Court allows fiscal board to continue leading Puerto Rico debt probe
SAN JUAN – Judge Judith Dein rejected Wednesday a motion by a committee of creditors seeking to investigate Puerto Rico’s debt, particularly the role of the Government Development Bank (GDB), Banco Popular and Banco Santander. The action was dismissed without prejudice, allowing for it to be presented again in the future.
The judge, who assists in the Promesa bankruptcy proceedings underway, said the Unsecured Creditor Committee’s (UCC) motion did not demonstrate the need for conducting a parallel investigation to the one led by the fiscal control board into the island’s debt.
Therefore, the panel created by Promesa and its hired firm, Kobre & Kim, will continue to be in charge of investigating the causes of the island’s fiscal crisis and the different debt issuances. According to an initial report, the firm began the process on Sept. 1 and expects to have a final report by the end of March.
“I believe the motion is premature,” Dein said. “The independent investigator should be given the opportunity,” she added, while ordering the UCC to join the process carried out by Kobre & Kim, as has the creditor committee that represents government retirees.
Next week, the UCC must sign a non-disclosure agreement to participate in the board’s investigation. Once the creditor group signs the document, it may provide Kobre & Kim a list of the documents it hopes to obtain for the board’s investigator to consider.
During a hearing Wednesday in New York, the counsel for the creditor committee, Paul Hastings, argued that the purpose of the board’s inquiry is differs from what the UCC is seeking. Specifically, the lawyer pointed to the fact that the board’s investigation is not aimed at identifying possible causes of action and criminal acts in Puerto Rico debt issuances, which is the creditor group’s intention.
The UCC’s legal representation referenced statements made by John Couriel, of Kobre & Kim, during the last public meeting of the fiscal board, when the investigation’s first report was discussed and made clear the intention is not to make accusations but to study the debt, the UCC maintained. He also questioned the board’s timing in announcing its investigation, which was about two weeks after the committee presented its petition to the court.
The fiscal board, the government, the retirees’ committee and the financial institutions opposed the unsecured creditors’ discovery motion to uncover evidence, which initially requested documents from the GDB, Popular and Santander.
“We welcome [the board’s] investigation because it is being carried out by the body that Promesa authorized,” said an attorney from O’Melveny, which represents the government through the Fiscal Agency and Financial Advisory Authority (Aafaf by its Spanish acronym). He added that as part of the investigation carried out by Kobre & Kim, the fiscal agent will be signing a confidentiality agreement next week that will allow for the submission of more documents, including emails.
According to the first report on the board’s investigation, 84 document-preservation letters have been sent in relation to public debt issuances made in the past 20 years. Of these, 79 were responded positively, including the GDB, Popular and Santander, government lawyers said Wednesday.
Judge Dein also rejected a series of motions filed by nine groups of creditors seeking to force the government to deliver financial documents related to the fiscal plan through a formal discovery process.
“You need to make this work,” said the magistrate judge, while calling on the parties to resolve their requests for information in the mediation process underway between the government and its creditors.
Although her decision favored the position of the board and Aafaf, the judge warned that if no progress was made, she could reconsider her position on the matter, were she to have similar motions before her in the future.
The creditors were seeking that the government provide information and documents that evince Puerto Rico’s current financial condition, as well as materials related to the preparation of the fiscal plans.
Both Aafaf and the board argued that they have already made countless documents available on an online portal exclusively for creditors and that requests for information were discussed as part of the “robust” mediation process led by Judge Barbara Houser. They also pointed out that the fiscal plans were being revised after Hurricane María.
“Mediation has been prodcutive, but documents have not been produced,” said one of the lawyers of the ad hoc group of bondholders. “Those materials were requested six months ago, and in mediation we have gotten nowhere,” he added.
One of the board’s lawyers said the government has provided all the data and information that serve as the basis for the projections and numbers in the fiscal plan and will continue to do so. Some of the creditor groups said that was false.
Judge Dein said it was time all parties agree, preferably during the mediation process, on the information parameters necessary ahead of the review of the government’s fiscal plans.