Welcome to your weekly Title III update for December 18, 2017. The decision by Judge Dein on the Rule 2004 could turn out to be a pivotal moment in Puerto Rico’s bankruptcy.

GO’s, Ambac, the UCC and others had sought a separate Rule 2004 discovery on several issues and the Board opposed the request. Judge Dein granted the requests and said the following in her order:

“The Joint Motion is allowed only as to the 17 requests made in Schedule A to the Joint Motion, and without waiver of any objections the Respondents may have to specific categories or documents. . . Respondents contend that no Rule 2004 order is needed in light of their voluntary production. While the Court recognizes Respondents’ efforts to produce information voluntarily, there is a need in this Title III proceeding under the Puerto Rico Oversight, Management, and Economic Stability Act (“PROMESA”) for formal and controlled discovery related to the Commonwealth of Puerto Rico’s financial condition. This Court encourages the voluntary disclosure of documents between the parties and allows this motion to exercise its supervisory role over a finite set of document requests.”

Judge Dein further ordered that:

“Movants and Respondents shall submit a joint report on or before Friday, December 22, 2017 at 3:00 p.m. Atlantic Standard Time (2:00 p.m. Eastern Standard Time), which shall address, but need not be limited to, the following:
a. any agreed upon release from existing use restrictions for documents produced or to be produced in accordance with this order;
b. any areas of disagreement regarding the restrictions on the usage of documents produced or to be produced in accordance with this order and a proposal for dealing therewith; and
c. the format of a privilege log to be used in connection with productions pursuant to this order.”

Even with this order, I doubt this will be the end of disputes as to document production. The Board and the Commonwealth have amply demonstrated their lack of commitment to transparency.

Interestingly, and quite suspect, the government “found” $6.8 billion in bank accounts belonging to the Commonwealth and instrumentalities just days after the Rule 2004 decision. Now, the Board is going to “investigate,” but they have been in place for 16 months with little progress to show. It also raises questions about what they knew, when they knew, how they came to know it, etc. Same goes for the Governor.

The UTIER, PREPA’s main union, filed an amended complaint that essentially requests that the utility sign its union contract and that its Fiscal plan be disallowed.

The Board filed an emergency motion, later joined by the UCC, for a declaration that any insurance proceedings to PREPA not be used for debt payment. It seems that PREPA has a $550 million property insurance policy and the Board and AFFAF seem to want the Court to know they don’t want creditors claiming that money.

On Saturday December 16, 2017, the Ad Hoc Group of PREPA Bondholders and others filed an opposition to the Board’s motion. Although they “fully support the efforts of the Oversight Board and AAFAF . . . to collect Insurance Proceeds for damage caused to PREPA’s System by Hurricanes Irma and Maria and to apply them to repairs and prompt restoration of power to the Island,” they nevertheless opposed the motion as filed. They state that “[c]ontrary to the assertions in the Motion, the Objecting Parties do have a secured property interest in the Insurance Proceeds. Pursuant to section 701 of the Trust Agreement, the proceeds of insurance on the System are Revenues that have been pledged.” The Ad Hoc group argues that the PREPA Trust Agreement has “clear and definitive provisions governing PREPA’s right to receive and use proceeds of insurance policies notwithstanding that such funds have been pledged to support payment of the Bonds.” Let’s see what Judge Swain decides on this issue.

On December 12, 2017, the Board sent the Governor a letter as to PREPA’s transformation. Most specifically, it stated that the new Fiscal Plan must include:

“Governance: The Fiscal Plan should contain a clear plan for enhanced management capabilities to deliver a successful restoration and transformation and ensure PREPA management is de-politicized and able to make independent technical and operational decisions in a governance structure consistent with attracting private investment.

Private investment and partnerships: The Fiscal Plan should explicitly provide a plan for the private sector to invest to develop new infrastructure, upgrade existing infrastructure, and realize operational excellence.”

Those of us who live here know that the main problem with PREPA is that politics and politicians dominate its decision making. By stressing improving its governance and requiring private investment, plus Mr. José Carrión’s repeated cries for the sale of the utility and the Governor’s preference for public-private entities, it is clear that another confrontation between the Board and Commonwealth is inevitable. Let’s see who wins this time.

On December 13, 2017 at 11 EST, the Court heard 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. Judge Swain asked both parties pointed questions and took the submissions under advisement. Let’s see what she decides.

During December 14-15, 2017, the different attorneys and experts filed their fee applications to the Court. In bankruptcy, the Court passes judgment as to the payment of the debtors’ lawyers and experts and they make applications for payment. I will not comment as to the propriety of these application but just mention what they are. I will only include the name of the movant and its relationship with Puerto Rico, the attorneys fee requested, the expenses requested, the attorneys fees paid to date. Expenses have, for the most part, been paid and the time period the fee request covers.

MOVANT	FEE REQ	EXP REQ	FEE PAID	TIME PERIOD
Bettina Whyte	$264,460.00	$21,392.86	$238,014.00	8/3 to 9/30/17
Willkie Farr & Gallagher LLP counsel  for Bettina Whyte	$4,661,711.75	$158,974.01	$3,789,638.26	8/3 to 9/30/17
Klee, Tuchin, Bogdanoff & Stern LLP municipal counsel for Bettina Whyte	$533,434.50	$11,133.88	$533,434.50	7/31 to 9/40/17
Proskauer Rose LLP, as counsel for Board in PREPA	$989,899.20	$67,275.25	$989,899.20	7/2 to 9/30/17
Proskauer Rose LLP, as counsel for Board in ERS	$1,427,540.40	$24,131.76	$1,427,540.40	5/21 to 9/30/17
Proskauer Rose LLP, as counsel for Board in Commonwealth	$6,369,303.60	$233,148.09	$6,369,303.60	5/3 to 9/30/17
Proskauer Rose LLP, as counsel for Board in HTA	$4,035,404.70	$154,512.19	$4,035,404.70	5/21 to 9/30/17
Proskauer Rose LLP, as counsel for Board in COFINA	$1,505,471.40	$16,605.84	$1,505,471.40	5/5 to 9/30/17
O’Melveny & Myers LLP, for AFFAF	$2,028,863.49	$67,533.13	$1,827,719.83	5/21 to 9/30/17
O’Melveny & Myers LLP, for AFFAF, for HTA	$1,272,965.00	$19,854.00	$1,149,595.03	5/21 to 9/30/17
Greenberg Traurig, LLP for PREPA	$1,356,635.10	$57,025.81	$0.00	7/2 to 9/20/17
Ernst & Young LLP Board Expert	$1,169,699.80	$4,910.69	$0.00	5/3 to 9/30/17
Luskin, Stern & Eisler LLP, counsel for the Board	$$297,054.45	$2,172.59	unknown	5/3 to 9/30/17
McKinsey & Company, Inc. experts for the Board	$5,120,000.00	$0.00	$0.00	7/1 to 9/30/17
Phoenix Management Services, LLC, experts for mediation team	$774,101.00	$28,561.25	unknown	8/4 to 10/1/17
Deloitte Financial Advisory Services LLP, advisors to Commonwealth	$6,647,370.29	$441,830.04	$6,647,370.29	5/3 to 9/30/17
FTI Consulting, Inc., experts  Committee of Retired Employees	$660,431.00	$5,298.34	unknown	6/27 to 9/30/17
Jenner & Block LLP, counsel for Committee of Retired Employees	$2,051,975.37	$60,916.21	$0.00	6/16 to 9/30/17
Segal Consulting, expert actuaries for Committee of Retired Employees	$223,475.00	$5,305.47	$0.00	6/27 to 9/30/17
Greenberg Traurig, LLP, AFFAF counsel in PREPA	$2,037,466.72	$23,832.82	$0.00	7/2 to 9/30/17
Zolfo Cooper, LLC, financial advisor to UCC	$2,641,266.75	$38,372.69	unknown	6/27 to 9/30/17
Paul Hastings LLP counsel for UCC	$$4,868,107.00	$133,270.22	$0.00 (of this application)	6/26 to 9/30/17
Ankura Consulting Group, LLC, financial advisors to PREPA	$2,260,252	$129,303.57	unknown	7/2 to 9/30/17

Anyone who wants to can do the math. This proceeding is costing Puerto Rico enormous amounts of money. In addition, local entities to which the Commonwealth owes money are also spending money they could better use on lawyers and experts. The cost is mindboggling.

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.

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.

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.