The Puerto Rico Oversight Board sought Tuesday to restart suits on $6.4 billion of revenue bonds and to set the central government bankruptcy disclosure hearing for June 16. The board also extended a deadline for the bond insurers to withdraw their support of the debt deal.
The board’s attorneys, led by Proskauer Rose Partner Martin Bienenstock, filed a memorandum of law supporting its motion to remove the stay on the revenue bond adversary proceedings concerning Highways and Transportation Authority bonds, Puerto Rico Infrastructure and Finance Authority rum bonds, and Convention Center District Authority bonds. They also filed a joint motion to schedule the disclosure hearing, establish deadlines for filing objections to it, and establish a document depository for the disclosure hearing.
There are three revenue bond adversary proceedings (similar to law suits) in the Puerto Rico bankruptcy, one for each of the HTA, PRIFA, and CCDA. The bondholders claim that Puerto Rico’s central government “is liable to [the bondholders, bond insurers and bond trustee] for (i) not appropriating and transferring certain taxes and fees levied and collected by the Commonwealth [of Puerto Rico], which historically were appropriated and transferred to CCDA and HTA, and (ii) not appropriating and transferring certain rum taxes covered into the commonwealth Treasury by the United States Treasury, which historically were appropriated and transferred to PRIFA,” according to the Oversight Board’s filing.
On Wednesday the Oversight Board announced that it had extended the deadline for Assured Guaranty and National Public Finance Guarantee to withdraw their support for the Plan Support Agreement to Friday from Wednesday. The PSA covers the General Obligation and Public Building Authority debt. As the PSA needs 70% support to continue and the bond insurers have voting rights on 15 percentage points, their withdrawal could be a problem for the PSA.
Currently, approval of the PSA is necessary for adoption of the wider plan of adjustment.
“Unless the [Puerto Rico Oversight Board] gets a deal with the insurers on the three revenue bond adversary cases prior to the disclosure statement hearing date, the Title lll court is unlikely to have sufficient time to rule on the adversary cases (discovery goes through May 8),” said Cate Long, principal of Puerto Rico Clearinghouse. “As the board stated in their revenue bond filing, the determination of the validity of the revenue bonds impacts the plan of adjustment and needs to be ruled on first.”
Oversight Board law firm “Proskauer is trying to force a very compressed timeline to get to a plan of adjustment,” Long continued. “It’s unclear if the court wants to move that fast. In their 2020 disclosure statement hearing motion the [board] asked for four months between their initial motion and hearing date (March to June). [The board]’s current motion is for three months (April to June).”
The board’s attorneys told the Title III bankruptcy court: “The current state of affairs creates a critical need to address additional claim allowance issues in advance of a [central government plan] confirmation hearing: whether defendants have any allowable claims, including unsecured claims of any priority, against the commonwealth regarding the relevant revenues retained by the commonwealth.
“A determination on these issues will have a significant impact on the potential success or viability of the [central government] plan [of adjustment]: rulings unfavorable to creditors will provide clarity regarding their rights, if any, against the commonwealth; rulings unfavorable to the commonwealth could require a material modification to the proposed plan for it to move forward. The allowability of large unsecured claims will impact the court’s determination of confirmation issues.”
The HTA has about $4.17 billion of revenue bonds outstanding. PRIFA has about $1.8 billion of rum tax bonds outstanding. The CCDA has about $410 million of revenue bonds outstanding.
In a separate Tuesday evening filing, the board’s attorneys asked the court to set a schedule to consider its proposed Disclosure Statement. The board released a proposed Disclosure Statement with its proposed Plan of Adjustment on March 8. Legal experts have said approving a Disclosure Statement for the plan is one of the major steps needed before the plan can be approved.
The board proposed a May 14 deadline for parties to object to the proposed Disclosure Statement, a May 28 deadline for parties to respond to any objections, and a June 16 deadline for the hearing on the Disclosure Statement.
The board further proposed that parties should have until 4 p.m. April 13 to object to the schedule and that there would be a telephonic hearing on the proposed schedule on April 28.
The board also proposed setting up a Disclosure Statement Depository for Disclosure Statement documents. The depository would be at a website related to the plan, titleiiiplandataroom.com. The depository would reduce duplication of submission of documents and allow for confidentiality protections for some of the material. According to the board, only parties to the case would be allowed access to the depository.
In a bankruptcy development spearheaded by bondholders rather than the board, two holders of subordinate Puerto Rico Sales Tax Finance Corp. (COFINA) bonds have filed a 208 page petition for a writ of certiorari to the U.S. Supreme Court of the decision by the First Circuit Appeals Court against their challenge to the COFINA bond restructuring. Peter Hein and Lawrence Dvores filed the petition this month, though the exact date could not be determined.
In the petition the plaintiffs ask the Supreme Court to overturn the appeals court decision. The appeals court ruled on the plaintiffs’ case on Feb. 8 and on a final challenge to the COFINA restructuring in early March.