On January 4, 2017, Governor Rosselló officially asked the Supervisory Control Board for at least a 45-day extension of the January 31, 2017 deadline to have the approved Fiscal Plan in place. The letter also seeks that the Board extend the PROMESA stay for 75 more days as section 405(d) allows.

There are many conflicting viewpoints about the stay, and, as I have noted, some of those issues are being litigated right now in the Peajes/Altair/Brigade case. In my mind, however, everything really flows from the FEGP. If the governor is given time to develop a satisfactory plan, I think the various creditors are likely to support that effort and engage in negotiation.

Therefore, as the governor notes in his letter, there is every reason for the Board to grant the FEGP deadline extension. The Rosselló administration is just taking over the Government and needs time to ascertain its financial situation. The letter also explains that good faith negotiations are needed and rushing to certify a plan would make this difficult. At page 5, the letter states:

Moreover, we are very concerned that a rushed process to certify a fiscal plan by January 31, 2017, and a view that the movement of the PROMESA stay on February 15, 2017 is an intractable deadline, could prematurely precipitate Title III filings for some or all of Government’s issuers without any significant support from bondholder groups. In our view, accelerated Title III proceedings would be akin to a “free fall bankruptcy filing” which would: (i) lead to contentious litigation and disputes with bondholders and other parties; (ii) cause prolonged delay; (iii) create massive professional fees; and (iv) jeopardize the Government’s access to a free flow of capital at market rates. Such an outcome would be at odds with the congressional intent behind the passage of PROMESA—i.e., good-faith negotiations with Puerto Rico’s bondholders based upon credible financial information seeking at first a consensual voluntary agreement as provided for under Title VI.

On January 3, 2017, in Control Board Watch I discussed the same preoccupation of the Board’s apparent rush to Bankruptcy. I have litigated cases for over 30 years and, trust me, a settlement is better and cheaper than litigation. Any Title III filing would mean hundreds, if not thousands, of adversary proceedings being filed to determine who gets paid first and when. It would also be extremely expensive. In the Detroit bankruptcy, Jones Day, the firm representing the city in an $18 billion debt, was allowed $50 million in fees.

Moreover, for PROMESA to achieve its dual purposes of achievement of fiscal responsibility and access to the capital markets, the Government of PR and the Board will have to cooperate. The Government of Puerto Rico is the one authorized by statute (the PR Constitution is a federal statute after all, seeCommonwealth v. Sánchez Valle) to conduct the business of governing the island. Hence, it has to take the important decisions on the governance of the island, and there are few tasks more important at the moment than the certifying of an FEGP. There cannot be a power struggle between the present administration and the Board. If the Board were to deny the Governor’s request to extend the January 31 deadline, the People of PR will lose any trust in the Board and without this trust, it can never achieve its statutory goals. Let’s see how the Board responds.