Monday Update – December 18, 2017

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

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

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

Judge Dein further ordered that:

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

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

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

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

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

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

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

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

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

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

On December 13, 2017 at 11 EST, the Court heard oral argument as to Motion for Summary Judgment of Employees Retirement System of the Government of Commonwealth of Puerto Rico and ERS Bondholders’ Motion for Summary Judgment on Issues Relating to Perfection and Application of Section 552 of the Bankruptcy Code. Both motions seek to show that bondholders of the Retirement System have no lien. Judge Swain asked both parties pointed questions and took the submissions under advisement. Let’s see what she decides.

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

Bettina Whyte $264,460.00 $21,392.86 $238,014.00 8/3 to 9/30/17
Willkie Farr & Gallagher LLP counsel  for Bettina Whyte $4,661,711.75 $158,974.01 $3,789,638.26 8/3 to 9/30/17
Klee, Tuchin, Bogdanoff & Stern LLP municipal counsel for Bettina Whyte $533,434.50 $11,133.88 $533,434.50 7/31 to 9/40/17
Proskauer Rose LLP, as counsel for Board in PREPA $989,899.20 $67,275.25 $989,899.20 7/2 to 9/30/17
Proskauer Rose LLP, as counsel for Board in ERS $1,427,540.40 $24,131.76 $1,427,540.40 5/21 to 9/30/17
Proskauer Rose LLP, as counsel for Board in Commonwealth $6,369,303.60 $233,148.09 $6,369,303.60 5/3 to 9/30/17
Proskauer Rose LLP, as counsel for Board in HTA $4,035,404.70 $154,512.19 $4,035,404.70 5/21 to 9/30/17
Proskauer Rose LLP, as counsel for Board in COFINA $1,505,471.40 $16,605.84 $1,505,471.40 5/5 to 9/30/17
O’Melveny & Myers LLP, for AFFAF $2,028,863.49 $67,533.13 $1,827,719.83 5/21 to 9/30/17
O’Melveny & Myers LLP, for AFFAF, for HTA $1,272,965.00 $19,854.00 $1,149,595.03 5/21 to 9/30/17
Greenberg Traurig, LLP for PREPA $1,356,635.10 $57,025.81 $0.00 7/2 to 9/20/17
Ernst & Young LLP Board Expert $1,169,699.80 $4,910.69 $0.00 5/3 to 9/30/17
Luskin, Stern & Eisler LLP, counsel for the Board $$297,054.45 $2,172.59 unknown 5/3 to 9/30/17
McKinsey & Company, Inc. experts for the Board $5,120,000.00 $0.00 $0.00 7/1 to 9/30/17
Phoenix Management Services, LLC, experts for mediation team $774,101.00 $28,561.25 unknown 8/4 to 10/1/17
Deloitte Financial Advisory Services LLP, advisors to Commonwealth $6,647,370.29 $441,830.04 $6,647,370.29 5/3 to 9/30/17
FTI Consulting, Inc., experts  Committee of Retired



$660,431.00 $5,298.34  unknown 6/27 to 9/30/17
Jenner & Block LLP, counsel for Committee of Retired


$2,051,975.37 $60,916.21 $0.00 6/16 to 9/30/17
Segal Consulting, expert actuaries for Committee of Retired


$223,475.00 $5,305.47 $0.00 6/27 to 9/30/17
Greenberg Traurig, LLP, AFFAF counsel in PREPA $2,037,466.72 $23,832.82 $0.00 7/2 to 9/30/17
Zolfo Cooper, LLC, financial advisor to UCC $2,641,266.75 $38,372.69 unknown 6/27 to 9/30/17
Paul Hastings LLP counsel for UCC $$4,868,107.00 $133,270.22 $0.00 (of this application) 6/26 to 9/30/17
Ankura Consulting Group, LLC, financial advisors to PREPA $2,260,252 $129,303.57 unknown 7/2 to 9/30/17

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

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