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Puerto Rico municipalities ask Judge Swain to appoint committee

By on July 21, 2017

SAN JUAN — Eleven Puerto Rican municipalities are asking federal Judge Laura Taylor Swain to appoint an official committee that represents the island’s 78 towns in the island’s bankruptcy proceedings under Title III of the federal Promesa law.

They contend towns should be treated differently in the commonwealth’s debt-restructuring process than other creditors.

According to court documents filed Friday, the U.S. Trustee had rejected creating a committee to represent the island’s towns. To date, only two committees have been officially appointed by the court, representing unsecured creditors and retirees.

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The motion was filed by an ad hoc committee of municipalities that comprises Mayagüez, Isabela, Quebradillas, Guayama, Cabo Rojo, San Germán, Adjuntas, Guayanilla, Guánica, Añasco and Barceloneta.

In justifying their request, the towns noted that the commonwealth used to direct more than $450 million in subsidies to the municipalities on a yearly basis.  The current budget only provides for $220 million, after the island’s financial control board called for cuts to these subsidies.

“Promesa establishes separate grounds for a committee, given the substantial claims which the municipalities have against not only the Commonwealth but several of its instrumentalities.  This Court’s directing the appointment of an Official Puerto Rico Municipalities Committee is legally appropriate and critical to the success of the reorganization effort,” the motion further says.

The towns further argue that cuts in their budgets, combined with the actions of the Government Development Bank over municipal deposits and loans, have made it impossible for them to access financial markets to provide services.

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What’s more, the motion says that the dispute between general obligation (GO) bondholders and Sales Tax Financing Corp. (Cofina by its Spanish acronym) bondholders over the entitlement of the island’s sales tax revenues is also having an adverse impact on municipalities.

“The Puerto Rico Municipalities have an important and vested interest in the Title III Petitions because any plan of adjustment, and the budgets mandated by that plan, will directly affect each and every Municipality,” the document adds.

According to the towns, the U.S. Trustee declined the ad hoc municipalities committee’s request for the appointment of an Official Municipalities Committee because they are “government units” not “persons.” But the ad hoc committee says the U.S. Bankruptcy Code allows for the creation of the official committee, which would also save time and money because it would not require each municipality to represent itself in the commonwealth’s Title III cases.

The motion cites case law that show municipalities not only may participate in committees, but under the right circumstances, should have their own.  

The treatment towns will receive–both during the restructuring process and under any resulting plan of adjustment–will be different than that of any other creditor or parties in interest. No other official committee either can or wants to represent the claims, needs and viewpoints for which 78 mayors are responsible, the towns argue.

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