Monday Update – November 5, 2018

Welcome to your weekly Title III update for November 5, 2018. Interesting developments and more to come this week.

Last week the Retirees Committee filed a motion in the COFINA litigation requesting an extension to the time to object the settlement and Plan of Adjustment. The UCC joined the motion but Judge Swain denied the request. Any doubt that the Judge will bend over backwards to advance this settlement? What no one is talking about is the fact that the COFINA Plan of Adjustment requires the Puerto Rico Legislature to pass certain laws. Although the administration presented the bill, there has been no movement except it being sent to the different commissions. Even more importantly, the last day of the legislative session is next Thursday, meaning that it must be approved by that date. Unless the governor calls for an extraordinary session, the Legislature comes back on January 8, 2019, only 9 days before the hearing for the approval of the Plan of Adjustment.

Given that the Board informed the governor and the Legislature that the much announced tax reform is contrary to the Fiscal Plan, the following question arises: Will Senate President Thomas Rivera Schatz simply ignore the COFINA bill to pressure the Board to approve the tax reform? Your guess is as good as mine, but if the Legislature scuttles the COFINA deal, Judge Swain will not be amused. Since the only thing Puerto Rico’s politicians care about is reelection—and not what is best for the island—it is a distinct possibility.

In addition, the UCC—who had informed the Court that it did not believe the COFINA deal was feasible with the June Fiscal Plan—requested  an extension to continue negotiations with the Board, AAFAF and COFINA agent on whether it would object to the settlement it negotiated. The extension was granted and ends today. Weird, weird, weird but then again, this is Puerto Rico.

The Board also sent a letter to the Puerto Rico Government as to the use of tax credits:

Based on financial reporting provided to the Oversight Board, it appears the Government authorized a large amount of tax credit agreements to private companies in May, August, and September despite the Government’s continued tenuous fiscal position. The issuance of tax credits at this volume is concerning and, if continued, expenditures at this level would further exacerbate the fiscal challenges already faced by Puerto Rico’s economy. Indeed, I remind you that the Commonwealth is currently not paying most of its debt service and that the Government’s fiscal situation would be materially worse if there was not a stay on litigation in place from the Title III court. Moreover, there continues to be insufficient public disclosure and justification on the total amount of tax credits authorized and no disclosure of the return on investment from the tax credits being issued.

The amount of the credits from March-September of this year is a whopping $521 million! No wonder the Board wrote this letter. The governor responded by saying the Board members were “Excel technocrats.”

Also, today is the Aurelius appeal, not on the constitutionality of the Board but on certain liens. The constitutionality case will be heard on December 3, 2018 in Boston. Will be interesting. In addition, on Tuesday, November 6, there will be a GDB hearing and on November 7, the Omnibus.

Finally, some analysts and other persons are theorizing that the Board may not oppose the PREPA bondholders’ request for a receiver and may even join them! I have mentioned here the absolute silence of the Board as to this issue. The Board acquiesce would be an almost automatic lifting of the stay and would be a major blow to the Rosselló administration. It could mean responsible management at PREPA. Any opposition to the request for lift of the stay for the appointment has to be filed no later than December 3, 2018. Let’s 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.