Bonds

Judge in Puerto Rico case kicks revenue bond issues months into the future

U.S. District Judge Laura Taylor Swain said Wednesday that consideration of a broad range of revenue bond issues as part of Puerto Rico’s Title III bankruptcy should be delayed for several months.

Swain, who is overseeing the bankruptcy proceedings, said this as part of an oral ruling against the Puerto Rico Oversight Board and the Unsecured Creditors Committee in Wednesday’s omnibus hearing.

Puerto Rico bankruptcy Judge Laura Taylor Swain said she would delay certain revenue bond issues to maintain a quick pace towards confirming a central government plan of adjustment.

At issue are about $6.4 billion in Highways Transportation Authority, Puerto Rico Infrastructure Authority, and Convention Center District Authority bonds.

In her decision, Swain said she and her team were busy dealing with other bankruptcy matters and didn’t want to spend time on the additional revenue bond matters.

In 2018 Ambac Assurance, Assured Guaranty, National Public Finance Guarantee, Peaje Investments, Bank of New York Mellon and U.S. Bank filed “proofs of claim” that said Puerto Rico was liable to pay certain taxes and fees to the HTA and CCDA and certain rum taxes to PRIFA.

In July 2019 Swain’s United States District Court for Puerto Rico put a stay on these claims.

In January 2020 the Puerto Rico Oversight Board filed adversary complaints (similar to lawsuits) against the parties that had filed proofs of claims, challenging the claims.

On April 2020 the board filed motions for summary judgement on six types of the defendants’ claims. Since then the parties to the motions have been engaged in extensive briefing and discovery process.

On Wednesday the board sought to extend the range of revenue bond issues under litigation to encompass the remaining issues.

In the last two months the board, Assured, and NPFG have reached a preliminary agreement on how to deal with the revenue bonds. If this goes forward, these bond insurers would withdraw from litigation on the revenue bond issues. However, they have not signed written agreements on the matter yet.

Even if the agreement is finalized, the other defendants would still be objecting to the revenue bonds’ treatment.

Swain said the board wants the court to move quickly so that Puerto Rico’s overall plan of adjustment is approved quickly. The general obligation bond and Public Building Authority creditor Plan Support Agreement requires that the plan be effective by Dec. 15. Swain said it isn’t possible to meet this deadline while resolving every issue at this time.

Swain said the revenue bond issues not already being addressed in the April 2020 motions can be litigated in a “confirmation context.” This would be a reference to the process of confirming the central government plan of adjustment.

Prior to dealing with the additional revenue bond issues, the court should address the outstanding issues for the bonds, she said.

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