Wednesday, October 18, 2017

What are creditors demanding in their lawsuits against the government?

By on May 2, 2017

SAN JUAN – With the end of Promesa’s stay on litigation May 1, various types of creditors decided not to wait and filed several lawsuits against the government of Puerto Rico.

Currently, four new actions were filed against the government and the fiscal control board. Meanwhile, Ambac–a municipal-bond insurer–also sued the U.S. Treasury for certain Infrastructure Financing Authority (Prifa) bonds and whose payment is guaranteed by revenues from the rum cover-over program that the island receives from the federal government.

These lawsuits are in addition to more than 10 already filed by creditors since the beginning of 2016 and which the court suspended because of Promesa’s stay. These litigations would resume when the mechanism expires unless the board files restructuring cases under the protection of a judge, as allowed by Title III of the federal law. The latter would restore the stay against collection actions by creditors.

GOv. Ricardo Rosselló (Juan J. Rodríguez/CB)

Gov. Ricardo Rosselló (Juan J. Rodríguez/CB)

The following is a list of some of the claims by the creditor groups that sued the government of Puerto Rico on Tuesday.

Aurelius et al. v. Government of Puerto Rico

A group of hedge funds–which includes Aurelius, Autonomy and Monarch–sued in a New York court, demanding that the government pay nearly $243 million in general obligation (GO) debt service it hasn’t covered, plus interest. The plaintiffs own $1.4 billion in GOs issued by the government in 2014. Read the lawsuit.

Ambac v. Government of Puerto Rico (I)

The Sales Tax Financing Corp. (Cofina by its Spanish acronym) bond insurer asked the Federal District Court in San Juan to invalidate the certified fiscal plan and the recently signed House Bill 938. They claim that both are unconstitutional and in violation of Promesa. Ambac is trying to prevent the government from using pledged sales & use tax (IVU by its Spanish acronym) funds that guarantee the payment of Cofina’s debt. Read the lawsuit.

Ambac v. Government of Puerto Rico (II)

In addition to the fiscal plan and H.B. 938, the insurer also asked the federal court in Puerto Rico to overrule the moratorium orders and legislation in effect since the end of 2015. Through them, the government withholds, or claws back, certain revenue sources–highway tolls; license fees and taxes on tobacco products, gasoline and hotel rooms, among others–that guarantee payment of the debt incurred by Prifa and the Highways & Transportation and Convention Center District authorities. They claim the orders are also unconstitutional and contrary with Promesa. Ambac intends to prevent the government from using these funds for other uses than the payment of the debts they guarantee. Read the lawsuit.

Ambac v. U.S. Treasury (III)

Finally, Ambac also sued the U.S. Treasury in a Washington, D.C., court, in relation to the money transferred to the Puerto Rican government from the federal excise tax on the sale of rum. The local government has clawed back this source of revenue, which guarantees the payment of certain Prifa bonds, through one of the moratorium orders. The insurer requests that Treasury stops transferring these funds to the government until the clawback dispute is resolved. As an alternative, it seeks that a receiver retain these funds in a separate account. Read the lawsuit.

Rodríguez-Perelló et al. v. Government of Puerto Rico

A coalition of institutional and hedge funds that own Cofina senior bonds sued the government in Puerto Rico’s federal court. The plaintiffs request that the court declare invalid the fiscal plan and H.B. 938, as being contrary to Promesa and for impairing the rights of these bondholders. They also demand that the fiscal plan be amended so it doesn’t affect Cofina, as well as declaring an event of default–whose remedy includes accelerating the payment of Cofina’s outstanding debt. They also request the court to prohibit the government from acting in a way that affects the transfer of the pledged IVU portion that guarantees the payment of this debt. In sum, these creditors seek that the government not include Cofina’s debt, nor the IVU money that guarantees it, as part of Puerto Rico’s debt restructuring plan. Read the lawsuit.

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