Monday Update – December 11, 2017

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

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

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

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

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

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

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

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