Federal District Court Judge Laura Taylor Swain yesterday set the rules that will govern the largest public debt adjustment in US history, while emphasizing that invoking Title III of the federal PROMESA law will mean "pain" and "disappointment" for all parties, but the process must result in "a future route" for Puerto Rico.
Within three-and-a-half hours, Taylor Swain listened to Martin Bienenstock, the main external legal counsellor of the Oversight Board (OB) and to nearly a dozen lawyers representing bondholders, municipal insurers and other creditors who said the parties are willing to collaborate to reach agreements and facilitate the work of the court.
Allthough Bienenstock reiterated that the OB is interested in reaching consensual agreements, he also accepted that completing the debt adjustment process will not be feasible without resolving disputes between creditors such as that between the General Obligations (GOs) bondholders and the Puerto Rico Sales Tax Financing Corporation (Cofina, Spanish acronym), as well as contractual disputes and within the scope of the Constitution.
On the other side, creditors' lawyers - to a greater or lesser extent - took advantage of the few minutes they had in the Court room to express concern about the possibility that their clients – either in the United States or in Puerto Rico – may result affected.
Yesterday, as El Nuevo Día reported, Taylor Swain approved three of the six OB motions (known in the Bankruptcy Code as "first-day orders") as there was no opposition to them.
The motions endorsed by the judge were related to the notification to the public - through press releases - of the beginning of the Title III processes, the hiring of the law firm Prime Clerk and the one that gives the Government 60 days to present its list of creditors.
Taylor Swain approved such motions after suggesting several changes. The judge, for example, appeared to be detail-oriented when she suggested incorporating a caption to specify the case in which the appeals were submitted, under what circumstances the motions would be "urgent" or "informative" or when she sought to have the OB committed to publish in English and Spanish the Title III notices considering that a significant number of Puerto Ricans have left the Island.
In addition, the judge approved the hiring of the secretarial work firm, Prime Clerk, after asking directly to its vice president, Christopher R. Schepper if the company has the capacity to fulfill particular procedures of the case.
Failure is not an alternative. Taylor Swain entered room three of the Clemente N. Ruiz Nazario building, which houses the Federal Court for the District of Puerto Rico, at 9:29 a.m. and granted the three unanswered motions approximately one hour after the start of the hearing.
In that room, regularly presided by federal judge Francisco A. Besosa, there was silence when Taylor Swain said she was honored by the commission of US Supreme Court President, John G. Roberts.
"The future route will include pain," noted the judge, pointing out that the Puerto Rican government does not have the money to pay "in full and on time" the public debt and services to the population.
Then, Taylor Swain urged the parties to collaborate and seemed to define her assignment. This, explaining that the "sacrifices" made by the parties must result in a more solid Puerto Rico that retains the talents of the Island, resulting in quality education, ensuring the well-being of pensioners and a "vibrant" economy that will add value to those who have invested in the future of Puerto Rico.
However, the conciliatory tone of Taylor Swain found no immediate echoes in the room.
Although Taylor Swain's order for yesterday's hearing was to ask whether the mediation resource could be used, the parties did not go into the issue.
Instead, lawyers of the Cofina Coalition and the Mutual Fund Group, Susheel Kirpalani ( from Quinn Emanuel) and Thomas Moers Mayer (from Kramer Lavin Naftalis & Frankel), respectively, objected to the motions for joint administration of Title cases III. This is due to the fear that the consolidation - for procedural purposes- limits the rights of their clients or if the Government has restricted funds as now it is allowed by the Law of Fiscal Compliance.
Bienenstock and Scott K. Rutsky, both Proskauer´s, refuted the issue, stating that the OB has not taken a stand in the GOs-Cofina controversy and that they only seek clarification to address the case.
To that point, Marcia Goldstein, representing the National Public Finance Guarantee, asserted that the OB took its position, once including the Taxes on Sales and Use (IVU, Spanish acronym) collections in the income base of the fiscal plan.
After hearing the statements and understanding that the claims were premature, Taylor Swain denied the objections and gave way to motions of joint (non-substantive) procedural administration and that of handling the case.
Judge Taylor Swain left a motion on the government's bank accounts.
In that case, the OB the AAFAF and the creditors will have to negotiate a language so that the Government notifies at least 30 days in advance any movement of money from one fund to another.
There was also left an emergency motion from the trust fund of Bank of New York Mellon, who requested instructions to pay Cofina's bondholders.
The Government was contented. For the representative of Puerto Rico before theOB, Elías Sánchez Sifonte, the work done yesterday favored the government.
"Up to now, the judge has favored all the positions that have been presented both by the Board and the government of Puerto Rico," said Sánchez Sifonte.
He explained that the adjudication of the Cofina case has a direct interference over the government of Puerto Rico and vice versa.
"It does not make much sense to take a separate case with Cofina when basically, you can solve the matter of the government of Puerto Rico ... It represents a saving in procedural and in terms of expenses. I cannot understand how you can argue against that”, he remarked.
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