Welcome to your weekly Title III update for December 10, 2018. First things first; two important things happened today, in 1898 the Treaty of Paris was signed transferring Puerto Rico to the USA. But more importantly, it’s my birthday, LOL. Back to business.
Lehman Brothers Holdings, Inc., filed a response to the Board’s request to reject its executory contract. Lehman said it had no objection but that did not include the contract it had with the Trustee. It also reserved rights to amend its proof of claims.
AsI reported last week, the UCC filed a motion to conduct limited discovery on possible fraudulent transfers, something it claims the Kobre & Kim report does not go into. On Sunday, AAFAF filed a motion saying it does not oppose said request. AAFAF, however, clarified as follows:
Nevertheless, and considering the scale of the information being requested, the Debtors, through AAFAF, are engaged in productive discussions with the Unsecured Creditors’ Committee to attempt to reach an agreement over the appropriate scope of the information and documents to be produced, as well as to establish a reasonable timeline for the production. Thus, AAFAF reserves all rights and objections as to the scope and extent of such production requested in the Motion, in the event that no agreement on such production is ultimately reached with the Unsecured Creditors Committee.
I don’t know what will happen but I doubt this is the end of the controversy.
Also, Judge Swain approved a stipulation between the bondholders seeking a receiver for PREPA, the Board and AAFAF. The Judge will hold a hearing on March 12,2019. Somehow, I believe some type of accommodation will be achieved before that date. I still think movants are striving for a better settlement and a reusing the receiver motion as leverage. Another possible scenario, however, is the Board joining the motion for a receiver, which given the conflicts with Governor Rosselló, would not be surprising. Also, the UCC will be allowed into the discovery in the case. Finally, the motion was referred to Magistrate JudgeDein by Judge Swain. Let’s see what happens.
The COFINA-Commonwealth settlement was approved on November 9, 2018. Around November 15, several unions objected to the settlement. On December 7, 2018, the Board filed an Omnibus reply to these objections. I will not bore you with the technicalities but I think this part sums it all:
In essence, the Union Objections assert that the Motion can be approved only if the Settlement is the best possible settlement of the Commonwealth-COFINA Dispute for the Commonwealth.See SEIU/UAW Objection ¶¶ 51-53; PROSOL-UTIER Objection ¶¶ 32-34. In other words, the Union Objections argue that a settlement must give the Commonwealth all, or the vast majority, of the disputed sales and use tax revenue in order to be approved by the Court. The Union Objections ignore the requirement that the Court should carefully and analytically assess the risks attendant to a litigation and the fact that the Agreement in Principle was heavily negotiated between independent representatives of both the Commonwealth and COFINA with the benefit of the Court-appointed mediation team. As such, the Union Objections fail to recognize that, not only is this a settlement, but also, in the opinion of the Commonwealth Agent, as supported by the Oversight Board, the Settlement is the best possible resolution for the Commonwealth.
In fact, the “law governing settlement under Bankruptcy Rule 9019 is well settled,” and the proponent of the settlement need only satisfy the standard “that the proposed compromise falls above the lowest point in the range of reasonableness.” The cases are clear that “the Court will defer to the trustee’s judgment and approve the compromise, provided the trustee demonstrates that the proposed compromise falls within the ‘range of reasonableness’ and thus is not an abuse of his or her discretion.” (Foot notes omitted)
Again, I believe Judge Swain will overrule the aforementioned objections.
On December 5, 2018, at 5 pm, the window for companies’ to submit qualifications for the PREPA Transmission and Distribution RFQ was closed. The next day, we were informed that five companies expressed an interest. In keeping with its tradition of full transparency, the Commonwealth said it would withhold the identity until it corroborated who actually qualified. Typical.
Meanwhile, the Board sent the office of Management and Budget a letter that says, inter alia:
At this time, the Oversight Board has 40 budget reapportionment requests pending. To facilitate an expeditious and thorough review, the Oversight Board would like to develop a collaborative process with the Government and outline several key requirements of the Oversight Board’s reapportionment review process, which if followed,will enable swift decision making and implementation.
First, reapportionments should not request to utilize funding from previous year General Fund (“GF”) appropriations, including budgetary reserves, which conflicts with section 5 of the Budget Joint Resolution from June 30, 2018.Second, reapportionments should not change the target and intentions of the rightsizing efforts, which would conflict with the New Fiscal Plan. Third, reapportionments within the General Fund should not request additional funding that would change the aggregate amount of Government spending and be in conflict with the certified Budget. Fourth, all SRF unfreeze requests from prior years should include supporting documentation of the revenue source.Fifth, all SRF budgetary increases based on updated other source revenues should include adequate supporting documentation of the revenue source and be consistent with rightsizing targets and efforts. Sixth, reapportionments should not be made from the Fiscal Plan Emergency Reserve, Cost Sharing Match Custody Account, or Unallocated Capital Expenditures, unless consistent with the purposes of those appropriations.Seventh, all Federal Fund increase requests should include copies of the notices of awards.
This is clearly a response to the petty dispute the governor has had with the Board over the paying of the Christmas bonuses. When Governor Rosselló announced he had paid the Christmas bonus, Executive Director Jaresko reminded him that he had to save in other areas the same amount he was paying or risk running out of money for payroll at the end of the Fiscal Year. The governor responded by telling the Board to stop getting its nose in his business and to work on all the reapportionment requests he had made. Same old, same old.
On this same vein, if the First Circuit were to reverse Judge Swain in the Aurelius challenge to the Board’s appointment, then the FOMB would be unable to do this to the Commonwealth. On the other hand, anew Board, appointed by President Trump, would probably not be as forgiving as this Board has been. We will wait and see.
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.