ADDITIONAL
USING 7% 20%
DISCOUNT RATE REDUCTION
FY 2018 – FY 2118 $2,985 million $2,388 million
Accordingly, the Court’s estimation of the value of the Unsecured Net Revenue
Claim is $2,388,000,000.00.
E. Conclusion
For the above stated reasons, the Court estimates the value of the Unsecured Net
Revenue Claim as $2,388,000,000.00.
SO ORDERED.
Dated: June 26, 2023
/s/ Laura Taylor Swain

LAURA TAYLOR SWAIN
United States District Judge

PRB 17-04780 3803 - Order Concerning Bondholders' Unsecured Net Revenue Claim Es

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Case:17-04780-LTS Doc#:3803 Filed:06/26/23 Entered:06/26/23 14:57:50 Desc: Main

UNITED STATES DISTRICT COURT

230626 ORD RE CLAIM ESTIMATION VERSION JUNE 26, 2023 1

PUERTO RICO FISCAL AGENCY AND FINANCIAL

ORDER CONCERNING BONDHOLDERS’ UNSECURED NET REVENUE CLAIM ESTIMATION

230626 ORD RE CLAIM ESTIMATION VERSION JUNE 26, 2023 2

and Gary A. Orseck

Paul V. Possinger REICHARD & ESCALERA, LLC

230626 ORD RE CLAIM ESTIMATION VERSION JUNE 26, 2023 3

San Juan, PR 00919 Ricardo F. Casellas-Sánchez

O’MELVENY & MYERS LLP RIVERA, TULLA AND FERRER, LLC

230626 ORD RE CLAIM ESTIMATION VERSION JUNE 26, 2023 4

WACHTELL, LIPTON, ROSEN & KATZ Jessica E. Méndez-Colberg

Attorneys for Cortland Capital Market

SIMPSON THACHER & BARTLETT LLP

Attorneys for Cortland Capital Market

230626 ORD RE CLAIM ESTIMATION VERSION JUNE 26, 2023 5

LAURA TAYLOR SWAIN, United States District Judge

complaint included in the Bondholder Defendants’ 4 Defendant’s and Intervenor-Defendants’

(a) the Trust Agreement granted the Bondholders security interests

230626 ORD RE CLAIM ESTIMATION VERSION JUNE 26, 2023 6

Bondholders have no security interest in the covenants and remedies

hearing, to estimate the value of the Unsecured Net Revenue Claim.

230626 ORD RE CLAIM ESTIMATION VERSION JUNE 26, 2023 7

Net Revenue Claim as of July 3, 2017 (the “Estimation Date”), 8 is $2,388,000,000.00.

PROCEDURAL BACKGROUND AND PRE-HEARING GUIDANCE ON CLAIM ESTIMATION

230626 ORD RE CLAIM ESTIMATION VERSION JUNE 26, 2023 8

Unsecured Net Revenue Claim:

• By operation of the remedies of the Trust Agreement, providing the

230626 ORD RE CLAIM ESTIMATION VERSION JUNE 26, 2023 9

Accordingly, the unsecured portion of the Master PREPA Bond

Summary Judgment Order. (Summary Judgment Order at 70.)

230626 ORD RE CLAIM ESTIMATION VERSION JUNE 26, 2023 10

• First, the Court rejects Defendants’ contention that estimation of

230626 ORD RE CLAIM ESTIMATION VERSION JUNE 26, 2023 11

disagreement as to the meaning of the phrase “the term of the

return to mediation. (502 Hr’g Order ¶ 4.)

The Bondholders also filed a motion requesting immediate certification of the

Immediate Appeal Pursuant to PROMESA § 306(e)(3)-(4) (the “Defendants’ Certification

(See generally Intervenor-Plaintiff Official Committee of Unsecured Creditors’ (A) Partial

230626 ORD RE CLAIM ESTIMATION VERSION JUNE 26, 2023 12

Pursuant to PROMESA § 306(e)(3)-(4) (the “UCC Certification Motion”) (Docket Entry

“Certification Denial Order”).

Procs. Order ¶¶ 5, 6(c).)

Financial Advisory Authority (“AAFAF”), Cortland Capital Market Services LLC, as

230626 ORD RE CLAIM ESTIMATION VERSION JUNE 26, 2023 13

Autoridad de Energia Eléctrica (“SREAEE”); the Unión de Trabajadores de la Industria Eléctrica

y Riego, Inc. (“UTIER”); and BlackRock. 9

Committee, and Mr. Scott Martinez on behalf of the Committee. 10

230626 ORD RE CLAIM ESTIMATION VERSION JUNE 26, 2023 14

interest . . . objects.” 11 U.S.C.A. § 502(a) (Westlaw through P.L. 118-6).

Section 502(b) of the Bankruptcy Code provides that, subject to certain

Section 502(c) of the Bankruptcy Code provides:

(c) There shall be estimated for purpose of allowance under

(1) any contingent or unliquidated claim, the fixing

(2) any right to payment arising from a right to an

1. Procedures for Conducting a Claim Estimation Hearing Under

230626 ORD RE CLAIM ESTIMATION VERSION JUNE 26, 2023 15

codified at 22 L.P.R.A. §§ 191-240) to enforce PREPA’s unsecured covenants to pay the

likely to be available for Bondholder payment through these mechanisms.

230626 ORD RE CLAIM ESTIMATION VERSION JUNE 26, 2023 16

2. The Burden of Proof in a Claim Estimation Hearing Under Section 502(c)