Monday Update – December 17, 2018

Welcome to your weekly Title III update for December 17, 2018.  Again, not much happened and it seems as if everyone is waiting for the Aurelius decision.

On Monday, Judge Swain issued an apparently innocuous order but I think it is very important. She said:

The Court has learned that a financial advisor has disseminated incorrect information regarding the submission of objections to the proposed plan of adjustment for the Puerto Rico Sales Tax Financing Corporation (“COFINA”). Parties who wish to lodge objections to the proposed plan of adjustment should refer to the Court’s order approving,among other things, the proper procedures for the submission of such objections(the “Order,” Docket Entry No. 375 in Case No. 17-3284). Only objections that have been filed and served in accordance with those procedures will be recognized in connection with the motion for confirmation of the proposed plan of adjustment. Communications sent to the Court by email or made through any other method that does not comply with the procedures established in the Order will not be recognized as objections to the confirmation motion.

Although the Court reviews all materials submitted to its correspondence inbox, as well as all physical letters received by chambers, such materials do not constitute formal submissions in the proceedings that are before the Court. As such, such email correspondence and letters concerning the proposed plan of adjustment for COFINA will not be considered or included in the Court’s analysis of the legal issues associated with the motion for confirmation of the proposed plan. The Court will only consider legal submissions that are properly filed on the docket and served on other parties in interest, as required by the Order.

Experienced lawyers know this is the way things are done in Court,  but too many radio show talking heads keep insisting that sending letters to the judge is the way to persuade her to act according to their whims. Last week, Judge Swain denied the Puerto Rico Civil Rights Commission leave to file a brief of amicus curiae regarding the COFINA settlement, saying it did not discuss the factors in PROMESA section 314 or the Bankruptcy Code. Judge Swain has shown time and again she is a by the book judge and will not consider that which was not properly put before her. That is the way it should be.

Stephen T. Mangiaracina, Esq., a retail COFINA junior bondholder, submitted objections to the COFINA Plan of Adjustment, which are unorthodox, to say the least. His first statement:

The proposed Plan of Adjustment had its origin beginning on or about May 5, 2017 with the filing of a voluntary Title III Petition for Bankruptcy Protection for the solvent COFINA. This Objectant on November 26, 2018 made a referral to the Office of the United States Trustee for investigation of the filing of the Voluntary Petition by the Commonwealth of Puerto Rico Governor Richard Russello, the Financial Oversight Management Board (FOMB) and the COFINA Executive Board.

My claim with supporting submission should show the Petition was filed for the sole purpose of fraudulently using the U.S. Bankruptcy Code to wrongfully take the property rights of COFINA bondholders and transfer them to the Commonwealth. I believe on or about May 5, 2017 was the birth of a criminal enterprise which has grown to where it is today, with the addition of new participants.

These type of conspiracy theory arguments will not go far as Judge Swain is very unlikely to even consider this objection.

In addition, the UCC got permission to conduct Rule 2004 discovery as to potential avoidance actions. Let’s see what comes of this.

The payment of the Christmas bonuses continues to be discussed in the news. Allegedly, PRASA received permission to hire 100 new employees but the money earmarked for this was spent on the Christmas bonus. In addition to that, the Board mentioned that the Christmas bonus paid to the police came from an $8 million allocation earmarked for salary increases. At this point, I have no idea who is right but the Board has repeatedly said that the Commonwealth, by paying the Christmas bonus, risks running out of money for the payroll at the end of fiscal year. We will know in 6 months.

Also, El Nuevo Día reported that Trump’s new Chief of Staff and former OMB director, Mick Mulvaney, hates Puerto Rico. While I doubt this is true, I am sure that as a fiscal conservative, he will be looking very closely at the present Board members with an eye on future appointments. I doubt they will be the same members we have now. I have previously written on suggestions for actions the Board could take.

El Nuevo Día additionally reported that the Board had sent a letter to HUD saying it was willing to help with the distribution of federal funds and make sure they were used correctly. Although sources from the Board denied this (the letter has not been made public), Governor Rosselló denounced this as a power grabbing scheme. Radio commentators came to the same conclusion. What is the truth? No idea, but the Board has become much more visible and active since the December 3 oral argument on Aurelius, jousting more than usual with the governor. Could it be that it knows it can be changed a lot sooner than August? The countdown for the case’s most important decision to date keeps ticking.

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.