Weekly Update – May 29, 2018

Welcome to your weekly Title III update for May 29, 2018. This week many things have happened both inside the Courtroom and outside.

As I mentioned in last Tuesday’s update, Magistrate Judge Dein granted, subject to a confidentiality order, discovery as to previous fiscal plans. Unfortunately, I failed to mention that on May 15 the UCC had filed a renewed motion to conduct discovery as to Puerto Rico’s financial institutions, such as but not limited to Banco Popular of Puerto Rico, Popular Securities and Santander Securities, even though the Board hired an investigator to conduct such discovery. The UCC motion states:

“As the Investigator has acknowledged on multiple occasions, his aim is not to advance any particular claims or causes of action. See, e.g., Ex. B, October 30 Report, ¶ 4 (“The Independent Investigator understands its mandate to include maintaining the thematic focus of the investigation on the issues identified by the Special Investigative Committee and statute, and maintaining the independence of the investigation from biases that may arise from participating as a litigant in this or any other litigation involving the matters under investigation.”). For example, the Investigator’s original “Work Plan” was specifically edited to remove a mandate to identify claims, leaving the focus on policy fixes or suggestions for the Commonwealth’s future issuances in the capital markets. See Redline to Investigator’s Work Plan, attached as Exhibit B to Creditors’Committee’s Status Report on 2004 Motion [Docket No. 1284-2] (Oversight Board’s redline of draft work plan removing language regarding the regarding the Investigator’s responsibility to identify “whether there was any misconduct relating to disclosure, selling practices, or use of proceeds in connection with the issuance of debt . . . including the identification of any potential claims . . . as well as the targets of those claims”).”

Obviously, the UCC, who are no fools, believes that there are some bonds that were issued illegally and that Puerto Rico’s financial institutions exerted undue pressure for the Commonwealth to issue bonds. This is exactly the type of “debt audit” that should be performed, not the “ñoñería” (idiomatic expression, akin to nonsense) that certain groups in PR advocate. The Board opposed the motion in a partially sealed and redacted motion, essentially saying that the investigators report would be due in July 2018, that the UCC has participation rights in the investigation (which the UCC denies), that the independent investigator is better situated to do a cost efficient investigation and that at best, the Committee’s request is premature.

Santander Securities filed similar objections. The problem with these and other objections is that the UCC quite correctly has pointed out that Board Chairman José Carrión has familial and business ties with Banco Popular and Carlos García and José Ramón González used to be with Santander Securities. Seems to me that a proper investigation should NOT be directed by the Board. Since I am not able to see all of the Board and UCC’s arguments I cannot in good conscience make a prediction but seems to me both Judges are realizing the need for greater transparency in the proceedings.

On May 22, Magistrate Judge Dein issued her order as to the discovery of fiscal plan materials. It states:

1. The parties to the Motion to Compel shall file a proposed protective order with this Court by May 30, 2018.

2. The 47 documents identified in Exhibit B to the Motion to Compel are hereby ordered produced under Federal Rule of Bankruptcy Procedure 2004 and pursuant to the protective order agreed upon by the parties. As confirmed by the Movants in open court, these 47 documents complete the production of outstanding fiscal plan development materials that existed in the data room as of the filing of the Motion to Compel on April 9, 2018. Movants will not seek to classify as fiscal plan development materials any additional documents which existed in the data room as of that date, and which have not otherwise been deemed produced.

3. The 7 documents identified in Exhibit A to the PREPA Motion are hereby ordered produced under Federal Rule of Bankruptcy Procedure 2004 and pursuant to the existing protective order between the parties to the PREPA Motion. See Dkt. No. 708 in 17BK As confirmed by the PREPA Movants in open court, these 7 documents complete the production of outstanding fiscal plan development materials that existed in the data room as of the filing of the PREPA Motion on April 23, 2018. The PREPA Movants will not seek to classify as fiscal plan development materials any additional documents which existed in the data room as of that date, and which have not otherwise been deemed produced.

4. Respondents the Puerto Rico Fiscal Agency and Financial Advisory Authority, the Financial Oversight and Management Board for Puerto Rico, and PREPA have not waived their right to object to the admissibility of any document produced pursuant to this order.

5. Consistent with the procedures discussed at the hearing, the parties shall submit a proposed process for the production of fiscal plan development material identified after the filing of the Motion to Compel and PREPA Motion. The parties shall do so on or before June 4, 2018.

On May 23, 2018, Assured and other monolines insurers filed an Adversary Proceeding (the complaint has 101 pages) in effect challenging the Fiscal Plans and making some very interesting statements. For example, it challenges the Fiscal Plans’ statement that Puerto Rico has greater debt service that the states since Puerto Rico does not pay federal taxes but the states do. Assured calls many of the Plans’ projections “unreliable” and points out that with the “discovered” $6.85 billion, the Commonwealth could do debt service since it has good liquidity and it has failed to pay $2.9 billion in GO bonds. Moreover, Assured suggests:

“Rather than support the consummation of the PREPA RSA, FOMB decided to reverse course in favor of a scorched-earth strategy that prioritized non-consensual Title III debt adjustment over consensual arrangements with creditors. Such an approach was then, and is today, by no means necessary to maintain sufficient liquidity and “breathing room” to implement financial and structural reforms. Many levers remain available to the parties to ensure the Commonwealth maintains adequate liquidity, while still meeting mutually-agreed-upon, restructured obligations to creditors. Not surprisingly, many of these levers are the same as those agreed to in the PREPA RSA, including haircuts, deferral of principal and interest—whether on all or certain credits—and securitizations to obtain lower-cost financing, including new money investments for growth. In exchange, the Commonwealth could provide current interest, validation of liens and pledges, or other forms of consideration that would not unduly pressure liquidity and that would protect creditors.

202. As a purely illustrative example, the Commonwealth and creditors could agree to a consensual debt restructuring that resets debt service to levels that the Commonwealth can support even based on conservative economic assumptions. For instance, through constructive negotiation, the parties could agree to material accommodations including a principal debt service holiday, an exchange of existing debt for new securities with a long-dated tenor, the use of capital appreciation bonds, and the structuring of an overall limit on debt service set as a percentage of the Commonwealth’s “own source” revenues. . .

203. The following analysis shows that, based on Defendants’ projections in the Revised Fiscal Plan and assuming that the federal government provides at least 40% of Medicaid funding (which is a conservative assumption), there would be sufficient cash available over the next five years to pay an agreed level of contractual debt service. Thereafter, based on Fiscal Year 2023 estimated cash for debt service, the same, reasonable federal Medicaid assumption, and a reasonable assumption of a long-term 2.5% growth rate, the Commonwealth could support over $50 billion of debt at a 5% interest rate and 2053 final maturity. This implied debt capacity exceeds the estimated total Commonwealth claims currently outstanding.”

Subsequently, the complaint gets to the gist of the problem; if the fiscal plan is not in compliance with PROMESA, the Plan of Adjustment based on said fiscal plan cannot be confirmed. It specifically states:

“238. Given that it is already clear that no plan of adjustment based on the Revised Fiscal Plan could be confirmed, the Court should exercise its statutory and equitable powers to declare that the Revised Fiscal Plan is unlawful and unconstitutional, and to further declare that the Court will not hold a confirmation hearing on any plan of adjustment issued under the Revised Fiscal Plan. To the extent necessary, complementary injunctive relief should be granted.

239. Notably, Section 312 of PROMESA provides that only FOMB may file a plan of adjustment. However, where, as here, FOMB fails to file a plan of adjustment with the petition, Section 312 of PROMESA also gives this Court authority to “set” the time at which FOMB “shall file a plan of adjustment.” PROMESA § 312(b). The Court therefore may, and should, exercise its authority under Section 312 to order that FOMB may not file a plan of adjustment until it has approved and certified a fiscal plan that complies with PROMESA and the U.S. Constitution.”

Anyone familiar with PROMESA knows that section 106(e) states that the District Court does not have jurisdiction to review the fiscal plan. Assured states:

“242. Defendants may attempt to point to Section 106(e) of PROMESA as a purported barrier to judicial review. But Plaintiffs do not challenge the Board’s certification decisions; they challenge the violation of multiple independent statutory provisions that require any fiscal plan to adhere to the requirements of Section 201(b), and that impose additional statutory limits on a fiscal plan.

  1. In any event, courts have long held that “even when the statutory language bars judicial review,” an exception exists for claims—like those raised in this Adversary Complaint—that an “agency exceeded the scope of its delegated authority or violated a clear statutory mandate.” Hanauer v. Reich, 82 F.3d 1304, 1307 (4th Cir. 1996) (emphasis added); see also Leedom v. Kyne, 358 U.S. 184, 188 (1958) (applying this principle to vacate a determination made by the National Labor Relations Board “in excess of [the Board’s] delegated powers and contrary to a specific prohibition in the [National Labor Relations Act]”).
  1. Furthermore, Section 106(e) of PROMESA poses no impediment to the Court’s review of Plaintiffs’ claims that the Revised Fiscal Plan violates Sections 303 and 407 of PROMESA and Section 928(a) of the Bankruptcy Code, because FOMB has never made a “certification determination” with respect to Section 303 or Section 407 of PROMESA or section 928 of the Bankruptcy Code and has no authority under PROMESA to do so.

  2. At a minimum, Plaintiffs’ request that the Court decline to hold a confirmation hearing with respect to a proposed plan of adjustment based on the Revised Fiscal Plan cannot possibly be viewed as a challenge to FOMB’s purported certification of the Revised Fiscal Plan, because the Revised Fiscal Plan would remain certified and in effect even if the Court were to grant such relief. Therefore, Plaintiffs’ request that the Court not hold a confirmation hearing based on the Revised Fiscal Plan does not implicate Section 106(e) of PROMESA.”

Finally, Assured claims that without judicial review, PROMESA would be unconstitutional. All in all, a strong complaint with a very good summary of bondholders’ positions as to the nature f the PROMESA controversy.

As readers may remember, my view is that it all boils down to the Plan of Adjustment. The Board now is saying the Plan of Adjustment will not be filed this year but rather in 2019. If Judge Swain were to side with Assured, it would push back this timetable. Also, consistent with the previous attempt of GO’s and COFINA to come to a solution, the complaint states that bondholders are willing to make a deal but the Board and the Commonwealth do not. I think this is another theme that will continue to resonate this year. Let’s see what happens.

On May 24, 2018, Judge Swain decided not to send the COFINA issues to the Puerto Rico Supreme Court. She held:

“Thus, to resolve the central question of ownership the Court will have to, at a minimum, engage the federal bankruptcy law arguments raised in the Commonwealth Parties’ Submissions, even if the Court ultimately rejects those arguments. Further subdividing the ownership question into federal and Puerto Rico law elements would create the possibility of rendering the Supreme Court of Puerto Rico’s decision advisory. . . Because federal law issues are thus necessarily bound up in the antecedent question of ownership, the Commonwealth-COFINA Dispute presents a mixed question of federal and Puerto Rico law that is inappropriate for certification under Rule 25(b).

Certification is also unwarranted here because it will delay resolution of this particular dispute, impede progress towards a plan of adjustment, postpone the conclusion of these Title III proceedings, and consequently delay the debtors’ ability to regain access to financial markets.”

I think this was the correct decision, not only because of the federal law issues but the delay. Judges in the Federal District Court in Puerto Rico are very reluctant to send cases to the local Supreme Court precisely because it can delay for years and then send it back saying it won’t decide.

Also, the Retirees Committee had requested that it be appointed to represent the PREPA retirees and everyone seemed to be in agreement until the Sistema de Retiro de los Empleados de la Autoridad de Energía Eléctrica filed its opposition saying they should represent these retirees. Given the fact that it is the administrator of the plan, makes sense to me that they represent the PREPA retirees. Let’s see what the Commonwealth Retirees replies.

Finally, the issue of the Commonwealth budget continues to simmer with the President of the Puerto Rico Senate, Thomas Rivera Schatz sticking to his guns in refusing to eliminate Law 80. Although I doubt Senator Rivera Schatz’s opposition will last long, it is still an obstacle for the budget. If the law is not eliminated, what will the Board do? Again, let’s see what happens.

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.

Board & Commonwealth Must Hand Over Fiscal Plan Data

Yesterday, Magistrate Judge Dein held a lengthy hearing on the “Fiscal Plan Development Materials” underlying the Fiscal Plans certified in 2017, and the Fiscal Plans proposed and adopted in 2018.  Bondholders had sought this information from the start only to be blocked at every turn by the Oversight Board and Commonwealth.

The motion was brought by the Ad Hoc Group of General Obligation Bondholders, Ambac Assurance Corporation, Assured Guaranty Corp. and Assured Guaranty Municipal Corp., the Mutual Fund Group, and National Public Finance Guarantee Corporation.

Judge Dein’s ruling rejected the Board and Commonwealth’s efforts to block bondholders from accessing these public documents. Her ruling paved the way for the Fiscal Plan Development Materials to be produced outside the dataroom restrictions pursuant to Bankruptcy Rule 2004.  The Board and Commonwealth had insisted these documents be available only in the dataroom, where the documents would be subject to restrictions under the mediation agreement and NDAs that bars bondholders from using the information in litigation.

Judge Dein’s order gives bondholders access to all 47 documents they sought following the February ruling, and ordered these documents be produced subject to the confidentiality order, which will be worked out by the parties in the next two weeks. In addition, all documents pertaining to the preparation of the present Fiscal Plan and future Fiscal Plans would be provided automatically, subject to said confidentiality order. This is without prejudice of the Board objecting to their use in evidence for relevance, hearsay or other objections.

The Board and the Commonwealth’s joint-strategy to evade accountability and limit transparency from the public and creditors has obviously failed.  It will also expose their analysis underpinning the Fiscal Plans to expert examination. This is a significant victory for the movants who can now use this information in litigation.

This is very relevant for the Plan of Adjustment, which must be consistent with the Fiscal Plan. Judge Swain has indicated that it is only at that stage will she review said Fiscal Plan. Hence, the wheels of the Board and AAFAF’s strategy of obfuscation and hiding information are starting to fall-off.  Might be time to grab an old pair of training wheels. Just wish the Puerto Rican people, who pay for these documents, had access to them.

Moreover, during the hearing, counsel for AAFAF mentioned that the Plan of Adjustment would be presented in 2019, which is consistent with a Wall Street Journal story where Ms. Jaresko stated it would be in a year to a year and half. That takes us to either May or November of 2019. If we consider that in the Detroit bankruptcy the confirmation of the Plan of Adjustment took 9 months and it was only $18 billion in debt, the Puerto Rico confirmation may take a whole year or more, taking it past the 2020 governor’s race. You can come to your own conclusions.

Other bondholders were challenging the Board’s privilege log as to 59 series of documents. Judge Dein, quite correctly, started by saying that the parties needed to put some facts into their legal briefs. Movants mentioned that the Board had admitted it had not actually looked at most of the documents and the Board mentioned that movants had not explained what it was they actually objected. After some discussion, Judge Dein made the parties agree to select no more than 12 categories of documents, the Board would present movants an affidavit as to the documents and privilege, if movant wanted more information they could ask for it and then could ask the Board to show the privilege. If this showing does not convince movants, the parties would come to the Court with suggestions on how Judge Dein could review the documents. Although it seems like back to the drawing board, Judge Dein was disturbed by the fact that privilege was raised without there having been a review of the documents. Slowly but surely, bondholders and others are forcing the Board to reveal its secrets.

Pending is the recent renewed motion by the UCC to conduct an audit of the Puerto Rican debt, which the Board said it would do, but has not. Today, the Board must file its opposition to this motion, which it has already announced will include redacted and sealed documentation.

All of this is going to be very interesting.

Monday Update – May 21, 2018

Welcome to your weekly Title III update for May 21, 2018. As last week, the news outside the Court overshadowed the activity inside the Court.

The Oversight Board and Commonwealth announced an agreement on a budget last night. This should come as a surprise to no one. Activity last week indicated that some type of compromise was in the works. When the Board notified the Governor that its budget was in violation of PROMESA, it concludes that the Commonwealth had until May 15, 2018 to provide it with a conforming budget. After meetings and discussions, the Board gave the Commonwealth until May 18, 2018 to provide a conforming budget. The press and other analysts gushed about the wisdom of these conversations in order to bring harmony to these troubled relationships.

The agreement presented with the Board  includes agreement that pensions would not have to be reduced, Christmas bonuses would remain, the Governor’s office and the Legislature’s budget would not be reduced, nor vacation and sick leave. In exchange, the Legislature would file a bill to repeal Law 80. In other words, the Government budget remains intact and only private industry employees will have their rights curtailed.

In typical fashion, Senate President Rivera Schatz reacted surprised to the Governor’s announcement, saying neither he nor the Senate were aware of the agreement. Senator Rivera Schatz is either grandstanding and will reluctantly cooperate, or he will block the agreement. I am inclined to believe the former. Let’s see if there is more to this, or if it is all hot air.

The budget deal helps the Board and Governor present a unified front, which will be necessary as they work to minimize debt payments for the all-important Plan of Adjustment. This is critical. This afternoon at 1:30pm Magistrate Judge Dein will hear arguments the issue of the documents to be provided in Rule 2004 discovery, which the Board insists it does not have to produce. The Board and the Commonwealth are resisting – and for good reason.  If the documents are allowed to be reviewed by creditors – things such as economic projections and the data behind the outmigration claims – it is quite possible the entire Plan of Adjustment bottoms out over the accuracy of the data presented by the Board to date.

Further, the agreement on the budget and the fiscal plan makes a Plan of Adjustment based on the amendments to the fiscal plan highly unlikely to be approved by creditors, who face 70%-80% haircuts. Since the Board has to know this is a likely scenario, it seems they are kicking the can into Judge Swain’s desk, who I feel will not cramdown such Plan of Adjustment, but will suggest that changes be made. It is likely there that the “real” cuts to the Government will occur. That way, neither the Puerto Rico Government nor the Board would be responsible for said cuts. Rather, they will claim we were forced to do this because we had to pay the creditors. Not what Congress originally envisioned as the Board’s job and it will prolong the life of the Title III and the high costs of the case. I will attend the hearing via teleconferencing in the District Court in San Juan.

Last week, the AFL-CIO, requested from the Securities and Exchange Commission an investigation on whether the Governor leaked privileged information to GO bondholders. The basis? The rise in price of GO bonds. Not only is this evidence of nothing, but the AFL-CIO, obviously not happy with the Rosselló administration, forgets that all the information having to do with the fiscal plan was shared with the Board. In any event, I doubt anyone leaked any information to bondholders.

On May 16, 2018, the Board sent a letter to Senator Murkowski as to PREPA and had this to say:

“As the representative of PREPA in the Title III court proceedings, the Oversight Board leads the negotiations to restructure PREPA’s legacy obligations, such as debt and unfunded pension. The Oversight Board also plays an integral role in the process to transform PREPA into a modern electric utility that provides low-cost, reliable energy because any transaction to effectuate that transformation will have to be approved by the Title III court as part of PREPA’s plan of adjustment to emerge from Title III. The Oversight Board has retained Citigroup Global Markets, Inc. as the financial advisor, representing both the Oversight Board and the Government, on any potential transformation transactions. Among other things, Citi intends to conduct a broad market sounding exercise to gauge interest level in participating in any potential such transformation transactions that could entail a long-term concession for the transmission and distribution system and the potential sale of generation assets. This market sounding will help shape the RFQ and RFP process that will be conducted pursuant to the amended P3 legislation that is currently being debated in the Puerto Rico Legislature.”

Since it is not true that Judge Swain has to approve any PREPA sale since section 363 of the Bankruptcy Code was not adopted in PROMESA, the Board wants to make clear to the Senate that it is in charge of the utilities sale. I have seen no reaction from the Commonwealth so I assume they are OK with this. Interesting.

Last week, a COFINA and GO bondholders settlement was announced and although quickly rejected by the Board and AFFAF, it had its impact. It seems that the agreement would leave GO’s with a piece of the COFINA SUT but also with claims against the Commonwealth, something no creditor would accept. Hence, although at first glance it seemed to favor COFINA, it actually favors GO’s. In any event, the American Federation of State, County and Municipal Employees International Union, AFL-CIO (“AFSCME”)—a labor union representing Commonwealth public employees and retirees through its affiliates Servidores Publicos Unidos (“SPU”) and the Capitulo de Retirados de SPU was apparently irked by the proposed settlement. It filed last week a motion stating that “[t]o protect the integrity of Stipulation and any negotiations to settle the Commonwealth-COFINA dispute, AFSCME respectfully asks the Court for exceedingly modest relief: an order compelling the Mediation Team, AAFAF, Oversight Board, and COFINA Agent to comply with the Stipulation by not participating in any discussions to settle the Commonwealth-COFINA dispute with the GO Creditor Representative.”

Bettina Whyte, COFINA representative, quite correctly answered saying she had nothing to say since doing so would violate the confidentiality of mediation. The Board went further and said:

“First, to the extent the Motion insinuates the Oversight Board violated the Stipulation, it is completely wrong. Section 4(n) of the Stipulation expressly provides that notwithstanding anything else in the Stipulation, the Oversight Board can negotiate and propose plans of adjustment that settle the Commonwealth-COFINA dispute. Accordingly, the Oversight Board is fully authorized by PROMESA and the Stipulation to negotiate with any creditors, inside or outside the mediation, and to propose a plan of adjustment resulting from those negotiations, which plan may include a settlement of the Commonwealth-COFINA dispute.”

Also, no action in cases 17-242 and 17-243, the American Federation of State County and Municipal Employees, who sued to set aside the fiscal plan. The cases remain dormant. On the other hand, the UCC, in the case of Cooperativa de Ahorro y Crédito Abraham Rosa v. Commonwealth, 18-28, filed a motion to intervene as follows:

“(i) granting the Intervention Motion and (ii) providing the Committee with the same Participation Rights it received in the Other Adversary Proceedings, including the right to receive document discovery, attend depositions, file briefs, and participate in oral argument, as set out in the attached proposed order.”

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 – May 14, 2018

Welcome to your weekly Title III update for May 14, 2018. Once more, the news outside the Court overshadowed the activity inside the Court.

Today a settlement between various COFINA and GO bondholders and insurers was announced. Exhibit B breaks it down this way:

“A proposed settlement of the Commonwealth

COFINA dispute based on the retention of 5.5% Sales and Use Tax (“SUT”) by a newly formed PR Securitization Trust (the “Trust”)

The Trust would take ownership of the 5.5% SUT through the effective date of COFINA plan of adjustment plus 40 years (or such later date as of which the new trust certificates are paid in full)

COFINA bondholders would receive Trust certificates entitling them to: 52.5% of future 5.5% SUT cash flows and 52.5% of Bank of New York Mellon cash To be structured with 1.2x debt service coverage into Current Interest Bonds (“CIBs”) with a 6.0% interest rate and Capital Appreciation Bonds (“CABs”) with a 6.5% interest rate along with a pro rata interest in the residual cash flows of the 5.5% SUT that remain after payment of interest and principal on the CIBs and CABs (the “Residual,” which has been valued using a 15% discount rate)

Participating GO bondholders would tender their bonds into the Trust and receive: 46.2% of future 5.5% SUT cash flows and 46.2% of Bank of New York Mellon cash. To be structured with 1.2x debt service coverage into CIBs with a 6.0% interest rate and CABs with a 6.5% interest rate along with the Residual Commonwealth/GO remainder claim certificates would be supported by the remainder of GO claims, as of the effective date (assumed to be 7/1/18), in the Commonwealth Title III (as calculated by taking par plus accrued claim amount less the distributable value received by GO bondholders)

Participating Commonwealth General Unsecured Claims (“CW GUCs”) up to an allowed claim amount of $500 MM would have the right to tender their claims to the Trust and receive: 1.3% of future 5.5% SUT cash flows and 1.3% of Bank of New York Mellon cash. To be structured with 1.2x debt service coverage into CIBs with a 6.0% interest rate and CABs with a 6.5% interest rate along with the Residual.”

The agreement would provide recoveries of 58.6% to GO’s, 58.6% to General Unsecured Debt, 64.5% in general for COFINA, broken down to between 93-95% to COFINA senior and 42.2-43.2% to COFINA subordinate. All this would be paid from the 5.5 SUT which would be surrendered to a trustee. What about the Commonwealth and COFINA agents position? The agreement states:

“Pursuant to the Stipulation, in order to settle the Commonwealth-COFINA Dispute, the two agents appointed by the Oversight Board would need to support the Joint Settlement Outline: (i) the official committee of unsecured creditors appointed in the Commonwealth’s Title III case (the “Commonwealth Agent”) and (ii) Bettina Whyte (the “COFINA Agent”).

While the COFINA Agent supported the allocation of the Pledged Sales Tax between the Commonwealth and COFINA, the Commonwealth Agent did not support any portion of the Joint Settlement Outline.”

Unfortunately, the Board and AFFAF quickly rejected the agreement stating that it was contrary to the certified fiscal plan. Whether that is true or not, the agreement is an important milestone. It is the first time the possibility of a path to exit Title 3 and return Puerto Rico to the capital markets has been presented in black and white. Moreover, the agreement was driven by creditors with extremely divergent interests, rather than by the Board or the Commonwealth, who have done very little to advance consensual negotiations or a settlement. More importantly, the fact that their first move was to immediately denounce the deal raises substantial questions as to their true interest in securing a consensual deal. It really feels like more of the same. It is almost like they really prefer a cramdown of a Plan of Adjustment with over 70% cuts for bondholders. If the Board and AFFAF actually pull this off, who will lend to Puerto Rico in the foreseeable future?

On May 8, 2018, the Senate’s Committee on Energy and Natural Resources held a hearing on “The Current Status of Puerto Rico’s Electric Grid and Proposals for the Future Operation of the Grid.” The witness list included Bruce Walker Assistant Secretary, Office of Electricity Delivery and Energy Reliability, U.S. Department of Energy (DOE) and Charles R. Alexander, Jr., Director, Contingency Operations and Homeland Security U.S. Army Corps of Engineers for the Federal Government. From Puerto Rico, Christian Sobrino-Vega, President of the Government Development Bank and Chairman of the Board of the Fiscal Agency & Financial Advisory Authority, Government of Puerto Rico; Mr. Walter Higgins, Chief Executive Officer Puerto Rico Electric Power Authority; Mr. José H. Román Morales, PE Acting Associate Commissioner for the Puerto Rico Energy Board and Mr. Rodrigo Masses, President Puerto Rico Manufacturers Association. Maybe during this hearing we will know who will actually be in charge of planning the PREPA electric grid and the utilities sale, and understanding some more about the recent blackouts.

Senator Murkowski from the start asked very important questions:

“[G]oing forward, who is in charge of the grid? Who is providing the vision for the future of the grid and who should outside parties be in contact with to help fulfill that vision?
Is it the Governor’s office, which is promoting legislation to sell off some of PREPA’s assets and contract with a third party to operate the transmission and distribution lines?
Is it the Financial Oversight and Management Board, which recently certified a new fiscal plan for PREPA that includes a process for privatization?
Or is it PREPA, which has a relatively new Board of Directors, and a new CEO, but could be completely upended by these other plans?
Or is it the PREC, which claims responsibility for setting the overall policy direction for the grid, yet could be dissolved under the Governor’s reorganization plan?
And then how do the Department of Energy and the Army Corps of Engineers fit into this hierarchy? And of course, what about the creditors?”

Unfortunately, no one, not even the Government’s representatives, gave a clear answer. Mr. Walker from the DOE stated:

“Another DOE effort is through grid modeling to support the rebuilding of a more resilient electric power grid system in Puerto Rico. This endeavor will develop a near real time dynamic model of the Puerto Rico power system that will not only be used as an operational tool but for planning purposes as well. This modeling effort will provide technical insight into the resiliency objectives, allowing for coordination and communication of potential solutions across stakeholder groups. Working in partnership with FEMA and the U.S. Department of Housing and Urban Development (HUD), DOE seeks to facilitate collaboration with PREPA as they plan future investments and determine where financial resources will be most beneficial in strengthening Puerto Rico’s grid and increasing its resilience. . .
The Southern States Energy Board (SSEB), in association with DOE, is working in coordination with the governor and legislature of Puerto Rico to establish a reliable, affordable, and sustainable electric energy grid system, and to develop a policy and legal framework to provide a regulatory process for possible privatization efforts. Working in collaboration, SSEB will present Puerto Rico with various options and recommendations for the electricity and other utility sectors. . .
Although some of the additional analysis necessary to support those resilience principles is underway, recommendations that can be acted on today to improve the performance of the system ahead of the 2018 hurricane season are as follows:
1. The Governor and PREPA should immediately ensure that updated, effective mutual aid agreements are primed to quickly provide support during the next event.
2. The Incident Command System should be trained and utilized during a response.
3. The Puerto Rico Energy Commission (PREC) should coordinate a joint study with the Puerto Rico Telecommunications Board to determine and enforce safe loading requirements of distribution poles carrying both electric and telecommunications infrastructure.
4. Electricity transmission towers installed specifically for temporary emergency restoration should be considered for replacement, potentially by monopoles; many of the round monopole structures survived the 2017 storms.
5. The PREC should finalize microgrid regulations, and establish effective and efficient interconnection requirements and wheeling regulations with PREPA. These regulations will allow customers to design their systems to add reliability and resilience to PREPA’s system.
6. The Commonwealth Energy Public Policy Office, in coordination with other appropriate Commonwealth agencies, should consider drafting an updated Energy Assurance Plan, which will provide for an Incident Management Team as well as other important components. Besides preparing for the next hurricane season, acting immediately will allow for leveraging the presence of Federal staff in the Joint Field Office and the Federal data collection efforts that have been underway since September. Finally, the SSEB may be able to facilitate peer-to-peer information sharing and lessons learned among Puerto Rico’s neighboring governments and utilities.”

Mr. Higgins, the new PREPA executive director, also failed to say who was in charge and made it clear that he did not make public policy, but only executed it. Moreover, he stated:

“Since it received the loan, PREPA has consistently collected slightly more than $50 million of accounts receivable per week, and it projects collections to remain near that level through the end of PREPA’s fiscal year on June 30, 2018. PREPA currently believes that these weekly collections, coupled with the loan, will permit PREPA to continue to operate under current conditions without the assistance of additional financing through the end of the current fiscal year and into Fiscal Year 2019. It is worth noting that the continuity of restoration and mitigation/hardening work on the grid is dependent on the continuing receipt of federal funding, which is being closely coordinated with FEMA.”

Again we see that the Board and AFFAF overestimated PREPA’s need for a loan and Judge Swain was correct in denying said loan. Moreover, it is clear that PREPA is able to continue with reconstruction efforts due to federal funding.

Mr. Sobrino, the Governor’s representative before the Board, had this to say:

“Governor Rosselló has set forth a three-phase plan for the transformation of the electric sector. The first phase will define the framework for the transformation through legislation. The second phase will involve marketing, receiving offers from interested parties, and evaluating the technical, economic, and financial capabilities of offerors. In the final phase, the terms of awarding and hiring the selected parties that meet the requirements for the transformation and modernization of our energy system will be negotiated, finalized, and approved. . .

The assumed “base case” for the contemplated transformation involves (i) private ownership and/or operation of all generation assets and a development of greenfield generation projects with a focus on a diversified fuel mix and clean energy and (ii) a private operator of the transmission and distribution system through a concession model, which leaves the ownership of the assets in public hands under the operation of a private operator. I anticipate this “base case” will be subjected to a market test in order to determine the extent of investor interest and whether higher values and/or better transaction terms can be achieved by using an alternative structure. I anticipate the timeline to run the competitive process for the transformation will be at least 12 to 18 months.”

The problem with this is that the legislation for the sale of PREPA is anything but transparent and it does not say how the sale will be done. Moreover, Mr. Higgins and Mr. Sobrino both repeat the mantra of the last 12-18 months, which is what the Governor said in January of 2018, only the House has approved the sale legislation. Seems to me politicians do not want to sell the crown jewel of political patronage and makes me wonder if it would be better for the federal government to handle the sale.

Also during the hearing, Mr. Sobrino tried to blame the federal government for the delay in bringing back electricity to Puerto Rico, implying that the Corps of Engineers had told the Governor it would be done in 40 days. When Sec. Walker demurred, Sobrino said “I was there,” and Walker retorted “So was I.” There is a fine line between being assertive and irritating those whose help you need. I suspect this will not be the last we hear about the Corps of Engineers vs. PREPA fight. Food for thought.

The PREPA loan is not the only area where the Board’s projections were wrong. In the certified Fiscal Plan of the Commonwealth, the Board mentions in footnote 9, a projection of outmigration by a part-time blogging self-taught demographer who is actually a full-time cotton economist at the U.S. Department of Agriculture. The idea is that the Puerto Rican population left in droves due to Hurricane María and will continue to leave, especially this coming summer. A recent study, however, puts these dire predictions into question using data from people’s phones, showing that most of the population that left after María hav returned to Puerto Rico. The Court lacks jurisdiction to review the Fiscal Plan, PROMESA section 106(e), but it can do so in the context of the Plan of Adjustment. We shouldn’t be surprised for one second when all creditors cite this new finding, and ask the Board and Commonwealth to back up their migration claims. Food for thought.

This is just another example of the Board hiding relevant information like it hides the Commonwealth’s financial information to make things look worse than they are in order to convince Judge Swain to impose the cramdown it desires. Given the discovery that will continue in this case pursuant to Bankruptcy Rule 2004, I doubt this strategy will prevail. Moreover, as Judge Swain has stated, she will review the fiscal plan at the plan of adjustment stage. I take this to mean that if the information contained in them is incorrect, there will be no cramdown.

Last week Congressman Bishop attended a fundraiser that was supposedly not a fundraiser, but most likely was a fundraiser (I don’t understand either) and our own José Carrión was the man of the night. So the godfather of PROMESA and the President of Board were schmoozing at a dinner and no one has asked whether this is legal, ethical or right? Mr. Carrión says in the article “I do not think there were conflicts of interest at the dinner . . . My political contributions are well known and of the public record. Everyone in Puerto Rico knows I am a Republican.” I’m also told that Carrión’s firm, CLC, hosted Congressman Bishop for a private luncheon with their clients. Why is it that the Board can investigate any possible pay-for-play with the Commonwealth advisors and lawyers but we have to take their word that nothing wrong is happening in the Bishop-Carrión affair or in Matosantos case? Where are the ethical analysis of these cases? Don’t the Puerto Rico taxpayers have a right to know? The Board’s lack of transparency on these two cases leaves a lot to be desired.

As I reported, on May 4, the Commonwealth handed the Board its proposed budget as was required and on May 8, the Board notified the Governor that it was in violation of PROMESA. The Commonwealth has until May 5, 2018 to provide with a conforming budget. As to be expected, the inclusion of Christmas Bonuses and additional funds for Municipalities did not set well with the Board. In addition, the Commonwealth must:

“Provide a detailed budget of expenses for FY19 that is consistent with the trajectory for the primary fiscal balance in the Fiscal Plan, using the same basis of accounting used to prepare the Fiscal Plan (modified accrual basis of accounting) and in accordance with the accounting policies used to prepare the audited financial statements of the Commonwealth. If the basis of accounting is different than modified accrual, please confirm the basis of accounting being used.

Provide a reconciliation of the budget to the Fiscal Plan for expenditures with explanations of any variance. However, it is not expected that total expenditures would deviate from Fiscal Plan submitted and approved. To the extent the budget changes after May 4, provide the updated reconciliation in excel within five business days of the update and no later than eight business days before certification of the FY19 budget. . .

Where available, provide a comparison of expenditures to prior two budgets and to prior two years of actuals (where available) and latest twelve (“LTM”) months ending December 31, 2017 of actuals and explain key differences. If the actuals for the prior two years or LTM period, are just draft versions, indicate so when providing the information.”

Also, as for public corporations in the Commonwealth Budget, it must:

“Provide a detailed budget of total expenditures defined in this document to include operating expenses and separately capital improvement plan (“CIP”) expenditures for FY19 that is consistent with the trajectory in the Fiscal Plan covers transactions conducted by all subsidiaries. There should be a detailed breakout of operating expenses

Provide a reconciliation of the budget to the Fiscal Plan with explanations of any variance. However, total expenditures should not deviate from the Fiscal Plan operating expenses and CIP submitted and approved. To the extent the budget changes after May 4, 2018 based upon specific information not known at that time, provide the updated reconciliation in excel within five business days of the update and no later than eight business days before certification of the FY19 budget.

Provide a comparison of expenditures to the prior two budgets (FY17 and FY18) and to the prior two years (FY16 and FY17) and year-to-date (“YTD”) from July 1, 2017 through March 31, 2018 of actuals versus July 1, 2016 through March 31, 2017. Explain key differences by both $ and % differences for any variance over 10%. If the actuals for the prior two years or YTD period are draft versions, indicate so when providing the information.”

This is only a small scope of the things that were “requested” from the Commonwealth, making it impossible to comply. Moreover, Mr. Sobrino reacted by saying that some changes would be made to the budget but that Puerto Rico would not increase the Board’s budget, include the labor reform or cut the Christmas bonuses. Ms. Jaresko, however, made it clear that the Commonwealth must comply with the budget order. Eventually, all this will land on Judge Swain’s desk and the people of Puerto Rico will pay for both the Board and AFFAF’s lawyers to determine who is in charge of the Government. A total waste of resources. Oh, well.

This is only the beginning of a long process. Section 202 of PROMESA requires the Board to give the Governor some time (not specified) to correct any errors in the budget. It not corrected, the Board will impose their own budget and send it to the Legislature and the Governor. If the Legislature does not approve a conforming budget, the Board must again give the Legislature time to correct the errors and if not done, section 202(e)(3) specifies:

“If the Governor and the Legislature fail to develop and approve a Territory Budget that is a compliant budget by the day before the first day of the fiscal year for which the Territory Budget is being developed, the Oversight Board shall submit a Budget to the Governor and the Legislature (including any revision to the Territory Budget made by the Oversight Board pursuant to subsection (d)(2)) and such Budget shall be—
(A) deemed to be approved by the Governor and the Legislature;
(B) the subject of a compliance certification issued by the Oversight Board to the Governor and the Legislature; and
(C) in full force and effect beginning on the first day of the applicable fiscal year.”

This belies arguments by the politicians in the Legislature that if they do not approve the budget, last year’s budget will go into effect as per the Puerto Rico Constitution. The devil is in the details.

Last week, the Government Accountability Office issued a report entitled “Factors Contributing to the Debt Crisis and Potential Federal Actions to Address Them” and determined this as causes:

“The Puerto Rico government’s inadequate financial management and oversight practices. For example, the Puerto Rico government frequently overestimated the amount of revenue it would collect and Puerto Rico’s agencies regularly spent more than the amounts Puerto Rico’s legislature appropriated for a given fiscal year.
Policy decisions by Puerto Rico’s government. For example, Puerto Rico borrowed funds to balance budgets and insufficiently addressed public pension funding shortfalls.
Puerto Rico’s prolonged economic contraction. Examples of factors contributing to the contraction include outmigration and the resulting diminished labor force, and the high cost of importing goods and energy.”

The report recommended the following:

“Modify the tax exempt status for Puerto Rico municipal debt. Making interest income from Puerto Rico bonds earned by investors residing outside of Puerto Rico subject to applicable state and local taxes could lower demand for Puerto Rico debt. However, reduced demand could hinder Puerto Rico’s ability to borrow funds for capital investments or liquidity.

Apply federal investor protection laws to Puerto Rico. Requiring Puerto Rico investment companies to disclose risks with Puerto Rico bonds and adhere to other requirements could lower demand for the bonds. However, this action could also limit Puerto Rico’s ability to borrow funds.

Modify the Securities and Exchange Commission’s (SEC) authority over municipal bond disclosure requirements. SEC could be allowed to require timely disclosure of materials—such as audited financial statements—associated with municipal bonds. Over the past decade, Puerto Rico often failed to provide timely audited financial statements related to its municipal bonds. Timely disclosure could help investors make informed decisions about investing in municipal bonds. However, a broad requirement could place additional burdens on all U.S. municipal issuers, such as the costs of standardizing reporting.”

Faced with a report saying the triple tax exemption on bonds, possible only for a territory, would be accepted with open arms by a pro-statehood administration. Not so. In a letter from Carlos Mercader, Executive Director of the Puerto Rico Federal Affairs Administration, said that the Government of Puerto Rico was strongly opposed to the elimination of the triple exemption since it was crucial to its efforts to solve the current financial crisis. In other words, although the Government admits that the triple exemption facilitated the financial crisis it is in, it hopes to use it get further loans but claims that statehood is the solution to its problems. Oh, and sans paying the debt. Quixotic, don’t you think?

On the legal front, Judge Swain heard the oral argument on the COFINA motion to certify the Commonwealth v. COFINA question to the Puerto Rico Supreme Court. She took the controversy under advisement and as with the Aurelius, ERS and other controversies, we will have to wait. Seems Judge Swain is taking a page from Judge Rhodes’ book in hopes of solving everything in mediation. Unfortunately, I find this highly unlikely, even with today’s encouraging news from the Commonwealth’s largest creditors.

The Asociación de Profesoras y Profesores del Recinto Universitario de Mayagüez, Inc. has sued the Board and the Commonwealth challenging the UPR certified fiscal plan. The case had been stayed until the new fiscal plan for the UPR was approved and this week the complaint was amended and surprise, surprise, this claim was ditched and now plaintiff requests:

“a. An order declaring that the fiscal plans of the Commonwealth and the UPR are not legislative acts and could not be implemented without the enactments of the necessary laws after the process established by Article III, Section 17 of the Constitution of the Commonwealth of Puerto Rico.

b. An order declaring that the budgets certified by the Oversight Board for the Commonwealth and the UPR could not be implemented without the enactments of the necessary laws after the process established by Article III, Section 17 of the Constitution of the Commonwealth of Puerto Rico.

c. An order declaring that the fiscal plans and budgets certified by the Oversight Board for the Commonwealth and the UPR could not impose budgetary cut that are contrary to Act 3-2017.

d. An order Defendants enjoining and staying from implementing budgetary cuts to the UPR in the fiscal year 2017-2018 neither in the fiscal year 2018-2019, that are not compliant with Act 3-2017.”

It is doubtful this group has standing in this case. Moreover, it is more than likely that PROMESA supersedes the Constitution of Puerto Rico as to these issues. Irrespective of my view, this group is actively challenging the Board’s actions whereas in cases 17-242 and 17-243, the American Federation of State County and Municipal Employees, who also sued to set aside the fiscal plan, the cases remain dormant.

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 – May 7, 2018

Welcome to your weekly Title III update for May 7, 2018. We have news from the Court, as well as outside the Court.

On May 8, 2018, the Senate’s Committee on Energy and Natural Resources will hold a hearing on The Current Status of Puerto Rico’s Electric Grid and Proposals for the Future Operation of the Grid. The witness list is very interesting: Bruce Walker
Assistant Secretary, Office of Electricity Delivery and Energy Reliability, U.S. Department of Energy and Charles R. Alexander, Jr., Director, Contingency Operations and Homeland Security U.S. Army Corps of Engineers for the Federal Government. From Puerto Rico, Christian Sobrino-Vega, President of the Government Development Bank and Chairman of the Board of the Fiscal Agency & Financial Advisory Authority, Government of Puerto Rico; Mr. Walter Higgins, Chief Executive Officer Puerto Rico Electric Power Authority; Mr. José H. Román Morales, PE Acting Associate Commissioner for the Puerto Rico Energy Board and Mr. Rodrigo Masses, President Puerto Rico Manufacturers Association. Maybe during this hearing we will know who will actually be in charge of planning the PREPA electric grid and the utilities sale, and understanding some more about the recent blackouts.

Now that we are discussing PREPA, Bloomberg interviewed Mr. Walter Higgins, who said some interesting things. He said that PREPA would decide in 18 months how the sale would occur and the request for proposals will be done in 12-18 months. The leasing of the transmission will take up to two years, or at least that is what Higgins said. Interesting, since the legislature said it wanted a public private partnership, but has yet to actually approve the legislation. Moreover, El Vocero reports that the legislators dealing with the bill to sell PREPA are not clear on what mechanism Governor Rosselló will use. Seems politicians have no intention of selling the utility.

Continuing with the Congressional drama, Rob Bishop, Chairman of the House Energy Committee, arrived in Puerto Rico and was met by Resident Commissioner Jenniffer González. Governor Rosselló, however, said his agenda was too full to meet with Chairman Bishop. Local press later reported that Governor Rosselló was paddle boarding. Great way to make friends in Congress. Also of interest is that Chairman Bishop stated that Representative Don Young’s bill on the sale of PREPA “is there. It’s one of the things we have to look at.” Further clarification would be nice. In another interview https://www.facebook.com/wkaq580/videos/1891588024249988/ Congressman Bishop stated “[o]bviously any efforts you can [take] to reinsure creditors that they will be paid, and in a timely manner, will not only calm down past concerns but reinsure future investment.”

On Friday May 4, the Commonwealth handed the Board its proposed budget as was required. The budget, since it does not conform to the haircuts in pensions and other areas required by the certified fiscal plan, will be declared non-confirming and sent back. Due to this, included with the budget is a letter that must be carefully examined:

“PROMESA section 202(a), titled “Reasonable schedule for development of budgets,” requires the FOMB to “consult with the Governor and Legislature in establishing a schedule.” 48 U.S.C.A. § 2142(a) (emphasis added). To my knowledge, the FOMB did not consult with the Governor or Puerto Rico’s legislature in devising the schedule. The FOMB’s proposed schedule is too compressed for the many tasks necessary to complete the budget. We are nevertheless submitting with this letter a General Fund budget draft that may require revisions, in view of the obstacles described below, and we reserve the right to submit amended and supplemented versions of the budget as we work through additional issues.

The Commonwealth’s annual budget process takes months to complete and involves revising approximately 130 different individual department, agency, and instrumentality budgets to arrive at a consolidated budget. We have been working on this process since last year, and the Board is now asking us to substantially revise months’ worth of work in only eight days. This is not sufficient time for the task.

Furthermore, the FOMB has imposed additional procedural requirements that complicate the Government’s effort to revise its budget. On May 1, 2018, the FOMB requested that the Government use new reporting templates that are inconsistent with the Commonwealth’s past practices. The following day, the FOMB asked the Government to meet additional requirements that must now be incorporated into the Government’s budget submission. These new requirements differ materially from the Government’s historic practices. As a result, OMB’s systems cannot provide the requested information in many instances, at least in the format that the FOMB has requested. For these reasons, the elected Government’s budget submission today is consistent with its historic practices.

In light of these facts, the proposed schedule is so unrealistic that it suggests this timeline was designed to set up the Government for failure so that the FOMB can swiftly impose its own budget on the Commonwealth. The Government nevertheless has done its best to meet the FOMB’s deadline and reserves the right to continue to revise and supplement this budget to meet these critical goals.”

This is nothing more than the Commonwealth trying to document the Board’s “arbitrary and capricious” actions for the moment of confrontation before Judge Swain. Moreover, the Board required the Commonwealth’s legislature to approve the labor reform by May 31, 2018. Since the legislature has already said it will not, sometime in June, the Board will start by reducing the Commonwealth’s budget to force it to comply. When the Commonwealth continues to refuse, the Board will have to go to Judge Swain for an order.

The interesting thing about all these news is their interconnectivity. Seems to me that Governor Rosselló is putting roadblocks on the execution of the certified fiscal plan on purpose to prevent the Plan of Adjustment based on the fiscal plan from being seriously discussed. It seems Governor Rosselló believes that Congress will turn Democrat in November and that he will receive control of the Title III process. Even if Democrats win  Congress, any PROMESA amendment will need the signature of President Trump, who has not been inclined to change this legislation. Hence, his tactics will only prolong the Title III process and increase its cost.

Last week, David Skeel was at the University of Puerto Rico Law School on May 3, 2018 as part of a panel “Viability of PROMESA: Restructuring of the Debt and Economic Revitalization” and was asked about the allegations of Ana Matosantos’ conflict of interest concerning PREPA. He said

“…We look into them carefully, we have our lawyers look at them and we fully investigate them. Our lawyers have done that with Ana Matosantos and have concluded that there are not conflicts for the purposes of the decisions that we are making, again we take those concerns seriously and if new information would arise that would be problematic, we would look into it carefully. Our lawyers have looked into it and they have concluded that the concerns, they are not problems.”

Again, this raises more questions than answers. What allegations have been investigated? Who investigated them, Mr. El Koury and other Board retainers or independent counsel? What conclusions did they reach? Did these “attorneys” write reports (knowing lawyers, they did)? Was any branch of the federal Executive or Congress copied on these reports? All these questions need answering. The Board’s continued assurance that the conflicts do not exist smack of the old saying “Trust me, I am from the Government, I am here to help.” Transparency and good faith require the release of those ethics reports.

The Matonsantos controversy, being one of transparency, becomes even more important given a recent setback suffered by the Board. On May 4, 2018, Judge Jay García of the Federal District Court for the District of Puerto Rico, in the case of Centro de Periodismo Investigativo v. Financial Oversight Board, 17-1743, issued an important Opinion and Order. Plaintiff is seeking several documents pursuant to the PR Constitution and at page 4 of his opinion, Judge García stated:

“The Board argues that dismissal is warranted based on two grounds. First, it argues that this Court lacks subject matter jurisdiction under the Eleventh Amendment. Docket No. 22 at 10. Second, even if this Court has jurisdiction, the Board argues that the right to access public documents pursuant to Puerto Rico’s Constitution is preempted by PROMESA. Id. at 14. For the reasons stated below, the Court holds that: (1) Congress waived the Board’s sovereign immunity; (2) in the alternative, the Board’s sovereign immunity was abrogated by Section 106(a) of PROMESA; and (3) the right to inspect public documents pursuant to Puerto Rico’s Constitution is not preempted by PROMESA.”

Judge García continued at page 22:

“Here, Section 4 does not preempt Puerto Rico disclosure law. Similar to the Bates case, where the federal statute expressly prohibited state law imposing labeling and packaging requirements that are “in addition to or different from” FIFRA, Section 4 of PROMESA supersedes Puerto Rico laws only if they are inconsistent with the Act. As PROMESA was enacted to restructure Puerto Rico’s debt, and not to dictate the way Puerto Rico’s government discloses information to the public, Puerto Rico law requiring disclosure of public information cannot be said to be inconsistent with PROMESA.

Congress could have added language specifically preempting Puerto Rico law on disclosure, but opted not to do so. However, Congress did use clear preemptive language in other sections of PROMESA. For example, PROMESA § 303(3) preempts the Commonwealth government from enacting restructuring laws or issuing “unlawful executive orders that alter, amend, or modify the rights of holders of any debt of the territory or territorial instrumentality, or that divert funds from one territorial instrumentality to another or to the territory.” Similarly, Section 504 preempts Puerto Rico laws or regulations concerning the approval process for critical infrastructure projects. Id. § 504(b), (e). Congress, however, did not include specific preemptive language referring to disclosure of information.”

At page 24, Judge García continued his analysis:

“First, the right to access and inspect public documents in Puerto Rico is not an area where the federal government has played a large role. Field preemption is reserved for areas of the law and public administration where the federal government has traditionally held exclusive authority like, for example, immigration, foreign policy, or bankruptcy. Accord Hines v. Davidowitz, 312 U.S. 52, 74 (1941) (immigration); Am. Ins. Ass’n v. Garamendi, 539 U.S. 396, 420 (2003) (foreign policy); Franklin Cal. Tax-Free Tr., 136 S. Ct. at 1947 (bankruptcy).

In contrast, access to public information has been traditionally a local affair. See Bhatia-Gautier v. Rosello-Nevares, 2017 TSPR 173, 2017 WL 4975587 at *10 (P.R. 2017) (“Bhatia”).17 Thus, as an area that normally is reserved to the states, and in this case, the territory of Puerto Rico, the Court shall not assume that a federal statute has supplanted Puerto Rico law in this matter unless Congress makes such an intention “clear and manifest.” N.Y. State Conference of Blue Cross & Blue Shield Plans v. Travelers Ins. Co., 514 U.S. 645, 655 (1995) (quoting Rice, 331 U.S. at 230) (internal quotation marks omitted). The Board has not shown this to be the case here. Congress has not expressed a desire, neither in PROMESA nor in its legislative history, to have federal law be exclusive in the area of disclosures by the Board. As stated above, PROMESA’s purpose is to help Puerto Rico achieve fiscal responsibility and access to capital markets. To achieve this, Congress created the Board, but did not choose to shield it from all local laws.” (footnotes omitted)

At page 28, Judge García opined:

“The Court finds no conflict between Puerto Rico’s law on disclosure of public documents and PROMESA. It is possible for the Board to comply with both sets of law. The Board assumes PROMESA’s disclosure provisions dictate the only way that the Board can publicly disclose information. However, Puerto Rico law can supplement the Board’s disclosure requirements. While PROMESA requires certain documents and meetings to be publicly disclosed, it does not prevent additional disclosures by the Board.”

Continuing at page 31:

“The fact that it may be somewhat costly or inconvenient to comply with the disclosure requirements does not make the Board’s task to enforce PROMESA impossible. The Board is an entity of the Commonwealth paid for by the Puerto Rican people and, as such, must comply with Puerto Rico law that is not inconsistent with its mandate. PROMESA § 4. Congress, pursuant to its plenary powers, could have drafted PROMESA in many ways. However, it chose to create the Board as an entity within the Commonwealth and, therefore, it must be treated accordingly.

Finally, a citizen’s right to access public documents goes hand in hand with PROMESA’s purpose. When enacting the Act, Congress expressed concern with Puerto Rico’s lack of transparency and unaudited financial information. PROMESA’s provisions and its legislative history are evidence of this concern. See PROMESA §§ 204(b)(3), 405(m)(1); see also H.R Comm. on Natural Resources, Puerto Rico Oversight, Management, and Economic Stability Act, H.R. Rep. No. 114-602, at 40-46 (2016) (finding that PROMESA was a necessary legislation “[d]ue to the realities facing the island, and the inability of its local politicians to bring order and transparency.”). Thus, Puerto Rico disclosure law actually helps PROMESA’s legislative purpose by shining light into the Board’s dealings with the government of Puerto Rico. After all, “[s]unlight is said to be the best of disinfectants.” L. Brandeis, Other People’s Money 62 (1933).” (footnotes omitted)

Given the above, there is no doubt in my mind that if a citizen, either private or the press, may seek the information on Ms. Matosantos’ conflict of interest. Of course, the Board may “deny access to others explaining the basis for the denial pursuant to applicable privilege and confidentiality laws. . .  If unsatisfied with the Board’s reasoning for denying the requested documents, the requesting party may seek judicial review.” Page 29 of the opinion. Given PR and Federal Court’s rulings on access to public records and the need to be transparent, it would be a good idea for the Board to release the Matosantos documents forthwith. A protracted fight over them would bring about the shadow of “traqueteos” (shenanigans) being conducted behind closed doors.

For the third straight year, Puerto Rico failed to comply with the disclosure of its Comprehensive Annual Financial Report (CAFR). It has now accumulated three fiscal years without providing accurate information on the state of the Treasury, its debt levels and the condition of its assets. This is probably a breach of 17 CFR 240.15c2-12-Municipal securities disclosure of the SEC, as reflected in a notice filed last Wednesday by AAFAF before the Municipal Securities Regulatory Board.

On the legal front, Judge Swain will hear the oral argument on the COFINA motion to certify the Commonwealth v. COFINA question to the Puerto Rico Supreme Court. Each party will have 45 minutes to argue. Unfortunately, I have previous appointments and will not be able to attend.

Also, on May 21, Judge Dein will hear the oral argument on GO’s and others request for an order for production of documents pursuant to February 26, 2018 order. I expect an order soon for the production of most, if not all, of the requested documents.

On June 5, the First Circuit will hear oral arguments on the Ad Hoc PREPA bondholder’s appeal from Judge Swain’s denial of their motion to appoint a receiver for the utility. Not sure if I will be able to attend.

Siemens Transportation Partnership Puerto Rico, S.E.’S filed a Motion “To Preserve Funds Held In Escrow And Request For Discovery In Aid Of Any Hearing Deemed Necessary By The Court last week. The complaint “seeks the release of funds held in a GDB escrow account established for Siemens‘ benefit in connection with a Settlement Agreement between Siemens and HTA.” Plaintiff claims that under applicable law, the Escrow Account and the Escrowed Funds are Siemens property. Clearly, the Board and the Commonwealth will oppose the request.

In 2017, Altair and others sued the United States of America in the Federal Claims Court arguing that PROMESA constituted a taking without just compensation. Of course, the U.S. moved to dismiss the amended complaint and the briefing has been completed. We now await the Court’s decision. If the case is not dismissed, this could completely change the course of the PROMESA Title III since I doubt Congress believed the U.S. could be held liable for bondholder’s losses. Let’s see what happens.

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 – April 30, 2018

Welcome to your weekly Title III update for April 30, 2018. This week, we do have news from the Court, as well as outside the Court.

On Monday April 23, 2018, Judge Swain cancelled the April 25 Omnibus hearing after the COFINA agent made the request on Sunday evening. The Court ordered the Board to submit on that date a report on the status of the case. Interestingly, on the subject of mediation, the Board stated “[m]ediation efforts continue and are currently focused on resolution of the Commonwealth-COFINA dispute regarding ownership of sales and use taxes.” The COFINA agents said that they wished to concentrate on mediation. Does this means there would be some sort of settlement in COFINA? Who knows?

Assured Guaranty Corp., Assured Guaranty Municipal Corp., National Public Finance Guarantee Corporation, the Ad Hoc Group of PREPA Bondholders, Syncora Guarantee Inc., and U.S. Bank National Association, in its capacity as PREPA Bond Trustee, joined the Motion to Compel Compliance with February 26, 2018 Order and For Entry of a Protective Order of Ad Hoc Group Of General Obligation Bondholders, Ambac Assurance Corporation, Assured Guaranty Corp., Assured Guaranty Municipal Corp., the Mutual Fund Group, and National Public Finance Guarantee Corporation to compel production of documents. This is an important issue, especially since on April 24, 2018, Judge Swain partly reversed Magistrate-Judge Dein’s decision on discovery. Judge Swain stated:

“The memoranda of law did not treat the deliberative process issues in any great detail, and included only conclusory arguments regarding the effect of the involvement of consultants and different government entities in communications and document preparation. Much of the argumentation focused on whether Respondents should be required to produce a categorical log of materials withheld on the basis of the privilege, should they be permitted to assert the privilege in the first instance. There was no particularized argumentation regarding procedures for determination of the applicability of the privilege and Bhatia-Gautier v. Roselló-Nevares, 2017 TSPR 173, 2017 WL 4975587 (P.R. 2017) (“Bhatia-Gautier I”), the September 2017 decision of the Supreme Court of Puerto Rico concerning access to public documents under the constitution and laws of Puerto Rico that is cited extensively in the Objection, was not mentioned in any of the January 2018 submissions.

The February 26 Order, like the parties’ submissions, treats the deliberative process privilege issues in conceptual rather than specific terms, directs the preparation of a categorical privilege log, and contemplates particularized scrutiny of privilege claims in connection with objections to privilege log entries. . .

Given that Judge Dein does not appear to have been asked to address the status of factual elements of Pre-Decisional Fiscal Plan Documents and did not have the benefit of the extensive briefing that the parties have submitted to this Court, the Court remands this matter for further consideration by Judge Dein in the first instance and any necessary clarification of the February 26 Order. . .

Again, it does not appear that the parties made anything more than conclusory arguments concerning the questions of whether communications among Commonwealth Entities and between the Oversight Board and such entities can be protected by the deliberative process privilege, and whether the involvement of Respondents’ professional advisors in the preparation or review of Pre-Decisional Fiscal Plan Documents renders the privilege inapplicable. Bhatia-Gautier I decision, which features prominently in Objectors’ procedural and substantive arguments to this Court, was not even mentioned in the briefing to Judge Dein, and Bhatia-Gautier II postdates the February 26 Order. The Court concludes that, since the able Magistrate Judge did not have the opportunity to address the legal and factual particulars of the issues that are now being argued to this Court, the record is insufficient to enable this Court to apply appropriately the review standards. On remand, Judge Dein may determine in the first instance whether additional or different procedures and proceedings should be undertaken in light of the Bhatia-Gautier decisions and the particular roles and responsibilities of the Commonwealth Entities, the Oversight Board and their respective professionals in developing positions and taking actions on behalf of the Commonwealth under PROMESA in determining whether the deliberative process privilege should be analyzed on an entity by entity or other basis in this context. . .

The February 26 Order is silent in this respect and does not explicitly apply a balancing test, perhaps because the two-stage procedure it contemplates provides opportunities for narrowing of controversies and further input prior to final disclosure decisions. On remand, the Court may consider when, and in what manner, the balancing test is to be applied.”

Given Judge Swain’s courteous and respectful style, the order is clearly sending a message to Magistrate-Judge Dein to closely look at what the Commonwealth Courts have done with the invoked privileges. Although Magistrate-Judge Dein will have to take a fresh look at these issues, the Commonwealth Court decisions were much in favor of transparency and against the invoked privileges. Magistrate-Judge Dein moved quickly on the issue and ordered:

“At the conclusion of the hearing on the Motion to Compel (Dkt. No. 2865) currently scheduled for May 21, 2018 at 1:30 p.m. in Boston, Massachusetts, the parties to the Renewed 2004 Motion should be prepared to discuss a process and schedule for addressing any challenges to claims of deliberative process privilege. Towards this end, the parties shall submit a joint status report, not to exceed 5 pages, addressing these issues by Monday, May 14, 2018.”

I think we can expect a Report and Recommendation that will further open the information floodgates. This will bring much needed transparency to the case.

In a similar issue of Rule 2004 discovery, the American Federation of State, County and Municipal Employees International Union, AFL-CIO, American Federation of Teachers, AFL-CIO, and Service Employees International Union have been negotiating with the Board and AAFAF and are close to coming to an agreement. No later than May 16, 2018, the parties will let the Court know the status of any such agreement and there will be a hearing before Magistrate-Judge Dein on June 22, 2018.

On April 24, 2018, a local attorney, Rene Pinto Lugo (former president of the Puerto Rico Civil Rights Commission), unions and non-profits, filed an adversary proceeding, 18-0041 against the government of the United States of America, the Board for Puerto Rico and the Governor. The law suit seeks the following:

“The present action seeks injunctive and declaratory relief, including the determination that certain provisions of PROMESA, 48 USC 201 et.seq., are unconstitutional because they violate Plaintiffs’ fundamental rights as protected by the First, Fifth, and Fourteenth Amendments of the Constitution of the United States of America, hereinafter USA, the Declaration of Independence of the USA and other statutes and international covenants that bind de USA. Plaintiffs represent a wide and inclusive cross section of individual residents of Puerto Rico, and other legal representative entities that have been, are being, and will continue to be directly and dramatically affected by the implementation or lack of implementation of certain provisions of PROMESA in the jurisdiction of Puerto Rico and abroad. In particular, the constitutionality of the establishment of a Financial Oversight Management Board, hereinafter FOMB or the Board, with executive and legislative powers over the Government of the Commonwealth of Puerto Rico, its democratically elected officials, and the residents of Puerto Rico is contested. As an additional claim and/or in the alternative, it is contended that the conflict of interests of various of the members of the FOMB renders them unqualified to remain in the Board, and it prevents any and all attempts to pursue the objectives of PROMESA and further constitutes a violation of the constitutional right to due process of law of the Plaintiffs and the People of Puerto Rico. Moreover, even the appearance of conflict of interest in the acts or omissions of those members of the FOMB can render any and or all acts of the Board null and void. Furthermore, we argue that the unique and novel nature of PROMESA does not render it exempt from constitutional and fiscal scrutiny and as such cannot be construed to preclude this Court from considering and resolving the constitutional matters presented by Plaintiffs, particularly so after the economic and social devastation caused by hurricanes Irma and María in Puerto Rico and the way the Government of Puerto Rico has mishandled the socioeconomic and health crisis that arose afterwards.

We also petition an order to perform an urgent integral, legal, and forensic audit of the public debt which is fundamental to transparency and constitutes an essential fiduciary and statutory duty of the FOMB and the Government of Puerto Rico. We affirm that further delaying the audit will only aggravate the socio-economic crisis of Puerto Rico and impede the fair and equitable fiscal reorganization and equitable and sustainable development and quality of life of the Plaintiffs and the People of Puerto Rico, which is, at least in paper, an integral part of the legislative intent of PROMESA.

The evident unwillingness and failure to perform an integral and forensic audit (as defined hereinafter) by the FOMB and the Government of Puerto Rico to deconstruct all the details of an illegal, damaging, and unprecedented issuance of public debt, requires a judicially ordered mandate to pursue it. The failure is more evident and suspicious given the decision not to perform the public audit after the existing Government of Puerto Rico set aside in the year 2017 the Commission created by statute4 in the year 2015 to undertake the audit. The Commission created by law 97 had issued two preliminary reports that revealed violations of law in borrowing practices by the Government of Puerto Rico and private parties and entities. Such forensic and legal audit is further needed to account for the extent of the potential wrongdoings, fraud, and corruption over the public debt of the Government of Puerto Rico, and to specifically identify wrongdoers (persons and legal entities) that should be held liable for the issuance of the debt. The lack of action in performing the audit will impede the compliance with the ultimate goal of a bankruptcy process which is supposed to provide a “fresh start”, “rehabilitation,” and sustainable development of the “debtor”. In the absence of the aforementioned audit, it is inappropriate and premature to consider, prepare, and adopt any fiscal plans for Puerto Rico within the scope of the PROMESA Act to move forward and to adopt measures for an equitable, sustainable development, and improved quality of life for the Plaintiffs and the people residing in Puerto Rico. Furthermore, it would operate against the ultimate purpose of any bankruptcy procedure, including PROMESA Title III proceedings, in which the present and the future of the Petitioners and the People of Puerto Rico is at stake.

This action is also pursued because of the existing and untenable state of control and submission in the socioeconomic and political relationship to which the Government of the USA has subjected the Plaintiffs and the People of Puerto Rico, relationship that is supposed to adhere to the democratic principles and rights that peoples and individuals of the world are entitled to as fundamental human rights. The neglect of those duties by the USA require to be confronted immediately and affirmatively rectified “with all deliberate speed”.”

Moreover, as part of its remedies, the complaint states:

“To include the government of the USA as a party to this case to not only assume a position with respect to the constitutional claims made by the Plaintiffs, but also to answer the allegations of the complaint, and to assume any and all constitutional and legal liabilities it should be compelled to assume over the public debt of the government of Puerto Rico and the illegal and unconstitutional imposition of the FOMB over the Plaintiffs, Puerto Rico, and its residents.”

With all due respect to the parties and attorneys, this is nothing more than a wishful thinking attempt to do things the way they think is right. None of these causes of action have much of a chance of succeeding and the last one ignores 48 U.S.C. § 795, which states:

“All expenses that may be incurred on account of the government of Puerto Rico for salaries of officials and the conduct of their offices and departments, and all expenses and obligations contracted for the internal improvement or development of the island, not, however, including defenses, barracks, harbors, lighthouses, buoys, and other works undertaken by the United States, shall, except as otherwise specifically provided by the Congress, be paid by the treasurer of Puerto Rico out of the revenue in his custody.”

But if one of these causes of action does prosper, it could change the whole Title III case and the US-PR power relationship.

In another adversary proceeding, the Commonwealth removed a case that was filed by the PREPA Retirement Board against the Governor where he ordered that it provide certain information in order to finalize the Commonwealth audited financial statements. Hence, until this issue is resolved, we can forget about the audited financial statements. We will probably see the Plan of Adjustment before we see the audited financial statements of the Commonwealth.

Finally, Mr. José Carrión was interviewed by Jay Fonseca and they had the following exchange:

Jay Fonseca: But you draw a line. You say that states pay between 4 and 9%, with Connecticut being the highest, and you are saying that you are not going to pay more or less than 1% of this range—8% perhaps. Here, we would be talking about a 90% cut of the debt or between 85 and 90%–from $100 billion to $20 billion. Is this the number you are talking about?

José B. Carrión: Jay, I congratulate you for having read the fiscal plan, there are not many of them. The reality is that I can’t express anything else in addition to what you just said.”

Is the Board actually trying to cut the PR debt by between 85%-90%? Will it succeed? The answer is complicated.

While undoubtedly the Board is negotiating with bondholders, it is unlikely they would willingly accept such deep cuts. If they do, fine and dandy; if they don’t, we will have to wait to the Plan of Adjustment, which is to be filed sometime this year after the May 29 bar date. The Plan of Adjustment, which is filed by the Board, not Puerto Rico, divides creditors in classes and states what the impairment, if any, of its claims will be. The classes that are impaired then get to vote and if a majority does not approve it, the only other way it can be approved by the Court is through a cramdown. Section 314(b)(6) of PROMESA, however, requires in a cramdown that “the plan is feasible and in the best interests of creditors, which shall require the court to consider whether available remedies under the non-bankruptcy laws and constitution of the territory would result in a greater recovery for the creditors than is provided by such plan.” Not likely in a scenario where secured creditors such as bondholders receive a bigger haircut than non-secured creditors, i.e., pensioners receive no cuts or only a 10% haircut.

More importantly, if the Plan of Adjustment cannot be approved, the Title III case must be dismissed pursuant to 11 U.S.C. § 930, adopted in PROMESA by section 301. Of course, Judge Swain may ask the parties to go back to negotiating and come up with a new Plan of Adjustment as was done in San Bernardino, which took four years and an equal number of Plans of Adjustment to end that case. In that scenario, as Mr. Carrión has suggested, pensions could be further cut.

As you can see, many things have to occur in order for Mr. Carrión’s scenario to actually happen. Also, it will take months before the Plan of Adjustment is either approved or rejected. Many things remain to be decided and mediation has yet to achieve a single success, although the GDB and PRSA may eventually end in Title VI. Let’s see what happens.

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.

Weekly Update – April 23, 2018

Welcome to your weekly Title III update for April 23, 2018. Once again, not much happened in the cases but outside matters have really burgeoned.

Last week, the Board had two days of meetings to discuss the fiscal plans it was going to certify; but before I start explaining what transpired, there is a recurring theme that I must mention. During the hearings of the 19th, during the comment period, there was this important exchange on the questions swirling around Ana Matosantos’s ethics, which garnered an interesting response from the Board’s general counsel, Jamie El Koury:

 “This issue has come up at least three times now. It came up before my time, when Ana was vetted for her appointment at the board, both by the Treasury and the White House. They found that she was complying with the requirements of PROMESA and therefore that the President should go ahead with the appointment. This was in August in 2016. Again, this was reviewed in the summer of 2017 when the issue again came up. We at the board, both the ethics advisor, myself [and] our outside council reviewed the financial disclosures by Ms. Matosantos and we reviewed the conflict of interest requirements under PROMESA, which refer you to federal law section 208—the basis of which is financial interest. Again, the determination was made that there was no conflict of interest and that the financial disclosures had been complied with. Again, the issue came up one more time in March of this year. Again the ethics advisor, myself as general counsel and [the] outside council reviewed the situation and [the] determination was the same. That the disclosures were made, that the conflict of interest rules were complied with, and that therefore there was no impediment for Ms. Matosantos to engage in the proceedings. The fourth time came up recently with letters that were sent by two groups—one was an open letter sent to the Attorney General Sessions and the other was sent to chairman Bishop and to Speaker Ryan. Again, outside council, ethics advisor and myself looked at this situation and made the same determination that the financial disclosures [were complied with] and that no conflict of interest had risen. Just to make [it] clear, of course, whenever pieces of information such as this come up, I hope it’s by now established that we take them seriously, that we do have procedures at the board to take a look, [to] consider those matters and that a full consideration is made of those concerns. Thank you.”

The problem with this exchange is that it leaves many questions unanswered. When Andrew Scurria of The Wall Street Journal commented on Twitter on El Koury’s statement, I mentioned that his statement was a bit perfunctory and Andrew answered, He offered no substantive explanation of his determination.”  If each time there was an ethics complaint, Mr. Koury, General Counsel for the Board, and Andrea Bonime-Blanc, the Board’s Ethics Advisor carefully reviewed each and rejected them, they each had to write a report with lots of references to statutes and case law. Where are these reports? Where the reports sent to the United States Office of Government Ethics? Where they sent to the Department of Justice, to Congress, to the Oval office?

Recently, the National Legal and Policy Center sent a complaint on Matonsantos’s alleged conflicts of interest to the Justice Department, which declined to comment. If there is no validity to these ethical challenges, why are the internal Board reports not made public? After all, the People of Puerto Rico are paying for these reports. As Justice Louis D. Brandeis once said: Publicity is justly commended as a remedy for social and industrial diseases. Sunlight is said to be the best of disinfectants; electric light the most efficient policeman.” There are other questions that will become clearer as the saga of the fiscal plans unfolds.

Continuing with the drama, the Board released its own fiscal plans on April 18th, and early on the 19th, Governor Rosselló said he would not execute those parts of the fiscal plan with which he did not agree. The meetings business started with Gerardo Portela from AAAFAF presenting the Commonwealth’s fiscal plan. During his presentation he said three times Puerto Rico was undergoing a “humanitarian crisis.” I had to look twice to make sure it was Gerardo Portela speaking and not Alejandro García Padilla or Antonio Weiss. During his presentation, it was obvious the Board members were not paying attention and Portela made clear that the Commonwealth would execute that which was in their fiscal plan but not that with which it did not agree or thought the Board was invading public policy. After the presentation, Board members asked questions of the AAFAF staff, which looked ill at ease when asked what where their projections on economic growth after the federal relief funds were spent. After oohing and awing, the confessed to a .5% to 1% yearly growth, truly anemic in my opinion. Another interesting question was how does AAFAF believe it will reduce payroll and the answer was by providing incentives for retirement? When asked what happened if the employees do not retire, AAFAF had no answer.

After the questions to AAFAF, Ms. Jaresko spoke as to the Board’s fiscal plan and she was questioned by the Board. There was a period of public questions and the Archbishop of San Juan, who insisted that bondholder claims be cut, but not pensions or employees. This same character has closed Catholic schools, fired hundreds of employees and suspended payment of the teachers’ pension plan. Total hypocrisy.

At one point, I was able to ask about page 16 (23 of the PDF) of the Board’s fiscal plan. There is a detail of the surplus post measures SR/s which is detailed until 2023 and totals $6.697 billion. In the Commonwealth Fiscal Plan of April 5th, at page 50, the surplus post measures totals $6.333 billion. I asked if that was the money for debt service minus any discounts mentioned in the plans. Ms. Jaresko answered quite plainly and said that debt service would be negotiated with each creditor but that was the amount available for service. Ms. Jaresko also cautioned that these were economic estimates that could vary with time, etc. So it is likely that little less than $1 billion per year for debt service would be available, which is slightly higher than the $787 million allocated in the March 13, 2017 Fiscal Plan, but for less than the approximately $3.3 billion per year the Commonwealth owes. Problem with Ms. Jaresko’s qualification as to the economic estimates is that a Plan of Adjustment has to specify the treatment of each class of creditors and it cannot be a plus or minus, UNLESS, the Board will not commit to a specific amount but simply offer to exchange claims for growth bonds. That is something not likely to be accepted by creditors.

After the period of public comments, the Board went directly to the voting and Matosantos had a surprise statement, saying she would not vote for any of the fiscal plans and that the Board’s was too austere. This is the first time that publicly the Board members have had a non-unanimous vote on something. The only other non-unanimous vote was on the PREPA RSA, and we still don’t not know the composition of that vote. Could it be that the claims of conflict of interest have forced her to decide to do dissent? Since the workings of the Board anything but transparent, we can only speculate. After her statement and that of others, the Board’s finally tally was 6-1 in favor of certifying its own fiscal plan for the Commonwealth, which I predicted it would since the end of November of 2017.

Before getting into the differences of each fiscal plan, I must point out that both fiscal plans for the Commonwealth are 90% in agreement and Ms. Jaresko emphasized how collegiate had been the effort to prepare said plans. There are however, fundamental differences. The Commonwealth rejected the 10% reduction in pensions mandated by the Board, refuses to furlough or fire any public employees (even though its fiscal plan mentioned rightsizing the Department of Education and the Department of Health) or enacting the Labor Reform requested (although the Governor had originally filed the bill with the Legislature but withdrew it when the Board put conditions on an increase of the minimum wage and the elimination of the Christmas bonus). The certified fiscal plan requires the enactment of this Labor Reform that will apply to all employees by May 31, 2018, although the Legislature has already claimed it won’t obey this part of the fiscal plan.

There was a similar procedure with PRASA and again AAFAF said that the Commonwealth would not put into effect that which it did not agree with. This time the main bone of contention is the pensions, which again must be reduced by an average of 10%, which AAFAF refuses to undertake. These fiscal plans, different from the others, have very little differences, except the pension reduction and the assertion by Ms. Jaresko that PRASA would need an $80 million loan from the Commonwealth on or before September. Interestingly, Ms. Jaresko said it was probable that PRASA would get a consensual restricting from its creditors. Interesting, but based on the information I revealed last Tuesday, any CDL loan to a public corporation requires that it be in Title III. We will see that happens.

The last fiscal plan certified on the 19th was PREPA’s. Again, Mr. Portela objected to the possible reduction of pensions and that the Board should not lead in the Integrated Resources Plan (IRP) and did not agree with the Board as to keeping the rates below 20 cents per kilowatt-hour, operational directives or transactions requirements. Nor can the Board interfere with the Commonwealth’s public policy according to Portela.

During the public comments section, I asked about the N.Y. State Smart Grid Consortium announcement of a contract with PREPA to assist in the long-term grid planning efforts and Undersecretary Walker’s testimony. In essence, who is in charge of the IRP and the sale of PREPA. Ms. Jaresko was quick to say that PREPA was in charge of both and that the IRP had to be consistent with the fiscal plan. Also, Mr. Sobrino stated that the PREPA sale law would pass this week, something I find extremely unlikely. As with the Commonwealth Fiscal Plan, there are substantial agreements but again, the Board certified its own fiscal plan for PREPA.

The next day, the fiscal plans for HTA, GDB, COSSEC and UPR were presented. Again, Mr. Portela objected to the HTA pension reduction, 15% payroll reduction, as well as the toll increase required by the Board. Again, the Board certified its own fiscal plan with pension reductions and toll increases.

The GDB fiscal plan presented by the Commonwealth, with a likely Title VI qualified modification was certified by the Board, the only one not authored by the supervisory agency.

The President of the UPR Governing Board, Walter Alomar, objected to any pension reductions, further reduction of appropriations, the Board increase of cost per credit. He reiterated that the UPR Governing Board would deal with the pensions. During the discussions, Mr. Alomar explained the campus consolidation that entails that there will be a review of courses to see what will be kept and that there would be reduction in deans, and other personnel, but no reduction of the workforce. Sounds like business as usual to me. Again, the Board certified its own fiscal plan.

As to COSSEC, the Government agency that regulates the credit unions (called Cooperativas in Puerto Rico) and guarantees deposits up to $250,000, the Board insists that it must be independent of any stakeholder. The COSSEC leaders explained that they were dealing with the Legislature as to this. They also explained the stress testing made and assured the Board that COSSEC can handle a run on the cooperativas of between 5%-25%. After some further discussion, Ms. Jaresko recommended that the fiscal plan approval be postponed until further testing can be done. Seems to me that Ms. Jaresko is not quite sure what was done was quite correct and mentioned some new help was coming in. Not very encouraging for depositors.

The Governor, then, had only 1 fiscal plan certified out of 6, for an anemic 17% batting average. But the Fiscal Plan certification was about control, not what is best for Puerto Rico or creditors.

The Commonwealth objects to the reduction of pensions and further reduction of employees as a violation of their right to make public policy. It also claims that pensions cannot be reduced since some have property rights over them. But the Commonwealth is wrong. I have mentioned that section 201 of PROMESA gives the Board power to certify fiscal plans that must include how to “improve fiscal governance, accountability, and internal controls“ and “enable the achievement of fiscal targets.” Moreover, Board certifications cannot be reviewed by Judge Swain, who has already ruled she lacks jurisdiction to review them. Also, anyone who has dealt with any aspect of fiscal policy knows that expenses are driven by what is the entities public policy. Hence, you cannot separate one from the other. As to any constitutional protection of pensions, those entities such as ERS, the Commonwealth and PREPA, I have no doubt may be impaired as was done in Detroit, where the Michigan constitution prohibited the impairment of pensions (in Puerto Rico pensioners are jurisprudentially protected). That, however, is not the case of PRASA and UPR, who are not in Title III. One would have to make the leap to believe that PROMESA endowed the Board with the power to ignore Puerto Rico’s laws and constitution outside Title III and Judge Swain’s ruling in the Zamot PREPA affair makes that unlikely. On the other hand, section 108(a) of PROMESA states the following:

“Neither the Governor nor the Legislature


(1) exercise any control, supervision, oversight, or review over the Oversight Board or its activities; or

(2) enact, implement, or enforce any statute, resolution, policy, or rule that would impair or defeat the purposes of this Act, as determined by the Oversight Board.” (emphasis added)

Does this mean that if the Legislature does not pass the Labor Reform, the Board may ask Judge Swain to declare Law 80 invalid and unenforceable? Possible, but the end result would be colonialism in the raw. In addition, although the Legislature and the Governor have both expressed willingness to go to jail in disobedience of the Board, that would hardly be necessary. The Board only has to ask Judge Swain for control over the Commonwealth’s accounts and an order to banks not to honor Government checks not issued by the Board.

Finally, although Mr. Portela insisted that the Board file the Plan of Adjustment forthwith, this difference in the fiscal plans will make that difficult. The Plan of Adjustment, as per section 314 of PROMESA, has to be consistent with the fiscal plan but if the Commonwealth will not comply as to pensions, tolls, payroll, etc., how can it be approved by creditors, much less by the Court?

In the legal arena, not much happened except that some of the Unions agreed to a protective order as to their request for Rule 2004 discovery with the Commonwealth. Sooner or later, this information will come out and we will know more about. In addition, on April 25th, Judge Swain will hold an Omnibus Hearing where the issue of certifying the COFINA issues before her to the Puerto Rico Supreme Court. Given that she already said no to a previous attempt by COFINA bondholders and that she held oral arguments on the Commonwealth v. COFINA adversary proceeding, it is unlikely she will grant it. I will be listening in (I am outside the jurisdictions of Puerto Rico and New York) and will report on what transpires.

In parting, I must mention something that transpired in Twitter between Mr. Andrew Biggs, Board member, and Andrew Scurria, from The Wall Street Journal. Mr. Biggs, who will engage anyone who treats him with respect, told Mr. Scurria that PROMESA did not require that the Board define essential services. Moreover, Mr. Carrión has said that the Board would not define them. Although that may be grammatically true, section 201(b)(1)(B) states that the fiscal plan must “ensure the funding of essential public services,” not government services. How can you fund essential services if you do not know what they are? To me, this is a major flaw in the Board’s endeavors since it has been allowing the Commonwealth to fund all the government, irrespective of what is essential. Are the State Elections Commission an essential service outside election year? Is WIPR, the Government radio and TV station an essential service? I can go on and on.

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.

Deciphering the CDL “Additional Terms” Conditions

Yesterday, Wall Street Journal reporter Andrew Scurria revealed the Commonwealth of PR’s additional terms to the CDL loan. This is only one of the three documents encompassing the loan, the other two being the Promissory Note and the Local Government Resolutions-Collateral Security, which have not been made public yet. Nevertheless, the document is very illuminating.

The amounts to be lent was left blank but it makes clear that the Court may reduce said amount in its authorization for the loan in its “financing order.” The loan will mature, unless the Federal Government (“the Government”) agrees to something different, on the earliest of two dates, (1) the effective date of the confirmation of the Plan of Adjustment or (2) July 1, 2038. More on this later.

The terms state, Interest will accrue and be payable in accordance with the Interest section herein. Cash payments of interest on the loan shall begin July 1, 2020, with graduated principal amortization payments beginning July 1, 2023, and ending on the maturity date, as specified by the Government in an amortization schedule.” This means that the loan must be repaid, in full, by the time the Plan of Adjustment becomes effective, which considering the Board has said it will be filed this year, would mean that PR believes it can be approved before July of 2020. Interesting.

The next section, “Security and Collateral” is worth a few reads.

“Security and Collateral

The Note is a general obligation of the Borrower secured by the full faith and credit and taxing power of the Borrower.

All amounts owing under this Note shall be secured by and are payable from a perfected first priority priming security interest in all revenues, including but not limited to income taxes, corporate taxes, excise taxes, receipts, and income of the Borrower of every type and description from all sources wherever located and whether now or hereafter existing and whether now owned or hereafter acquired, and whether encumbered or unencumbered, including, but not limited to, any revenues currently or previously used to support or secure repayment of General

Obligation bonds of the Borrower or CO FINA bonds, together with all liens, guarantees, rights, remedies, and privileges pertaining to the foregoing and all accounts or funds in which such revenues are deposited, pursuant to 11 U.S.C. § 364(c)(2) and (d), as applicable in each case, as incorporated into PROMESA under Section 301.

All amounts owing under this Note shall constitute superpriority administrative claims in the Borrower’s Title Ill case pursuant to 11 U.S.C. § 364(c)(l) as incorporated into PROMESA under Section 301, payable in full in cash upon the effective date of a confirmed plan of adjustment of the Borrower.”

The use of the GO language here is very telling. Seems the Federal Government does believe that GO protection is the best. Wonder what COFINA bondholders will say. In addition, the language seems to include any income that may come from the SUT, whether it is pledged to COFINA bondholders or not, it is secured by lien or not, but is subject to the adequate protection and notice and a hearing requirements of 11 U.S.C. §364(d). At the same time, the amounts owed are a superpriority administrative expense, which means that the loan will be paid if the Title III is still ongoing in 2020. Additionally, the Commonwealth cannot lend to any public corporation that is not in Title III. Very possibly we will see PRASA in Title III.


“The Borrower hereby pledges and assigns to the Government and grants the Government a continuing security interest in all right, title, and interest of the Borrower in any bonds, notes, or other evidences of indebtedness or collateral issued by a public corporation to the Borrower to secure on-lending of loan proceeds to such public corporation, in accordance with the terms specified herein.”

Also, the document states that the security interest created in the document “be broadly construed in favor of the Government and the security interests created secure all obligations of the Borrower pursuant to this Note, whether now existing or hereafter arising.” The loan may be drawn up until October 31, 2018, which only gives the Commonwealth six months. The repayment of the loan will be as follows:

“Consistent with the Term and Amortization provisions herein:

  • Repayments of principal and interest shall be made semi-annually on July 1 and January 1, and on such other days as may be required in accordance with the terms hereof.

  • Repayments shall be applied first to accrued interest and then to outstanding principal.

  • Any amounts repaid by the Borrower may not be re-borrowed.

  • Any amounts received by the Borrower from a public corporation as repayment of on-lent amounts to such public corporations shall be used exclusively and applied promptly to repay or prepay the Note, in any event within 5 business days of receipt.

  • For the period starting on January 1, 2020 and ending on the maturity date, the Borrower shall maintain a segregated non-commingled debt service account and shall deposit into such account on the first business day of each month at least one-sixth of the semi-annual interest and principal due as necessary to ensure the account has sufficient funding to make the semiannual debt payments required hereunder and is replenished for each semi-annual debt payment. Amounts deposited in the debt service account shall be used to make payments on the Note and solely for such purpose.”

The interest rate will be “the current market yields on outstanding marketable obligations of the United States of comparable maturity at such drawdown, as determined by the Secretary of the Treasury.” Many times CDL loan repayment are waived by Federal Government but this does not seem the case here.

The document states that the maximum cash balance for the TSA is $800 million. The document has no date and but its properties show it was created in 4/8/18 and modified in 4/9/18 making it likely it is was created around that date. If it is so recent, why did the Commonwealth say that Treasury had agreed to raise that amount to $1.1 billion? What is the amount? Questions, questions.

Irrespective of the TSA account or the $4.9 billion available for CDL loans, the Government may limit the amounts drawn based on “cash on hand and analysis of expected cash collections and disbursements through the accounts of the Borrower, its component units, and the public corporations.” In addition:

“The Borrower must itemize and certify, to the satisfaction of the Government, the end uses of requested drawdown amounts by the Borrower and the public corporations, based on categories specified by the Government.

The Borrower must certify to the Government its current cash position with each drawdown request. If the purpose of a drawdown is for on-lending to a public corporation, the Borrower also must certify to the Government the cash position of the applicable public corporation. . .

If the purpose of a drawdown is for on-lending to a public corporation, the Borrower must certify to the Government any of such public corporation’s payments, transfers, or deposits made since the last drawdown, regardless of the source of funds, for credits to accrual accounts, reserve funds, trust funds, contingency accounts, and the like that do not represent a cash disbursement to continue current operations.”

The Federal Government wants lot of information from the Commonwealth and this is a theme seen throughout the document.

For what purposes are the loan proceeds to be used? It is not quite clear but:

“Eligible and Ineligible Expenses and Uses of Loan Proceeds for the Borrower and the Public Corporations

Eligible expenses and uses of loan proceeds constituting governmental operations for essential services of the Borrower and the public corporations include:

  • Employee payroll and benefits, including pension payments or contributions at rates and levels no higher than those immediately preceding Hurricanes Irma and Maria.

  • Facilities maintenance costs that are not capital expenditures or infrastructure improvements

  • Normal operational materials, supplies, vendor, and services payments

  • In the case of the Borrower, on-lending to the public corporations for the forgoing purposes

Ineligible expenses and uses of loan proceeds that do not constitute governmental operations for essential services of the Borrower and the public corporations include:

  • Debt service including but not limited to payment of any indebtedness existing prior to the date of this Note, except as permitted by the terms set forth in the Refinancing of Previous Postpetition Loans section herein.

  • Refinancing outstanding debt of the Borrower or a public corporation, except as permitted by the terms set forth in the Refinancing of Previous Postpetition Loans section herein.

  • Capital improvements

  • Repair or restoration of damaged facilities

  • Paying the non-federal share of any Federal program

  • Tax refunds

  • Lobbying

  • Title III costs including but not limited to judgments arising from Title III cases and related cases, and legal or advisory fees

  • Deposits, transfers, or payments to accrual accounts, reserve funds, or contingency accounts that do not represent an actual, immediate cash disbursement to continue current government operations for essential services

  • Administrative costs of Federal disaster assistance grants and loans

  • Disaster related expenditures eligible for reimbursement from the Federal Government

  • Any other amounts not constituting current expenses under the trust agreements of the applicable public corporation”

Does this mean that payment of pensions and government employees is an essential service? After reading it several times, it seems to me that pensions and government employees who are essential services are the recipients of said money but that requires the definition of essential services, something PR and the Board have refused to do. Will the Government define them? On the other hand, if all pensions and all public employees are essential services, the amounts paid cannot be higher than the levels preceding Irma and María. Hence, if the Board requires the furlough of employees and reduction of pensions, the Federal Government is ok with that, as well as the Commonwealth funding these as essential services.

The document also allows the Commonwealth to lend to a public corporation for the repayment of a previous loan, but with reporting conditions. Obviously thinking of PREPA.

As mentioned before, there are many reporting requirements. Until December 4, 2018, the Commonwealth “must submit reports on actual and projected cash receipts, cash outlays, restricted and unrestricted cash balances, accounts payable and accounts receivable balances, the waterfall of cash through deposit accounts, and other cash flows, for the Borrower and its component units as specified by the Government, on a weeklybasis and with each drawdown request.” This seems to apply to the Commonwealth whether it takes the loan or not.  Also:

“While the Note is outstanding, the Borrower must submit budget reports on actual and projected revenues and expenditures at least monthly, and must submit a copy of annual audited financial statements within the time period required under 2 CFR 200.512(a)(l) as adopted in 2 CFR 3002.10.”

The first CFR requires that audits be done within the earlier of 30 calendar days after receipt of the auditor‘s report(s), or nine months after the end of the audit period. The second CFR deals with debasement and suspension of federal programs. Hence, if PR does not comply, the Federal Government may not send any more money to the island. Big stick.

Information must also be submitted as to the use of the loan proceeds and nothing can be done that would impede the Government’s ability to verify the use of loans, a clear reference to the Whitefish contract that impeded review by federal authorities. Who said Whitefish was not important?

Budgets must be promptly submitted and any changes must be quickly notified. In addition, “[w]hile the Note is outstanding, and so long as the Financial Oversight and Management Board is in operation, the Borrower must submit status reports at least monthly on any potential or proposed changes to its fiscal plan certified pursuant to PROMESA, and how such changes may

affect the Borrower’s responsibilities and commitments under the Note.” Also, the Commonwealth must promptly submit to the Government any proposed changes to the Fiscal Plan and any certified Fiscal Plan, as well as any insurance payments received.

The same information as to any public corporation that is lent money must be submitted as well as any proposed rates and fee changes of said corporation (PREPA and PRASA come to mind) or if will accept something of value in lieu of said rates or fees. Any default by the public corporation to any loan made with CDL funds must be notified within 5 days.

All these reporting conditions, and others that I will mention infra, put the Government as another overseer of the Commonwealth. It is quite obvious the Government means to keep a close eye on the money it is lending.

In addition, as a condition precedent to the notes effectiveness, a drawdown manager must be appointed by the Commonwealth. More importantly, the Commonwealth must certify “all restricted and unrestricted cash accounts under the custody of the Puerto Rico Treasury and the public corporations, the balances of such accounts, and a narrative statement detailing the waterfall of credits to such accounts for any revenues or income received.” The “discovery” of almost $7 billion in 800 accounts by the Commonwealth has not escaped the scrutiny of the Government. Question is how quickly will this be done when only recently the Commonwealth and the Board hired companies to make a forensic investigation on this subject?

As conditions precedent to the initial funding, the Government requires “receipt of customary certificates and opinions and evidence of all required approvals, consents, and authorizations, including, without limitation, authorization by the Legislature of the Borrower for the incurrence of obligations under the Note as ‘public debt’ of the Borrower and approval by the Financial Oversight and Management Board.” Obviously, the Government wants to take advantage of Article VI, Section 8 of the PR Constitution that puts priority over all else on the payment of the debt. The problem with this is that the Constitutional Convention and the record of the 1961 Amendments to the Constitution make it clear that public debt is not any kind of obligation of the Commonwealth but bond debt in particular and acknowledgement by the Legislature will not make it so. Another issue for Judge Swain to decide.

A financing order by the Court is also required and a certified fiscal plan that reflects said loan are also required as conditions precedent. There cannot be any outstanding notice of non-compliance with the Fiscal Plan by the Board. Clearly another “motivation” for PR to comply with the Board’s orders. Agreement by the public corporation and the Board are also required, as well as the permanence of the Court order as required by the Government. Moreover, “[n]o amounts may be drawn down and on-lent to a public corporation until the Borrower shall have confirmed in writing to the Government the satisfaction of the foregoing conditions precedent to such on-lending.

There is a list of actions requiring government approval while the note is outstanding. These are:

  • “sell, pledge, grant security in or liens on any real property, tangible assets, intangible assets, financial assets, or accounts, or any revenue streams, or incur any debt under any indenture nor resolution, or otherwise borrow money, or

  • refinance, prepay, or repay any other indebtedness or borrowings other than pursuant to an effective plan of adjustment confirmed pursuant to a Title III case under PROMESA that provides for the repayment of the Note in full in cash, unless the Government agrees to an alternative treatment in writing, or

  • approve any waivers or amendments to any lending agreement between the Borrower and a public corporation, or

  • extend any loans, credit support, or otherwise bear credit risk to or for the benefit of any corporate entity, government entity, or other institution.”

Similar limitations are imposed on public corporations that receive the CDL loans. Does this mean that PREPA cannot be sold without the Government’s approval? Any other part of the PR government? What will the Board think of this, especially given what Under Secretary Walker testified before Congress? Questions abound.

The Government may collect on the loan regardless of whether the amounts are due and regardless of a default, including but not limited to the offset (set off in more traditional parlance) as established by 31 U.S.C. § 3716.

As to events of default, there are many. These include, breach of any conditions by the Commonwealth, the payment by the Commonwealth of any principal or interest of any prepetition debt via cash or adequate protection, an order dismissing the Title III or a petition by the Commonwealth to dismiss the Title III or the appointment of a receiver for the Commonwealth (interesting) or a public corporation, a request or an order amending the financing order or violations of said order, failure of Commonwealth authorization to the loan (the Legislature or the Board may do this), any unstayed judgment of $10 million or more, the filing of a Plan of Adjustment that provide for full payment of the loan, failure of the liens to remain in full effect, default by any of the public corporations, failure of PROMESA (the Aurelius litigation or any other constitutional challenge). Any suspected breach must be reported to the Government or it will be a breach.

The default has many remedies. The Government may suspend all or part of the commitment amount, declare all or part of the Note due and payable, increase the interest rate by 50 bps or any other action available under the law. Moreover, once there is a declaration that the note is due and payable, “all revenues and other amounts pledged hereunder shall be applied solely to repay this Note including any interest thereon in full before being used for any other purpose.”

The document also includes some General Covenants which put further supervisory restrictions on the Commonwealth. Some of them are to provide prior notice to the Government of any consensual debt restructuring proposals submitted or reported to other creditors, the Board, or any regulatory agencies, make sure the Fiscal Plans reflect the loan debt, notice of proposed changes to the Fiscal Plan, provide prior notice of all material motions or filings by the Board in the Title III case and maintain the level of insurance. The prior notice requirements mean that the Federal Government wants to know what is going on in the case before all others do. Control anyone? Wonder what the Board will think of this?

As per the agreement, the Commonwealth represents some very interesting things:

“As set forth in more detail below, the Borrower represents and warrants that it has authority to execute the Note and to give full force and effect to, and comply with, all terms and conditions herein.

The Borrower represents and warrants that nothing in its certified fiscal plan pursuant to PROMESA, and in the public corporations’ certified fiscal plans pursuant to PROMESA, is inconsistent with the terms and conditions of this Note.

The Borrower has all requisite governmental power, consents, and authority to execute and deliver this Note and, upon entry of the financing order, shall have all requisite governmental power and consents to perform all obligations hereunder, including, without limitation, the creation of security interests by the Borrower as contemplated hereunder.

The execution and delivery by the Borrower of this Note has been duly authorized by all necessary governmental action and does not, and will not, contravene any law, rule, or regulation of the Borrower, and will not result in the creation or imposition of, or the obligation to create or impose, any encumbrance upon any assets of the Borrower pursuant to any obligation, except  pursuant to this Note.”

This last representation requires some thought. By tapping into what the COFINA bondholders consider their property, this agreement could be considered to be against PR law. By placing the loan as “public debt”, the GO bondholders can claim that the agreement is in violation of the PR Constitution and if the legislature accepts the loan is public debt, they are violating said Constitution. Food for thought.

The terms of this loan are of such nature that would make any government hesitate before accepting them. On the other hand, the Rosselló administration desperately wants extra cash in order to spend its way a 2020 reelection. At the same time, the Executive was not much involved in the Title III since PROMESA did not provide it with a role. Now it wants to know what is going on before at the same time as the Board. Will Governor Rosselló try to play any Federal Government v. Board rivalry to his advantage? In addition, does the Commonwealth TSA account have to get down to $800 million or $1.1 billion in order for the loan to be provided? Even if the TSA account goes down to the required amount, the Government may “cash on hand and analysis of expected cash collections and disbursements through the accounts of the Borrower, its component units, and the public corporations,” and the loan could be denied. Finally, without the missing documents we cannot really understand the full details of the loan but we have gotten a glimpse. More information is needed but neither the Government nor the Commonwealth are transparent. We will to wait.

Monday Update – April 16, 2018

Welcome to your weekly Title III update for April 16, 2018. Once again, not much happened in the cases. Outside matters have now taken center stage; but first, let’s talk about Court matters.

As I mentioned last week, Judge Swain held a four hour oral argument on summary judgment motions on the issue of the validity of COFINA. Although as was expected, Judge Swain took the issues under advisement, sometimes the questions a judge asks gives you a glimpse of how she is thinking. Given her questions, it is obvious Judge Swain is concerned as to the title of pledged revenues, that securitization involved tangible assets and the timing of the transfer of the SUT, both as to when it was a tax and the constitutionality of transferring future taxes. When the GO representative came to argue, the Judge raised the issue of services v. payment of public debt. Judge Swain stated that the GO position could entail the rewriting of the PR Constitution and that their position as to available resources included all taxes. That is true, but it also what the Constitutional Convention intended.

From what I could surmise from press reports, the questions by Judge Swain do not swing the pendulum one way or the other since they were mostly public policy questions, not questions of law. In any event, they are simply the questions normally posed to the parties during oral arguments. The markets, however, interpreted the hearing as very positive for COFINA and its prices went up.

In addition, Judge Swain may be trying to pressure the parties to come to some type of agreement as to COFINA. I have always thought that COFINA wants to make a deal with the Board, but any deal is subject to a challenge and possible lawsuit from GO’s. But if GO’s believed they are likely to lose, it could be the incentive they need to agree to a deal. I doubt this scenario since any deals are contingent on the amount of money offered by the Board, which was meager to start with and since November seems to have been reduced to “growth bonds.”

In addition, some of the questions posed by the Judge put in jeopardy the UCC’s hints that much of the bond debt is illegal as it was issued in violation of the debt limits of Article VI, section 2 of the PR Constitution. If Judge Swain’s question as to this issue was her decision, then the 15% limit would only apply to PR General Obligation Bond debt, which does not exceed a limit so calculated.

Also, Judge Swain could hold out her decision until after the plan of adjustment is filed by the Board. If the COFINA decision was handed down today and was favorable to bondholders, it would mean the debt must be paid and there would be no incentive to settle for less than full payment. By waiting until the plan of adjustment is filed and beyond, Judge Swain could be thinking this would force the parties to settle. Again, doubt it would happen with what the Board is offering, but you never know.

Moreover, even if the Court were to find in favor of COFINA bondholders this does not mean that she would find against GO bondholders. She could very easily say COFINA money is not available resources under Article VI of the Constitution but that GO’s have a priority over all other debt, as stated by section 8. That would definitely leave the Board and Government hung out to dry. This year and next are going to be very interesting.

Several bondholders have objected to Magistrate Judge Dein’s order as to Rule 2004 discovery. They want more documents, not less. In addition, the GO bondholders and others filed a motion to compel compliance with the Court’s February 26, 2018 Order addressing the production of Fiscal Plan Development Materials. The motion states:

“Per the Court’s Order, Movants promptly wrote to Respondents identifying the Fiscal Plan Development Materials that they believed were deemed produced pursuant to Section 2004. See Ex. C (Letter from G. Orseck to M. Bienenstock & J. Rapisardi (Feb. 27, 2018)) & Ex. D (Letter from G. Orseck to M. Dale & J. Rapisardi (Mar. 7, 2018)). Respondents refused, arguing that, because the Court had found that Movants had not shown that they needed to immediately use the Fiscal Plan Development Materials, Respondents did not need to produce them at all pursuant to Rule 2004 or the February 26 Order. See Ex. E (Letter from M. Dale & J. Rapisardi to G. Orseck (Mar. 1, 2018)) & Ex. F (Letter from M. Dale & E. McKeen to G. Orseck (Mar. 12, 2018)). Respondents insist instead that they have the unilateral right to determine, on a document-by-document basis, whether to produce any Fiscal Plan Development Materials. See Ex. F. To date, Respondents have refused to produce a single one. See id. As Respondents would have it, Movants are in precisely the same position with respect to the Fiscal Plan Development Materials that they were in before they began litigating the 2004 motion over six months ago.”

Clearly, this is not what Rule 2004 or the Court’s order require. This steadfast refusal to produce documentation on the Fiscal Plans begs the question of what, if anything, is the Board hiding. In any event, the information will become relevant or not when later in the year the plan of adjustment is filed.

Although the PR Senate has unanimously passed a resolution to defund the Oversight Board, the House Speaker, Mr. Méndez, stated that he would not issue such resolution since the Governor requested he do not. As I have said before, the Resolution was nothing more than politicking given Section 107(b) of PROMESA.

The local press has repeatedly reported the Board will hold hearings on April 19-20 to certify fiscal plans, but there is no mention at the time of writing of this in its website. If there are hearings, I will try to attend or at least view it on my computer and report.

What is in the website of the Board is a Letter of Engagement for Duff & Phelps, LLC assist in independent forensic analysis in the following:

“Phase I Scope of Services would be to perform, assess, recommend and/or report to the PROMESA board or its delegates on the following:

  1. (1)  Validate with a high level of certainty the completeness of the list of bank accounts in the AAFAF report of January 19, 2018 and the values of those bank accounts as of the reported date;

  2. (2)  Recommend additional procedures that need to be undertaken if the completeness of the list in the AAFAF report of January 19, 2018 is determined to be insufficient;

  3. (3)  For all materially sized accounts, and for a random selection of other accounts identified by the Government as restricted, identify the documented legal restrictions, e.g., federal, bond-related, local legislature, or local executive.

  4. (4)  D&P to provide periodic status updates and a report and recommendation to the PROMESA board regarding the above items, which will include D&P’s estimates of time and fees to perform the agreed upon tasks, once commissioned by PROMESA.”

In other words, almost 9 months after the Board and PR exchanged emails as to the discovery of accounts with billions of dollars, a company is being hired to conduct an investigation as what, if any, limitations these accounts have. Very expeditious work by the Board. Another waste of PR taxpayer dollars by the Board for something they were already aware of.

PREPA has been in the news here and in Washington. The United States House of Representatives Committee on Energy and Commerce, Subcommittee on Oversight and Investigations held a hearing on April 11 on PREPA and its recovery efforts. One of the witnesses was Assistant Secretary Bruce J. Walker, Office of Electricity Delivery and Energy Reliability, U.S. Department of Energy. During his testimony, he stated that the DOE had spoken with Governor Rosselló and he had agreed that the Southern States Energy Board would create the policy and legal framework for the regulatory process for privatization of PREPA. Local news has reported that the contract to be paid by the DOE is for $1.3 million. This was confirmed on Friday during a radio talk show where Senator Ríos of the PNP who added that the Governor had designated Senator Seilhammer, who is an engineer, as his representative.

What is the Southern States Energy Board? According to its website:

“The Southern States Energy Board (SSEB) is a non-profit interstate compact organization created in 1960 and established under Public Laws 87-563 and 92-440. The Board’s mission is to enhance economic development and the quality of life in the South through innovations in energy and environmental policies, programs and technologies. Sixteen southern states and two territories comprise the membership of SSEB: Alabama, Arkansas, Florida, Georgia, Kentucky, Louisiana, Maryland, Mississippi, Missouri, North Carolina, Oklahoma, Puerto Rico, South Carolina, Tennessee, Texas, U.S. Virgin Islands, Virginia and West Virginia. . .

SSEB was created by state law and consented to by Congress with a broad mandate to contribute to the economic and community well-being of the southern region. The Board exercises this mandate through the creation of programs in the fields of energy and environmental policy research, development and implementation, science and technology exploration and related areas of concern. SSEB serves its members directly by providing timely assistance designed to develop effective energy and environmental policies and programs and represents its members before governmental agencies at all levels.”

Now it seems it will be in charge of designing the sale of PREPA. Stay tuned.

Mr. Walker also stated that PREPA does not have a good model for their electrical system and this impedes determining where it is a good place to put renewables and where is a bad place to put them. This model for the electrical system is being developed by the DOE and should be completed in 60 days. Does this means that PREPA is being federalized? It certainly feels that way. Moreover, you may have noticed there is no mention here, nor was there mention during Mr. Walker’s testimony, of any role of the Oversight Board in the sale of PREPA. Maybe that is why the Governor accepted the SSEB’s role in the sale of PREPA. In any event, it is VERY UNLIKELY the Board will relinquish its “control” over PREPA. Nevertheless, a model for the PREPA electrical system, the Integrated Resources Plan, required by the PR Energy Commission also will be scrapped, as well as any fiscal plan that does not include said model.  Once the fiscal plans are certified, we will be in better position to see what it will do. We know they are focused on control of all matters.

Very few people know, however, that Congressman Don Young, an old friend of the PNP, has been circulating a draft of legislation on the sale of PREPA. This bill essentially puts the sale of the generation, transmission and distribution electrical systems of Puerto Rico in the hands of the Department of the Treasury.  The Secretary must consult with PR and the Board but he makes the ultimate decisions as to the sale, including selecting the entity to which it would sell PREPA. The selected entity must operate at least one facility involved in generating, transmitting or supplying of fuel in the United States (could be an error to mean electricity). It must have the financial strength to be able to operate and proposals that include a capacity to supply fuel for electricity generation, etc., will be given preference. The process will start within 60 days of the approval of the bill, applications no later than 120 days of the approval and the selection no later than 180 days after approval of the bill. Hence, this should be very fast.

The selected entity will have a $3 billion fund to offset any revenue shortfall which is essentially a Congressional subsidy. It prohibits Contributions in Lieu of Taxes which is a subsidy to Municipalities, a drag on PREPA’s revenue.

The Federal Energy Regulatory Commission is entrusted in the Young bill with establishing, in coordination with the PR Energy Commission, the electricity rates “in exercising this authority, the Commission shall approve a tariff containing rates, charges, terms, and conditions of service that it finds to be just and reasonable and not unduly discriminatory or preferential.” (Section 5(a)(5)). The FERC is also entrusted with authorizing a gasport or pipelines. Finally, gives federal court jurisdiction of any eminent domain claim for a right of easement of over $3,000.

Again, it seems the federal government, both the Executive and the Legislative, want to federalize PREPA. It seems this bill only reinforces why the Southern States Energy Board has been engaged.

In other news, at the local level, the Institute for Energy Economics and Financial Analysis issued a report criticizing the PREPA sale bill. Some of the criticism is very valid, for example, at page 8:

“As demand declines, the fixed costs of electricity generation will be spread over fewer customers, putting upward pressure on rates.  In this situation of highly uncertain and declining electricity demand, investments in large-scale centralized generation facilities carry the additional risk of overbuilding, i.e. that the electricity demand may not materialize to support the new investment. This is why IEEFA has advocated strategically-timed retirements of existing generation facilities and the development of smaller generation facilities as needed to replace them.”

At page 9, it states that the “privatization bill provides essentially no role to the FOMB, nor does it incorporate the proposed privatization transactions into an overall debt management strategy for PREPA.” (bold in the original) The report also criticizes the bill as creating uncertainty and not removing politics from PREPA. Also, at page 12, it states:

“Recent actions taken by Governor Rosselló’s administration indicate that the governor is not serious about changing what the Puerto Rico Energy Commission identified as a core governance problem: “continuous and short-sighted political interference” without independent, professional oversight. The Rosselló administration has worked aggressively to thwart any independent oversight of PREPA.”

On the other hand, when it comes to the bondholder’s debt, the report is totally outside the scope of the possible at page 20:

Elimination of PREPA’s legacy debt. Repayment of the current debt would crowd out the necessary capital investments to rebuild and modernize the electrical system. Bondholders should pursue partial recovery of losses from insurance companies and from legal cases against bond consultants and underwriters who approved possibly fraudulent bond issuances. No funds from the sale of PREPA’s assets should be used to defease or otherwise reduce PREPA’s indebtedness.

In addition, Jose Alameda, a local economist hired by UTIER wrote a report saying that the privatization would increase residential bills by almost $1,000 a year. Clearly, given the DOE’s and likely Board’s intervention, it is unlikely to be the vehicle for the sale of PREPA. What is certain is that the federal government does not trust this administration or the Board for that matter, in the sale of PREPA. Now let’s see what the Southern States Energy Commission comes up with.

Lastly, my column last week in Caribbean Business returned to the issue of the CDL. Much like in the 1985 comedy Brewster’s Millions, Governor Rosselló can have up to $4.9 billion from the federal government, in the form of the CDL, but first he must spend hundreds of millions to empty the Commonwealth’s Treasury Single Account and meet the minimum threshold set by the U.S. Treasury of $1.1 billion.

The real question is how he’ll spend hundreds of millions without regard or control; certainly the Oversight Board won’t stop him.

Transparency here will be paramount. Spending money in the hopes of that you will get the $4.9 billion is no way to govern. So while we patiently wait to see the details of the term sheet between the U.S. Treasury and the Puerto Rican Government, we are reminded that watching Brewster’s Millions was, after all, a comedy. However, what is taking place in Puerto Rico is no comedy. Let’s see what happens.

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.

Weekly Update – April 10, 2018

Welcome to your weekly Title III update for April 10, 2018. Once again, not much happened in the cases. Outside matters have now taken center stage; but first, let’s talk about Court matters.

The purported clash of titans between the Board and PR continues. The Senate, in a Tarzan-like chest pounding, unanimously passed a resolution instructing the PR Treasury Department not to send money to the Board. The Governor was understandably hesitant to support this and sent out a press release essentially saying he had to comply with section 107(b) of PROMESA, which empowers the Board to use its control over the PR budget to assure itself of the necessary funds. Also, no funds to the Board means no funds for Title III. Populistic posturing by the PR legislature.

In any event, on April 5, 2018, the Governor sent the Board the Fiscal Plans for the Commonwealth, PREPA, PRASA, UPR and HTS, without any adjustment of pensions and many of the other requirements. The Board has said it hopes to certify the plans by April 20. More likely than not, the Board will certify its own fiscal plan which will include the pension reduction and other measures anathema to the Governor, who has vowed not to implement them. If he does not, the Board will file motions with the Court pursuant to section 104(k) of PROMESA and again Judge Swain will have a clash of Board v. Commonwealth.

I will briefly discuss the Commonwealth and PREPA fiscal plans, which are the most pressing since these are the main Title III debtors. The Commonwealth fiscal plan was expanded by 80 pages adding more information and complying with some, but not all of the Board’s requirements. At page 50, you can see a surplus of billions if debt is not paid and deficit if debt is paid. The message is clear, PR cannot pay debt service, but can pay $2.25 billion in pensions. There is an increase in government payroll (page 53) although there is population decrease (page 65-66) and a $6.33 billion surplus by 2023 (page 54 and 69), all without debt payment. Moreover, the Title III litigation is expected to cost $1.46 billion by 2023 (page 54 and 185).

The Commonwealth Fiscal Plan predicts PR growing from 2019 on, although there is a projected population decrease (page 66). Page 71 is equivalent to page 55 of the March 2018 Fiscal Plan and the surplus is increased as well as other numbers changed. Makes one wonder what actually changed in 13 days?

Also, although the Governor said further labor reform was withdrawn, the plan states that it will [i]ncrease productivity and competitiveness by revamping labor laws.” (page 130) The plan includes the rightsizing of the Department of Education continues (page 82) as well as the Health Department (page 94), but whether that means actual firings we do not know. Tax reform starts at page 133 but frankly, I can’t see how you can decrease taxes as dramatically as the fiscal plan calls for and get an increase in revenue. It can work in the US but not here in PR where tax evasion is a way of life.

During the Governor’s address to PR as to PREPA on January 22, 2018, we were told that the process would take 18 months to complete. Now, the fiscal plan states at page 142:

“The transformation process is expected to formally run from the date of certification of PREPA’s revised fiscal plan until confirmation of a plan of adjustment and completion of the necessary concession and sale transactions (Transformation Period). The Transformation Period is expected to last 12-18 months, during which:

A new, independent regulator for the energy sector will be established through legislation). The New Regulator may be the Energy Bureau within the Public Service Commission (PSC).

5 energy commissioners who serve staggered terms to remain insulated from political interference

Advisory and advocacy staff and functions strictly separated for fairness and due process reasons

A ratepayer advocate exists separately from the regulator

Appointments made from a list of persons with specified technical credentials identified through an externally led process.

Supported by expert utility staff.

Decisions will comply with traditional administrative procedures”

Now the Transformation Period will be longer and the Regulator, contrary to what the Board wants, will be part of the Public Service Commission. So much for a politician’s promises.

Finally, the fiscal plan of the Commonwealth is overly optimistic in its estimates and the possibility of using technology. Take the Property Registry of PR for example. Ever since the Acevedo Vilá Administration, the PR government has come with one scheme after another to modernize the process of registering property rights in the island and all have failed with millions of dollars wasted. Why are we to believe it will be any different this time?

The PREPA fiscal plan, contrary to the Commonwealth’s, shrank from 139 pages to 104. Although Governor Rosselló ordered the PREPA Board of Directors to justify Mr. Higgins, the new Executive Director, salary, it seems that he is here to stay since at page 11 the fiscal plans mentions him and his experience. Again, politicians.

Page 14-15 details the PREPA transformation plan of 18 months, which the Commonwealth fiscal plan mentions and is quite ambitious. As the Commonwealth Fiscal Plan, PREPA’s states that it cannot pay debt service except by increasing the cost of kilowatt/hour by 5 cents (pages 25, 27, 46-47, 83).  To be expected from the Government that claimed it would pay bondholders and that Title III was not necessary. Again, politicians.

Page 26 explains that the PREPA pension fund is only 28% funded and is $3.6 billion underfunded. Big problem. The Plan includes reduction of overtime payment from 2x to 1.5x, reduction of contribution to the medical plan and pension “reform” (page 36 and 68-69). I am sure PREPA’s unions will accept it without any complaint. Continuing with the issue of employees, the Plan states that “[a]pproximately 10% of PREPA workforce has submitted paperwork to retire with the Retirement System. If all ~600 retire and are not replaced, PREPA will realize employee costs savings of ~$45 million.” But on pages 23 and 65 of the plan, PREPA complains that since 2012 it has lost 30% of its workforce and that has constrained its ability to respond to challenges. But again at page 44 it mentions rightsizing. Totally contradictory but at page 66 it makes clear that there will be recruiting for skilled workers. Question is, if you are going to hire employees, what about the 600 not replaced workers and the $45 million in savings. Totally contradictory.

The transformation is not the only thing with a timetable. The Integrated Resource Plan (IRP) is being revised and should be completed by September 2018 (page 50). Given how much space is devoted to the IRP (pages 50-53) seems doubtful everything will be completed by September. It includes a differentiated rate system (want better service? You pay more, page 53) and this dozy: “Given the complexities of the IRP process and its range of regulatory approaches, it is not possible, nor credible at this juncture to quantitatively modify the current PREPA Fiscal Plan with the IRP objective function targets.”(page 53) Then why have the fiscal plan at all? Totally contradictory. Again, contrary to what politicians have said, the fiscal plan seems to include the selling of the PREPA monopoly, page 93. Seems PR politicians speak with a forked tongue.

Moreover, last week PR Treasury Secretary Raul Maldonado said that by summer PREPA and PRASA are expected to need a loan from the Commonwealth General Fund.  Let’s take a moment to refresh ourselves with recent comments from Martin Bienenstock, legal representative of the Board, whom have filed several motions on PREPA’s liquidity:

“The undisputed evidence shows PREPA is running out of money and that without an injection of liquidity in the near term there will be insufficient cash to continue to provide power to Puerto Rico.”

“Even with $300 million of postpetition financing PREPA will only be able to continue operation in the ordinary course until late March 2018”

“As explained at the February 15, 2018 hearing, PREPA’s cash availability is at such a low level that PREPA’s operations are in jeopardy. After the hearing, PREPA began to implement plans to ramp down PREPA’s power production and shut down certain generating units in order to conserve its limited cash resources. This exacerbated the risk to an already fragile system and leaves it vulnerable to outages and resulting in brownouts on the island. Unless PREPA obtains access to additional liquidity by mid-next week, PREPA will be forced to further reduce its load and reduce personnel.”

“Movants anticipate submitting a further request for approval of a larger financing within two to four weeks because the instant proposed financing is projected to be consumed before the end of March 2018.”

However, in subsequent hearings and filings, Mr. Bienenstock changed his tune, saying that it was possible, not probable that PREPA would have to borrow money.

“PREPA’s budget reporting since the closing of the post petition facility has indicated materially better actual liquidity than originally forecasted. Barring unforeseen circumstances, PREPA does not currently anticipate a need for supplemental postpetition financing before May 15, 2018, and possibly not until several weeks after that. PREPA therefore expects any motion for approval of supplemental or replacement postpetition financing would be filed on or after April 23, 2018.”

This is nothing but a desperate attempt by the Board and the Commonwealth to spend money so the General Fund  goes below $1.1 billion so they can attain the CDL from the Federal Government. The cash reports of the Commonwealth, however, show that it will be difficult for instead of being reduced, it has grown. Moreover, it will grow larger now that April 17, tax day, approaches.

Some municipalities, however, are going to receive CDL loans since the Treasury decided it can lend them individually and not through the Commonwealth. Twelve municipalities will receive a total of $53 million in loans with another 65 in the process of requesting them. Since the loan cannot exceed $5 million per municipality, the bulk of the $4.6 billion available to PR remain intact and will probably will never be received given the Commonwealth’s finances. That is what happens when you don’t pay debt service.

The issues of Matosantos’s financial disclosures continues to be subject of debate, including by myself. I was informed that her financial disclosure forms do no list her direct interest in Euro-Caribe.  Initially, that did not appear to be a problem because she list her director role with Matosantos Commercial Corporation.  However, a careful review of the corporate documents for Euro-Caribe show that Matosantos was a director as of April 16, 2017 and as of March 5, 2016, she wasn’t. This means that between these two dates she appears to have been appointed as a director.  Matosantos was appointed to the Oversight Board on August 31, 2016.  If Matosantos became a director at EuroCaribe between March 5, 2016 and August 22, 2016, it was not declared on her initial financial disclosure forms. If Matosantos became a director between August 23, 2016 and December 31, 2016; she took on the position during her tenure on the Oversight Board and should have disclosed it in her December 2016 disclosure. If Matosantos became a director between January 1, 2017 and April 16, 2017, she will have to disclose it in her next filing.  It appears that Matosantos took on the director role at Euro-Caribe while she was on the Oversight Board, and further, it’s likely, based on this information that Matosantos signed these disclosures “as of” months beforehand.  There appears to be possible backdating.

As I said from the beginning, adhering to federal conflicts of interests disclosures is required under PROMESA. The possibility that Ana Matosantos violated federal law is clear. This could have a far-reaching impact on current Title III proceedings, and I wouldn’t be surprised to see a complaint before Judge Swain in the near future.

Finally, later today, Judge Swain will have a summary judgment hearing on the COFINA-Commonwealth case, which will determine whether the SUT belongs to the Commonwealth or COFINA. Unfortunately, due to prior engagements in other cases, I will not be able to attend but in any event is its highly unlikely Judge Swain will rule today. There is another hearing at the end of April addressing additional COFINA issues. Right after the Aurelius constitutional challenge that was argued almost three months ago, the COFINA controversy is the most important controversy in case. I expect a decision sometime this year.

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.