Yesterday, Magistrate Judge Dein held a lengthy hearing on the “Fiscal Plan Development Materials” underlying the Fiscal Plans certified in 2017, and the Fiscal Plans proposed and adopted in 2018.  Bondholders had sought this information from the start only to be blocked at every turn by the Oversight Board and Commonwealth.

The motion was brought by the Ad Hoc Group of General Obligation Bondholders, Ambac Assurance Corporation, Assured Guaranty Corp. and Assured Guaranty Municipal Corp., the Mutual Fund Group, and National Public Finance Guarantee Corporation.

Judge Dein’s ruling rejected the Board and Commonwealth’s efforts to block bondholders from accessing these public documents. Her ruling paved the way for the Fiscal Plan Development Materials to be produced outside the dataroom restrictions pursuant to Bankruptcy Rule 2004.  The Board and Commonwealth had insisted these documents be available only in the dataroom, where the documents would be subject to restrictions under the mediation agreement and NDAs that bars bondholders from using the information in litigation.

Judge Dein’s order gives bondholders access to all 47 documents they sought following the February ruling, and ordered these documents be produced subject to the confidentiality order, which will be worked out by the parties in the next two weeks. In addition, all documents pertaining to the preparation of the present Fiscal Plan and future Fiscal Plans would be provided automatically, subject to said confidentiality order. This is without prejudice of the Board objecting to their use in evidence for relevance, hearsay or other objections.

The Board and the Commonwealth’s joint-strategy to evade accountability and limit transparency from the public and creditors has obviously failed.  It will also expose their analysis underpinning the Fiscal Plans to expert examination. This is a significant victory for the movants who can now use this information in litigation.

This is very relevant for the Plan of Adjustment, which must be consistent with the Fiscal Plan. Judge Swain has indicated that it is only at that stage will she review said Fiscal Plan. Hence, the wheels of the Board and AAFAF’s strategy of obfuscation and hiding information are starting to fall-off.  Might be time to grab an old pair of training wheels. Just wish the Puerto Rican people, who pay for these documents, had access to them.

Moreover, during the hearing, counsel for AAFAF mentioned that the Plan of Adjustment would be presented in 2019, which is consistent with a Wall Street Journal story where Ms. Jaresko stated it would be in a year to a year and half. That takes us to either May or November of 2019. If we consider that in the Detroit bankruptcy the confirmation of the Plan of Adjustment took 9 months and it was only $18 billion in debt, the Puerto Rico confirmation may take a whole year or more, taking it past the 2020 governor’s race. You can come to your own conclusions.

Other bondholders were challenging the Board’s privilege log as to 59 series of documents. Judge Dein, quite correctly, started by saying that the parties needed to put some facts into their legal briefs. Movants mentioned that the Board had admitted it had not actually looked at most of the documents and the Board mentioned that movants had not explained what it was they actually objected. After some discussion, Judge Dein made the parties agree to select no more than 12 categories of documents, the Board would present movants an affidavit as to the documents and privilege, if movant wanted more information they could ask for it and then could ask the Board to show the privilege. If this showing does not convince movants, the parties would come to the Court with suggestions on how Judge Dein could review the documents. Although it seems like back to the drawing board, Judge Dein was disturbed by the fact that privilege was raised without there having been a review of the documents. Slowly but surely, bondholders and others are forcing the Board to reveal its secrets.

Pending is the recent renewed motion by the UCC to conduct an audit of the Puerto Rican debt, which the Board said it would do, but has not. Today, the Board must file its opposition to this motion, which it has already announced will include redacted and sealed documentation.

All of this is going to be very interesting.