Almost thirty investment funds and an a municipal insurer used the end of the automatic freeze on litigations provided by the PROMESA federal law to petition courts in Puerto Rico and New York for the money they are owed by the Government, for the Puerto Rico Fiscal Plan (PFPR, by its Spanish acronym) to be annulled and, even, to bar the Executive and the Legislative Branch from passing budgets or any law or renegotiation based on said plan.
Likewise, the plaintiffs petitioned the courts for other injunctions to stop actions by the Fiscal Oversight Board (OB) they argue are contrary to PROMESA, to declare the 2016 Moratorium Act unconstitutional, and to repeal the controversial Law on Fiscal Compliance, known as Bill 938.
The claims by creditors which, if accepted by the judges, could render the Government inoperative and even curtail the scope of actions of the Oversight Board (OB) and that of elected officials of Puerto Rico, are detailed in four long suit briefs filed yesterday by several hedge funds headed by Aurelius Investments, the Main Cofina Bondholder Coalition, and insurer Ambac Assurance Corp.
“With this action, plaintiffs seek an injunction remedy to request the secretary (of the Treasury) to apply every resource available to the Government to make timely payment of all the amounts overdue or about to become overdue for the bonds in question, such as required by the Constitution,” reads the suit headed by Aurelius, the investment firm which was engaged in a decade-old battle with the government of Argentina, when that economy defaulted on its foreign debt.
Aurelius, Jacana Holdings, Lex Claims, and Monarch are part of a dozen hedge funds that acquired some $1.4 billion in the General Obligations (GOs) issue that Puerto Rico sold in 2014.
At the time, said funds conditioned the purchase of the issue to the Government accepting to litigate any controversy in the courts of New York, the same venue that repeatedly ruled against Argentina, even though that economy reached agreements with most of its creditors.
For months, the group has sought to reach an agreement with the Government and, according to several sources of this Daily, it has been the only group to have maintained constant talks with the administration of Ricardo Rosselló Nevares, to the point that, by last mid March, the Fiscal Agency and Financial Advisory Authority (FAFAA) and the so-called Ad Hoc-GO group issued a joint statement assuring that the parties were making progress with the negotiations.
While the group holds a third of the GOs issued in 2014, they don’t represent the majority of the Island’s existing constitutional debt.
Yesterday, in Puerto Rico, as the FAFAA and the Ad Hoc-GO continued negotiating, their attorney, Walter Rieman, from the Paul, Weiss, Rifkind, Wharton & Garrison law firm, filed the Aurelius suit tocollect, in principle, some $242.5 million and any other sums granted to it by the court.
Their intention is to halt tittle III. “Ambac requests a ruling declaring the PFPR and the Fiscal Compliance Law unconstitutional and illegal; and an injunction against the filing of any other petition under tittle III (of PROMESA) and any future legislation, regulations, budgets or restructuring plans based on the illegal fiscal plan,” reads, for its part, the suit by the municipal insurer that’s backing some $2,163 millions of bonds issued by Puerto Rico. Specifically, Ambac backs the bonds of the central Government and those of several public corporations such as the Highways and Transportation Authority (ACT, by its Spanish acronym) and the Conventions District (ADC, by its Spanish acronym).
Last year, Ambac sued the Government in various instances, after Puerto Rico decided to take certain funds from public corporations and transfer those to the General Fund, not to pay for constitutional debt, but rather to cover operating expenses.
That money, referred to as “claw back” funds, generated a controversy that made its way to the Federal Court for the District of Puerto Rico, but which was not settled due to the effect of the freeze against litigations through PROMESA which has now expired.
Complaints against the OB. Last year, Ambac lobbied aggressively in Congress for that federal branch —which has been unable to pass a balanced budget in years— to impose a fiscal entity above the elected government of Puerto Rico. Now, in its suit, Ambac went against the OB saying that, instead of putting an end to the “fragrant repudiation” of the protections covering the bondholders, the federal entity approved a fiscal plan that moves away from the provisions of PROMESA.
(Bill) 938 on the sight. Meanwhile, The Cofina Coalition, which for almost 18 months tried to reach an agreement with the government of Puerto Rico, decided to go to court indicating that the FAFAA and other Government officials have failed to defend the bondholders or the structure created by law 2006 to tackle the fiscal problems that still afflict the Island.
In summary, the plaintiffs propose that the actions by the Government jeopardize the dedicated collections structure entailed by Cofina and, with it, any possibility of Puerto Rico coming back to the capital markets at reasonable rates, as provided by PROMESA.
According to the Coalition, once Rosselló Nevares put his signature to the Fiscal Compliance Law —House Bill 938— they were impaired because the new statute would allow for the transfer of revenues arising from the Sales and Use Tax (IVU, by its Spanish acronym) to the General Fund.
“The Executive will be authorized to use the Cofina Funds, occasionally, solely as a last resort and subject to a sworn certification submitted to the consideration of the Legislative Assembly,” the new law reads.
“Only an injunction that prevents defendants from expropriating the IVU intended for Cofina and its bondholders can ensure the constitutional rights of plaintiffs, the suit reads.
Government on stand-by. In spite of the list of suits which seem to be piling up against Puerto Rico, yesterday the Government was not ready to invoke tittle III of PROMESA.
“We are still hoping to negotiate —with some of these creditors— as we did with the creditors of the Puerto Rico Electric Power Authority, but if there is no other recourse or if the creditors or some of them remain intransigent, there is Tittle III which the government will always have available and has never been ruled out,” said secretary of Public Affairs, Ramón Rosario Cortés.
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