Banco Popular signs tolling agreement over role in 2014 Puerto Rico GO bond issuance
Popular Inc. chief says bank would defend itself vigorously against any suit
SAN JUAN – Popular Inc. President and CEO Ignacio Álvarez said Thursday that Puerto Rico’s largest bank signed a tolling agreement to extend the statute of limitations and delay a suit over its role as an underwriter of a $3.5 billion bond issuance in 2014 that allegedly violated constitutional limits.
“Yes, we did,” Álvarez replied to Caribbean Business during a roundtable with reporters. “The theory of the tolling agreement is that you get to have more time,” he said. “You can reach an agreement but also the actions brought against you can be more limited.”
The tolling agreements, according to court documents, require Puerto Rico’s Finacial Oversight and Management Board to keep the names of the firms that signed them confidential until an adversary proceeding is filed against them. They also allow defendants to negotiate a consensual deal to resolve disputes against them.
Banco Popular appears in a lawsuit filed May 2 as bond trustee, not for its role as underwriter in the 2014 issuance. Álvarez said the inclusion of Banco Popular was a mistake and that it refers to an entity called “Bank of New York Pop Sec” that is mistaken for the bank. “We have not been sued,” he assured.
Álvarez said that if sued, the bank would “defend itself vigorously.”
Kobre & Kim, the independent investigator that probed the causes of the island’s more than $70 billion debt, questioned the role of Banco Popular in a 2014 general obligation (GO) bond issuance it underwrote before Puerto Rico stopped servicing its public debt.
“The short time between the 2014 GO Bond issuance and Puerto Rico’s insolvency raises questions not only about disclosures, but also about the professional obligations of the individuals who advised Puerto Rico in connection with the issuance,” reads the final document of Kobre & Kim, which was issued last year.
According to a former GDB official involved with the underwriting syndicate for the 2014 issuance, Banco Popular had reservations about the bond issue but went ahead and participated as a member of the underwriting syndicate.
“If we accept the evidence that Popular advised against the issuance, then the fact that Popular underwrote the 2014 GO Bond Issuance after making a recommendation against it may raise questions for interested parties. For example, to the extent Popular obtained an undeserved benefit as a result of its underwriting of the 2014 GO Bonds after advising against their issuance, an unjust enrichment claim may be considered by various interested parties, although it also could be subject to various defenses (including, for example, that in Puerto Rico, unjust enrichment is a subsidiary claim, meaning it is only available in situations where there is no other available action to seek relief),” the report says.
Álvarez said that, at the time, the government was in need of money and was hoping to stay afloat with the bond issuance.