Judge Swain Denies Bondholders’ Bid to Lift Prepa Nine-Year Litigation Stay

Judge Says Accounting Case Must Proceed First

U.S. District Court Judge Laura Taylor Swain on Wednesday denied Prepa bondholders’ renewed push to lift long‑standing litigation stays, ruling that the court will not green-light stay‑relief or dismissal motions until the ongoing accounting counterclaim—now the centerpiece of the case—has been fully litigated.

The decision, delivered from the bench during an omnibus hearing, keeps in place the Puerto Rico Electric Power Authority (Prepa) litigation stay first imposed nine years ago and repeatedly extended as the court has sought to sequence the sprawling Title III case. Prepa has been in bankruptcy under Title III of PROMESA since 2017 to restructure over $9 billion in debt. Swain said the bondholders will have to wait until the court resolves the methodology for determining Prepa’s net revenues, a process already underway in the accounting counterclaim.

“The Prepa litigation stay, as currently configured, will remain in place pending resolution of the accounting counterclaim,” Swain said, adding that the counterclaim “will provide the bondholders with the procedural vehicle they seek” to address the core issues underlying their stay‑relief requests.

The accounting case is expected to stretch past October with summary judgment arguments.

Swain emphasized that federal courts have broad discretion to manage their dockets and sequence litigation to avoid duplicative or premature proceedings. She cited the First Circuit’s prior rulings affirming her approach in Prepa’s Title III case, including its conclusion that overlapping issues justified delaying stay‑relief litigation until a more complete factual record existed.

The accounting counterclaim—now moving on an accelerated six‑month discovery schedule—will determine whether Prepa historically generated net revenues, whether any exist today, and how those findings affect the value of bondholders’ secured claims. Those same issues, Swain noted, are central to the bondholders’ motions seeking dismissal of the case or appointment of a receiver.

Bondholders themselves have acknowledged the overlap, she said, quoting their own filings that the counterclaim “will implicate issues relevant to the lift‑stay motion” and require “much of the same discovery.”

Throughout the hearing, bondholder counsels argued that the years‑long stay has deprived them of their right to be heard and that the court’s current schedule delays adjudication of their rights into 2027 or beyond. They invoked due‑process principles and cases warning against “immoderate” stays that effectively deny litigants their day in court.

Swain rejected those arguments, pointing to the First Circuit’s finding that bondholders had previously waived their right to expedited hearings under Section 362(e) by failing to challenge the litigation stay when it was imposed. Even if they had not, she added, the statute’s timing requirements apply only to actions against estate property—and the bondholders’ motions, which seek appointment of a receiver, do not clearly fall within that category.

She also noted that the bondholders’ own proposed schedule for litigating the receiver motion would not have produced a hearing for more than 110 days after any stay was lifted.

Earlier in the hearing, lawyers for the Oversight Board, the Unsecured Creditors Committee, and Prepa’s fuel line lenders pushed back on bondholder claims of prejudice.

Peter Friedman, representing the Fiscal Agency and Financial Advisory Authority, argued that bondholders had mischaracterized the Puerto Rico Energy Bureau’s rate order, which he said did not determine what constitutes a current expense nor suggest Prepa could access capital markets if a receiver were appointed. He also warned that a receiver would face the same statutory rate‑setting constraints as Prepa, requiring PREB approval and triggering “an enormous amount of litigation.”

Unsecured Creditors Committee counsel Pedro Jiménez noted that the court’s six‑month discovery schedule is faster than the eight‑month timeline bondholders themselves once proposed for similar issues in the administrative expense litigation.

Assured counsel Miguel Estrada noted that the stay has lasted nine years and that the court’s sequencing deprives bondholders of the remedy Congress provided—relief from the automatic stay to protect collateral they say is being spent without adequate protection.

Swain urged all parties to “proceed in a diligent and timely fashion,” signaling that the court expects no delays in the accounting litigation.