Wednesday, September 23, 2020

Creditors ask court to limit Puerto Rico’s authority over its bank account

By on May 15, 2017

OppenheimerFunds, Franklin Advisers, Inc., and the First Puerto Rico Family of Funds asked Judge Laura Taylor Swain on Monday to limit the limit the authority of the banks in which the government has its accounts to continue honoring transfers, deposits and withdrawals.

“Any order entered in connection with the Bank Transaction Motion must avoid providing banks with broad releases of liability,” the creditors said.

The petition is contained in a motion in which the entities are objecting the government’s motions on how its bankruptcy process should be managed.  The entities are holders of bonds from Puerto Rico and its instrumentalities. The Family of Funds are holders of over $3.5 billion in bonds from the Sales Tax Financing Corp. (Cofina by its Spanish acronym), and over $3.6 billion of other uninsured bonds issued by the Commonwealth and other territorial instrumentalities, including over $1.8 billion in uninsured Commonwealth general obligation bonds, making them one of the largest creditor group.

The Commonwealth of Puerto Rico and Cofina by and through the Financial Oversight & Management Board for Puerto Rico had asked the court for an  order confirming the authority of their banks to continue honoring all transactions without incurring in liability days after filing for Title III bankruptcy.

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The creditors said provisions that appear to insulate the banks from virtually any form of liability so long as they are acting in response to the government’s instructions, must be stricken or narrowed.  “An order meant to provide comfort that section 363 does not apply should not mislead a Bank into believing that it is relieved of existing obligations or duties, and any resulting liability therefore,” they said.

They noted that Promesa provides that if property is transferred in violation of a pledge, the transferee is liable for the transfer.  “A bank which serves as an intermediate transferee may be liable under Promesa.  This is an issue which should be resolved after a full and fair opportunity to be heard, not as part of a first-day administrative order,” they said.

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