Monday, October 23, 2017

Puerto Rico fiscal board warns certifications not subject to judicial challenges

By on June 15, 2017

SAN JUAN — Puerto Rico’s financial control board warned Thursday afternoon that the certifications it makes as part of its management of the commonwealth government’s finances are not subject to review by a federal court because the federal Promesa law says so.

That is why challenges by creditor groups over the validity of the island’s certified fiscal plan would be unsuccessful. According to the board, objections by creditors to the certified fiscal plan are aimed at having more money be directed toward debt service payments, than what the document establishes.

“The Oversight Board’s certifications are not even subject to being second-guessed by the Court,” reads the “status report” presented Thursday to federal Judge Laura Taylor Swain, a New York bankruptcy judge in charge of Puerto Rico’s restructuring cases under Title III of Promesa.

The fiscal board makes reference to Section 106 (e) of Promesa, which states that “there shall be no jurisdiction, in any United States district court, to review challenges to the Oversight Board’s certification determinations under this Act.”

The status report filed by the board —as requested by Judge Swain during the May 17 hearing—details the most recent interactions between the government and its creditors, including the disclosure of certain financial information from the commonwealth.

The document adds that although the board “wishes it could satisfy creditors’ desires for higher repayments,” it is “resolute” it will only certify plans that can create fiscal responsibility and achieve access to capital markets.

The board also talks against efforts by certain creditors to conduct discovery “as if the Court has jurisdiction over an action challenging the fiscal plan,” and points to actions filed by bond insurers Assured and Ambac that expressly challenge the certified fiscal plan.

“To be clear, creditors’ rights under the United States Constitution are protected. If a creditor believes its collateral is being taken for public use without just compensation, nothing prevents the creditor from requesting stay relief if it does not obtain adequate protection or just compensation,” the board says in the status report.

Under the certified fiscal plan, the government identified an average of $787 million in available cash to pay annual debt service over the next 10 years.

Access to the commonwealth’s financial data room 

The board also indicates in the document that since June 6, several creditor groups already have access to a “live” version of the commonwealth’s data room, which includes economic models in Excel that were used for the preparation of the fiscal plan and debt sustainability analysis. This information, however, is not available to the public.

The report also notes that, despite granting access to certain creditors, some continue to request more information mainly related to the deliberation process of the fiscal plan, government revenues and expenses, and analyses tied to debt-sustainability.

Although the board asserts it had answered many of these requests, it has refused to deliver certain documents, communications and analyses as they believe these are privileged and not subject to disclosure.

Supports appointment of mediation committee

On the other hand, the board supported Judge Swain in designating a group that comprises five federal judges who will act as mediators as part of the commonwealth’s Title III bankruptcy cases.

“The team can only enhance the prospects of success for Puerto Rico,” reads the board’s status report.

Yet, it also mentioned that if Judge Swain approves the appointment of two agents that would represent the commonwealth and Sales Tax Financing Corp. (Cofina by its Spanish acronym) as the board proposed in a June 10 motion of June 10, they will be able to negotiate some type of settlement aided by the mediation committee.

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  • Walter Graham

    Sounds like the O Board wants to pick and choose which sections of PROMESA they believe is law that should be followed. PROMESA also says lawful priorities are to be respected, and the fiscal plan does not do so. Time to remove this set of O Board members and reconstitute board with adults.

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