Monday Update – December 11, 2017

Welcome to your weekly Title III update for December 11, 2017. Not much happened but certain issues are looming large.

Ambac had sought a separate Rule 2004 discovery on the SUT after María, but this week joined GO and others’ petition requesting discovery as to other aspects of the Commonwealth’s finances. As was expected, the Board opposed the request for discovery and all eyes will be in Judge Dein’s courtroom on December 14 to see what will be decided. Irrespective of the decision, it is profoundly disturbing that at this stage, over a year from PROMESA’s enactment, the Board and PR continue being opaque about its finances.

The United States Solicitor General filed its opposition to the Aurelius and Utier motion regarding the unconstitutionality of the PROMESA members’ appointment. Surprisingly, the U.S. Government relied much less on Downes v. Bidwell, 182 U.S. 244 (1901), the racist basis of the so-called “Insular Cases,” than the Board or AFFAF/Governor Rosselló did, relying more on older case law. This is something that few have focused on, but something I will be exploring in further detail. The January 10 oral argument will be very interesting.

On December 13, at 11 EST, the Court will hear oral argument as to Motion for Summary Judgment of Employees Retirement System of the Government of Commonwealth of Puerto Rico and ERS Bondholders’ Motion for Summary Judgment on Issues Relating to Perfection and Application of Section 552 of the Bankruptcy Code. Both motions seek to show that bondholders of the Retirement System have no lien. Interesting to watch Judge Swain’s reaction.

The Asociación de Profesoras y Profesores del Recinto de Mayagüez, Inc., had sued the UPR, the Board, etc. trying to invalidate the UPR’s fiscal plan. The parties, however, agreed to stay the litigation until the new plan is approved. Let’s see what happens.

All this leads us to the December 20 Omnibus hearing which will also decide several issues. More on this next week.

Finally, during the Board’s hearings last week, its Executive Director, Ms. Jaresko, made it clear the Board would exercise its prerogatives pursuant to Sec. 207 of PROMESA to review prior to approving or denying any action by the Commonwealth to “issue debt or guarantee, exchange, modify, repurchase, redeem, or enter into similar transactions with respect to its debt.” Given the above, the Board will be able to veto any federal loans or any conditions demanded by the Treasury Department. This would include the $4.9 billion in community disaster loans from the funds approved by Congress that in order to be utilized require sign-off from FEMA and the US Treasury as well as the White House.  In addition to this approval by the Board, Judge Swain, pursuant to 11 U.S.C. § 364(c), would have to approve the loan if it is going to be more than a non-secured loan or administrative expense. This means that even if the Board approves, Judge Swain would have the final word. Will the Board have final say over these funds given the involvement from FEMA and the White House? We’ll see. Let’s see what the conditions of the loan will be.

This summary is merely what I believe are the more salient motions and decisions in the cases. I receive an average of 20 filings each day so it would be impossible to summarize everything. If you have legal interest in these cases, I urge you to hire an attorney to represent you.

Monday Update –December 4, 2017

Welcome to your weekly Title III update for December 4, 2017. As I predicted last week, the parties have not rested the Rule 2004 requests for production of documents. On November 28, 2017, the GO Bondholders, Ambac Assurance Corporation, Assured Guaranty Corp., Assured Guaranty Municipal Corp., the Mutual Fund Group, and National Public Finance Guarantee Corporation filed a joint motion seeking documents on the financial condition of the Commonwealth.  The GO Bondholders seek discovery on the following:

Requests 1 through 7 seek reports regarding the Commonwealth’s revenues, expenditures, liquidity, receipt of federal funds, and debt burden—all of which directly evidence the financial condition of the debtor.” 

“Requests 8 through 10 seek information relating to the Commonwealth’s macroeconomic projections, which will form the basis for the Commonwealth’s projection of its future financial condition, and the impact of any financial measures, in the revised fiscal plan. Specifically, these requests seek documents explaining testimony provided by, and models produced by, two Commonwealth consultants—Andrew Wolfe and DevTech—neither of which is on-island.”

“Requests 11 and 12 seek documents relating to fundamental expense projections that must be contained in the contemplated revised fiscal plan: “essential services,” and medical expenses. Because the Commonwealth necessarily must evaluate what constitutes an essential service, and projected medical expenses, production of documents containing such analysis should not be burdensome.”

“Request 13 seeks production to all Movants of documents that have already been produced to other parties, in order to put all creditors on the same playing field.”

 “Requests 14 and 15 seek documents relating to revenues that have been or are subject to being “clawed back” from certain Commonwealth agencies for purposes of paying the Commonwealth’s general obligation debt, as well as documents relating to special taxes dedicated to paying such debt.”

“Request 16 seeks copies of the forthcoming submissions of the fiscal plans of the Commonwealth or any instrumentality to the Oversight Board, as well as documents necessary to understand the live model of the Fiscal Plan for Puerto Rico certified on March 13, 2017 and the Puerto Rico Electric Power Authority Fiscal Plan certified on April 28, 2017. Movants believe that such information will be necessary to understand and analyze the revised fiscal plans.”

“Request 17 seeks documents related to the analysis that led to the creation of a $600 million “Reconciliation Adjustment” in the Fiscal Plan certified on March 13, 2017, which is layered onto projected expenses each year, and serves to wipe out the effect of the Commonwealth’s proposed financial reform measures.” 

On that same date, Ambac sought a separate Rule 2004 discovery on the SUT after María. On Saturday, December 2, 2017, the UCC filed a limited joinder to the GO Bondholders and Ambac’s request.  Judge Dein has ordered a hearing on the subject for December 14, 2017, at 12:30 pm EST in Boston. Given that bondholders continue to complain about lack of financial information from the Board and from AFFAF, it seems that Judge Dein will have to either shut the door on Rule 2004 or allow it. Let’s see what happens.

Judge Swain issued a further order extending the time to assume or reject leases and gave the Commonwealth “until the earlier of (i) January 1, 2019, (ii) the date of expiration or termination of such leases pursuant to their own terms, or (iii) the date on which a plan of adjustment is confirmed for each Debtor, without prejudice to (x) the Debtors’ right to seek further extensions as contemplated by Bankruptcy Code section 365(d)(4)(B)(ii), or (y) the right of any party in interest to object to such requested extensions.”

As to “Real Property Leases for which the respective landlords have been sent a request for a consensual extension” the extension is “until the earlier of (i) January 1, 2019, (ii) the date of expiration or termination of such leases pursuant to their own terms, or (iii) the date on which a plan of adjustment is confirmed for each Debtor, without prejudice to (x) the Debtors’ right to seek further extensions as contemplated by Bankruptcy Code section 365(d)(4)(B)(ii), or (y) the right of any party in interest to object to such requested extensions, and subject to a reservation of the rights of each landlord on Exhibit B to assert that its consent was not validly provided.” Now the Commonwealth has ample time to decide which leases to reject and “convince” others to give it substantial rent reductions.

This is crunch time for motions for summary judgment in the New York Mellon Bank interpleader. Several motions have been filed but COFINA has yet to decide which it will answer. The time to file said answers has been extended to December 8, 2017 and replies to January 5, 2018, which  means that a decision could come as early as February 2018, but could be contingent on what is decided in the Commonwealth v. COFINA adversary proceeding.

Also, the issue of the scope of the Commonwealth v. COFINA disputes, oppositions to the motions as to the dispute must be filed by December 4, 2017 and replies by December 11. The oral argument will be heard during the December 20 Omnibus hearing. Also, summary judgment motions, the Commonwealth and COFINA have suggested January 31, 2018 with a March 2018 trial date. Let’s see what Judge Swain determines.

The Utier constitutional challenge continues its movement with the American Federation of State, County and Municipal Employees, which was allowed a limited intervention, filing a motion for the Court not to dismiss the Utier complaint for lack of standing. What behooves the mind is that this party opposes the Utier complaint and supports the Board’s request for dismissal, but not on standing grounds. Go figure.

 The Aurelius constitutional challenge motions continue to be filed as the January 10, 2018 oral argument looms. The hearing promises to be lively with veterans of United States Supreme Court arguments leading the way. Hope one of my clients wants me to attend.

In the Commonwealth v. COFINA litigation, the GO bondholders answered the UCC’s complaint, the COFINA counterclaims, answered COFINA Senior Bondholders answers in intervention and defenses and the Mutual Funds. This is another litigation that one should keep an eye on for it has the potential of deciding half of the bond debt.

This summary is merely what I believe are the more salient motions and decisions in the cases. I receive an average of 20 filings each day so it would be impossible to summarize everything. If you have legal interest in these cases, I urge you to hire an attorney to represent you.