Monday Update – April 29, 2019

Welcome to your weekly Title III update for April 29, 2019. A busy week was dominated by the Omnibus hearing of Wednesday April 24.

The Board started the hearing with a report on the timetable for the Fiscal Plan and for the Budget, all very conveniently moved in order to argue an extension of the First Circuit Stay. More on that later. PREPA’s transformation is supposedly on track and the concession for transmission and distribution should be completed by the second quarter of 2020. Mr. Bienestock also stated that the PREPA negotiations were very promising as are negotiations with the Retirees’ Committee on the pensions and with the Judges Association. He also stated that the Board was negotiating the plan of adjustment of the Commonwealth but not with all holders involved. I can assure you that my clients are not included in those negotiations. We’d have to assume Bienenstock is negotiating with the “Lawful” group. The Court was informed that Trump would probably re-nominate the current members of the Board but nothing is certain. Also, Mr. Rosen for the Board informed the Judge that in the next couple of weeks it will present a plan for ADR procedures to be discussed in the June Omnibus but the UCC has not been involved in it.

The Procedures motion on ERS was postponed due to the Retirees Committee filing an objection to ERS bonds as invalid. Given the Board’s May 16 deadline looming and the possibility that the UCC could be excluded in these proceedings, this filing assures that the challenge to the Bonds will continue.

The GO Procedures motion was extensively discussed. Mark Stancil for the Ad Hoc group of GO bondholders argued, with some reason, that they could not bring the PBA bondholders to the case because Rule 14 did not apply to objections and that res judicata could apply later to any claims the could have. Judge Swain mentioned that he could always claim there was lack of an indispensable party but surprisingly, she reserved her decision for later. Therefore, it is likely she will approved the procedures but subject to the objections she mentioned.

The Board, the UCC and other parties agreed to a stipulation where the Committee could be a co-plaintiff with the Board and be a section 926 trustee for the claims to be brought against third parties. The UCC, however, lost its request to bring those actions the Board did not want to bring. That means that no individual will be deemed responsible for the island’s indebtedness. Too bad but Judge Swain again deferred to the Board and said that granting the motion would interfere with its work. That’s the way the cookie crumbles.

But at the 11th hour, the Board revealed it would bring suit against 27 underwriters, 9 law firms and 5 accounting firms under several theories, but not fraud. It will be interesting this week to see who they are.

In preparation for this, Judge Swain issued a new order on cases with more than one hundred defendants or is it in anticipation of bringing all PBA’s into a case? Who knows? In addition, the Board and the UCC have to get together to determine when the list of causes of action and against whom, which were filed under seal, will be unsealed. Seems to be the second half of May.

Going back to PREPA, National objected to the one week extension on the RSA that would include the monolines but Judge Swain, as I predicted, granted the motion. National seems hell bent on seeing the lift stay motion but as I have said many times, I think it is a negotiating tactic to get a better deal for its bonds. In any event, the PREPA lift stay hearing will be held during the June Omnibus.

In a minor defeat, Judge Swain denied without prejudice the blanket equitable tolling on the statute of limitations, asserting that she did not believe she has the power to do so. Implicit in this denial is the possibility that when and if a party raises the issue, she may, or may not, grant the issue of equitable tolling.

Judge Swain also denied, as I predicted, Mr. Hein’s request for a GO small claims Committee. He will be able to call into Court Solutions and listen to the hearings but all other requests he made were denied.

Last week the Board filed its request for certiorari with the SCOTUS. Aside from the usual legal arguments, the Board also averred the following:

The Board is the linchpin of the plan that Congress enacted to address a financial and humanitarian crisis of immediate and unprecedented proportions. Since 2016, the Board has overseen the restructuring of billions of dollars of the Commonwealth’s debt. The Board has filed five Title III restructuring cases on behalf of the Commonwealth, which together involve over $100 billion in claims, and most of which remain ongoing. In connection with that process, the Board recently completed an $18 billion restructuring of COFINA’s bond debt, reaching a settlement that was supported by the principal bondholders and that will save Puerto Rico $456 million in debt payments annually. See p. 8, supra. In addition, through the fiscal-plan and budget approval process, the Board has negotiated intensively with the Governor and the Legislature to identify a range of structural reforms and strategic investments. Given the gravity and breadth of the Board’s responsibilities, the cloud of uncertainty that now hangs over the Board’s actions is intolerable. This Court has routinely granted certiorari to determine whether particular officials were constitutionally appointed in circumstances where far less was at stake. See, e.g., Lucia v. SEC, 138 S. Ct. 2044 (2018); Ortiz, 138 S. Ct. at 2170; Noel Canning, 573 U.S. at 521-522; Edmond, 520 U.S. at 655; Freytag, 501 U.S. at 873. This Court’s attention to appointments issues reflects the fundamental need for certainty concerning the legality of official appointments. Questions about the constitutionality of an official’s appointment cast into doubt the validity of the official’s actions, and the existence of mitigating or remedial measures such as the de facto officer doctrine or ratification do not lessen the need to provide Congress, the President, and the affected officials with certainty concerning permissible appointment methods. See, Ryder, 515 U.S. at 182-183. The need for certainty is all the more pressing here.

B. This Court’s review is also warranted because the decision undermines ongoing efforts to alleviate Puerto Rico’s financial crisis. Notwithstanding the progress the Board and other Puerto Rican government entities have already made, much work remains: tens of billions of dollars in debt still must be restructured through Title III proceedings, and additional reforms are necessary for Puerto Rico to achieve sustainable solvency. The Board must continue to pursue these efforts, lest creditors seek to dismiss the Title III proceedings and subject Puerto Rico to lawsuits that would seek immediate payment of billions of dollars and threaten irreparable damage to the Puerto Rican economy. And an interruption in the fiscal plan and budgetary process could disrupt progress towards fiscal solvency. While the Board has continued to operate pursuant to a stay of the mandate, App. 44a, the decision below has injected considerable uncertainty that has affected the Board’s ongoing negotiations, both with bondholders in the restructuring process and with the Puerto Rican Governor and legislative leaders in the fiscal process. Jayden Sangha, Current Status of Puerto Rico Debt Restructuring, (Mar. 20, 2019) (although “progress was being made to achieve the objective of debt restructuring for Puerto Rico, this new ruling” threatens to “knock[] any progress off its rails”).

Undoubtedly, the Board is indispensable under PROMESA, BUT, not the current members. Let’s not forget the Aurelius case is NOT about PROMESA, but about how the current members of the Board were appointed. This is a fact conveniently forgotten by the Board. More interestingly, the Board filed the writ of certiorari without the U.S. Solicitor General joining in. Seems the Trump administration will wait to see if a stay is granted before sending any names to Congress. Also, the reforms the Board advocates are not accepted by the Commonwealth and its members have not taken advantage of the powers two First Circuit decisions say it has in order to force these changes. Too afraid to make reforms before the Commonwealth Plan of Adjustment is presented? Also, even a few weeks delay past May 16 would not convince Judge Swain to dismiss the Title III proceedings via 11 U.S.C. § 930. I am sure Aurelius and Utier will point this out in their filings. Speaking of Utier, my sources tell me it will file a writ of certiorari to reverse the First Circuit’s decision on the Board’s pre- and post-decision actions being valid. Would be ironic if SCOTUS grants that certiorari and invalidates these actions.

Additionally, the Board filed with the First Circuit a request for extension of the stay until the certiorari petition is decided, citing the same concerns mentioned above. Judge Torruella issued an order at 7 pm on Thursday April 24 that any comments should be filed by April 29 at 5 pm. I am sure Aurelius and Utier will oppose and would not be surprised if the Solicitor General files in support. We shall 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.