Welcome to your weekly Title III update for December 22, 2017. Due to the Holidays, decided to do the update this Friday and adjourn until January 8, 2018 and maybe take a little vacation. Again, not much happened, but what did happen was of great importance.
Many filed requests for interim payments with the Court last week and continued this week. I will not bore you with the details, but will just mention that the Board’s lawyers 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 $250 million property insurance policy and the Board and AFFAF seem to want the Court to know they don’t want creditors claiming that money.
Additionally, O’Melveny & Myers LLP, filed a request for interim payment in the PROMESA case as lawyers of AFFAF, for the meager amount of $9,990,147.15 of which $8,993,939.50 have been paid. Unbelievable.
On December 19, one day before the Omnibus hearing, AFFAF filed a motion to inform the Court that, OOPS, we found 800 government accounts we knew nothing about with $6.85 billion. AFFAF said:
“Indeed, both restricted and unrestricted cash accounts as encompassed in the Initial Report indicates that a significant portion of the funds either have or will likely have limitations and restrictions on use (including various accounts containing federal funds designated by law solely and exclusively for use on specific federal programs). Notwithstanding the foregoing, completion of Independent Review Process Steps 2 and 3 will provide a definitive determination concerning limitations and restrictions on all bank accounts.”
The Oversight Board has announced they will be hiring a forensic analysis team to “carry out an investigation into the liquidity of the Puerto Rican Government.” Well, aren’t we a little late? After almost a year-and-a-half on the job, the Board still does not know how much money the government has in its accounts, or this is one big cover-up effort by the Board? Either way, I suspect this is not the last we’ve heard of this issue, and it could be an inflection point. I believe this could have significant ramifications going forward, including how much money Congress gives Puerto Rico in the next supplemental and what happens to those Community Disaster Loans.
On December 20, Judge Swain held an Omnibus hearing on the case. Judge Houser of the mediation team gave a short presentation stating that the process would restart early 2018 and she hoped a plan of adjustment would be presented that same year. Martin Bienestock, the Board’s counsel, stated that they believed it would indeed be presented then.
Mr. Bienestock then gave a presentation on the issue of the bar dates. He said that the Board would be presenting a motion in January with a proposed bar date for May. The proof of claim would be in both English and Spanish and could be sent via U.S. Mail. Judge Swain suggested that during the period there will be reminders of the need to file the proof of claim and the possibility of moving the date if electricity was not reestablished to all of PR soon.
Judge Swain also approved the Joint Motion on PREPA insurance proceeds but for future payments established a protocol where the utility must notify the “Official Committee of Unsecured Creditors appointed in this case, the Oversight Board, the Trustee under the Trust Agreement, National, Assured, Syncora, and the Ad Hoc Group” of the new information and the group may object. If objections are not resolved, not all of the order will apply to it. Obviously, this was a stipulated order. Let’s see if any problems arise.
Ambac and AFFAF informed Judge Dein that they had reached an agreement in principle as to documentation discovery pertaining to the SUT since Maria. They were ordered to present a motion by January 5, 2018, explaining the status of those negotiations. Seems AFFAF knew the Judge is leaning toward Rule 2004 discovery.
There was oral arguments as to the adequate protection payments to the ERS bondholders that had been stipulated before Judge Besosa in April of 2017 and later ratified in June of 2017 by Judge Swain. AFFAF was arguing that its obligation to pay interest on the bonds expired on October 1, but it paid the November payment to the Trust agent who paid bondholders. Then AFFAF demanded repayment from the Trust agent. The ERS bondholders requested an order from the Judge for payment of said interest. AFFAF argued that since there was a dispute as to the validity of the liens, there was no need for the adequate protection. Judge Swain ruled from the bench and ordered the renewal of the interest payment.
Question is, is this a harbinger of her ruling on the validity of the ERS lien? Why order payment if there is no lien? On the other hand, there was a stipulation of payment of the interest until she decided the issue of the validity of the lien. Hopefully, we will soon find out.
In other news, the Board granted a short extension to the Government of Puerto Rico on the presentation of the fiscal plans. Instead of December 22, the plans will be presented on January 10, 2018. This is not much of an extension given that the supplemental aid package approved by the House will not go to the Senate until 2018. In addition, there is no clarity, as mentioned above, as to when the CDL loans will be disbursed or under what conditions, no clarity on Medicaid/Medicare funding, and there is the issue of the secret bank accounts.
Why then rush the fiscal plan? Simple, the Board does not want to factor in those billions of dollars in aid in their plan and since the plan of adjustment must be based on the fiscal plan, it wants to have the numbers to argue for no debt service for five years as Bienestock advanced in November.
Obviously, there will be objections to any disclosure statement based on these premises which will lead to questioning of the plan of adjustment. The board will then argue, the plan of adjustment is based on the fiscal plan and you cannot question the fiscal plan. Perfect tautology to prevent scrutiny of both plans which will force creditors to object to the plan and then Judge Swain will have to decide how best to proceed. Let’s see what happens.
In any event, Happy Holidays to all of my readers. Not all in life can be work. Have fun and remember those who love you.
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.