Monday Update – September 17, 2018

Welcome to your weekly Title III update for September 17, 2018. Very little happened this week.

On Wednesday, September 13, Judge Swain held the Omnibus hearing. Apart from reports by the Board and AAFAF, the hearing focused on the UCC”s motion asking for a declaration that the GDB agreement and settlement law violated the automatic stay.

The Board began by announcing that the settlement in the Title III of the Commonwealth and the Disclosure statement for COFINA would be filed on or before October 15, and that it expected to wind up the Plan of Adjustment by December 2018. Ambitious timetable indeed.

The Board also mentioned that on Tuesday, September 18, there would be a discussion on the Investigator’s report. The Board mentioned that it will be concentrating on the causes of action that will bring value to the bankruptcy, rather than prioritizing one debtor over another. Judge Swain brought up the issue of recommendations for criminal prosecution, which the Board picked up, although obviously the federal and local Department of Justices can deal with this. The Judge also wanted to know if the Board knew more than the Kobre report states. The answer was not clear.

As to Investigator’s report, I must advise that the Board has invited me to be part of a panel to discuss the policy recommendations of the Report. I accepted and will then report what happened.

As to PREPA, the Board reported that it does not need any new financing and it continues to discuss a settlement with its insured bondholders. The Board also informed there was significant interest in the purchase of generation and that the P3 agency had retained counsel (that’s all we need, more ultra-expensive U.S. counsel).

The Board boasted that with the agreements to date, it was close to restructuring 40% of the bond debt (COFINA $17.6, PREPA $8.3 and GDB $4 billion). Mr. Bienestock then intimated that the Board was discussing a settlement with the GO’s and that their value was $18 billion plus $5 billion extra for pledges (presumably PBA bonds). Not only is this a significantly larger amount than originally thought, but if the Board gets to an agreement similar to the previous one, that would mean $53 billion of the $72 billion in bond debt. If done this year and all else goes according to plan, the Title III cases could be wound up by 2020. Not bad,

The UCC renewed their fear that the COFINA deal cannot go through with the present Commonwealth Fiscal Plan. AAFAF, Bettina Whyte, and the Senior COFINA bondholders, however, countered saying the agreement was not based on any of the fiscal plans. More on this latter. The Retiree’s Committee joined in and said COFINA was now unaffordable and if it goes through, there will not be enough money to fund services and pensions.

The Board reported that the Commonwealth, COFINA, and UPR Fiscal Plans would be done by the end of the month and the remaining plans would be done by October. I assume we will know more on the Committee’s objections at that time.

AAFAF reported that the GDB deal was voted by 70% of those eligible and that 95% were in agreement. Also, it reported that 26 of the 30 municipalities with excess CAE were on board with the deal.

Judge Swain informed AAFAF that it wanted to know exactly what she has been asked to approve and what she was not been asked to approve.

Mr. Bienestock stated that the Board believed that the GDB agreement was a good thing for the Title III debtor, the Municipalities, and the GDB and that the restructuring was consistent with PROMESA.

When it came to the UCC to argue its objections, one thing was clear: Judge Swain is not buying. From her questions she is not sure the UCC has standing to object to the agreement and she believes that the Government of Puerto Rico can decide to give all the releases and accept the settlements—especially when the Board agrees. It is likely Judge Swain will deny the UCC any standing, which will also mean the dismissal of its Adversary Proceeding to stop the GDB deal. If this happens, it is more likely than not that the UCC will appeal. More uncertainty.

Finally, Minority Leader Pelosi said last week that the decision of selling PREPA should be left to Puerto Rico, which I am afraid will mean no sale at all. Wonder what Mr. Walker at the DOE thinks about this.

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.