Welcome to your weekly Title III update for December 3, 2018. Given that the only news for the week before was the approval of the disclosure statement, I decided not to publish it. This week, however, a few things have transpired.
Last Monday, the Board filed the second amended COFINA Plan of Adjustment with a few modifications. The Board also filed a proposed order approving the forms, both in English and Spanish, of the Omnibus objections to proofs of claim. Judge Swain later approved the order.
On Tuesday, the Board filed a motion to reject COFINA’s contract with Lehman Brothers Special Financing Inc. for the servicing of the debt. The rationale is that the bond exchange changes everything. In any event, it will probably be granted by the Judge.
The Court not only approved the COFINA disclosure statement but also fixed the voting record date for the plan, the Confirmation Hearing Notice, the contents of the solicitation package, solicitation of votes, etc. Two dates are very important; by January 2, 2019, objections to the COFINA Plan of Adjustment must be filed and by January 8, 2019, votes on the Plan of Adjustment must have been delivered.
As to the objections to the Fiscal Plan, none have been filed. Unions in the Puerto Rico government and utilities filed objections to the COFINA/Commonwealth settlement, albeit after the cut-off date, but no objections to the Plan of Adjustment. Moreover, since the unions are not creditors or bondholders of COFINA, it is questionable if they have standing pursuant to 11 U.S.C. § 1109(a), much less when considering Article III of the Constitution. Let’s see if they file objections.
On Tuesday, the Official Committee of Unsecured Creditors of all Puerto Rico Title III debtors filed a motion requesting “the production of documents concerning potential avoidance actions that may be prosecuted by the Debtors or by a trustee appointed by the Court pursuant to section 926 of title 11 of the United States Code.” The UCC motion also states as to the Kobre and Kim report:
The Final Report did not even address the question of whether any Avoidance Actions could be maintained by any of the Debtors. Indeed, these issues were carved out of the investigation, with the Investigator noting that it did not seek or obtain “comprehensive discovery” relating to prepetition transfers because “[w]e have not been tasked” with this analysis and the Investigator lacked a “solvency analysis.”
The UCC knows that the Board was in the process of hiring a law firm to find causes of action against potential defendants so it decided to put its foot forward into what the Final Report ignored—the transfer of monies from the Commonwealth defendants. The UCC also knows that the Board is unlikely to pursue all of the causes of action in the Kobre and Kim report and it will undoubtedly seek authorization to do so. This motion is a good start. I must point out that 11 U.S.C. § 926(a) gives any creditor the chance to be appointed to prosecute causes of action that a debtor will not. This includes unions, but I doubt if they will vie to do so. We will soon find out since the statute of limitations runs out between May and July, depending on the Title III debtor.
The Board announced on Thursday that it had hired the law firm of Brown Rudnick, LLP, at $790 an hour, to determine and prosecute causes of action on behalf of the Title III debtors. I found it ironic that the firm’s paralegals will bill at $270 an hour, which is more than what most lawyers in Puerto Rico bill. Oh well.
During a hearing in the U.S. Senate, FEMA stated that it had no confidence the PR electric grid could survive a hurricane today. Not only FEMA, but all Puertorricans doubt this. Of course, the Governor immediately differed from this opinion. Some things never change.
Today, Judges Torruella, Kayatta and Thompson are hearing at 2 pm the Aurelius appeal on the Board’s appointment. Torruella and Thompson heard oral arguments on two other appeals on November 5 and Judge Kayatta has actually authored a couple of PROMESA opinions. Given that the Aurelius challenge may impact the status of Puerto Rico, which Judge Torruella absolutely hates, he is the wild card on the argument. I hope to have some analysis by Tuesday.
Finally, the government and some of the municipalities have started to pay the Christmas bonus notwithstanding the Boards warnings that the Commonwealth would run out of money. Wonder what would happen if it actually did run out of money. Will the Board request control of the Commonwealth’s bank accounts? Who knows?
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.