The government defended before Judge Laura Taylor Swain the benefits of the Government Development Bank (GDB) voluntary restructuring agreement, arguing that the process does not affect the course of the cases under PROMESA Title III and that the parties that could oppose the transaction are actually in favor of it.
In a 27-page motion of objection, the Fiscal Agency and Financial Advisory Authority (FAFAA) filed a request on the Unsecured Creditors Committee (UCC) request, an entity that asked Judge Swain to stop the GDB restructuring.
For the UCC, renegotiating the obligations of the entity that was the epicenter of the island´s fiscal chaos -before any other debtors- could end up affecting the rights of the central government’s creditors under PROMESA Title III.
On August 23, when making its proposals, the UCC told Swain that FAFAA and the GDB are violating the automatic stay on litigation that came into force once the central government invoked PROMESA Title III.
The government’s position
"The only current violation is the UCC's attempt to appear on behalf of several debtors in the Title VI (process) without authorization," replied FAFAA and the GDB in the motion filed this week, just before the deadline that Swain set for the parties to express on the matter.
According to the FAFAA and GDB´s motion, the fiscal agent´s debt renegotiation process was endorsed by the Oversight Board, and grounded on a new law approved by the Legislature that enables restructuring the debt due to bonds, as well as deposits belonging to agencies, private companies and municipalities on GDB custody.
According to the government, among other things, the UCC´s claim does not proceed because it would limit their powers, which would be protected in PROMESA section 303.
A funeral "without an autopsy"
From the UCC perspective, the GDB voluntary restructuring agreement is an untimely move and would open the door for officials who were part of the island´s fiscal collapse not to be held accountable.
"As a result of the fiscal crisis, the GDB was operationally closed, and ceased operations more than a year ago, but former GDB officials continue to be involved in all aspects of the restructuring efforts," said the UCC. The group noted that Board directors, FAFAA officials and financial advisors, and even the Executive Director of the Bonistas del Patio (“Backyard Bondholders"), which supports the GDB renegotiation, held positions there.
"These individuals would prefer this Court to 'bury' the GDB, before the committee and other interested parties have the opportunity to do an autopsy," reads the UCC motion, signed by the group's lead counsel, Luc A. Despins.
Among other matters, the law that enables the GDB debt restructuring relieves its present or past officials from any act or responsibility for the events that caused the collapse of the entity.
Clashes between the UCC and the government are not new. A few months ago, just when it was announced that the UCC and the agent of the Puerto Rico Sales Tax Financing Corporation (COFINA) reached an agreement on the Sales and Use Tax (SUT) and GDB’s process of voluntary restructuring was proposed in court, Despins warned Swain that it was necessary to examine the transaction in light of the central government's restructuring.
Back then, FAFAA filed a motion to disapprove Paul Hastings compensation, the law firm where Despins works. The motion was later withdrawn by the government.
The dispute over GDB’s debt restructuring arose as the Board set up a special committee to initiate claims against third parties in the light of the debt investigation conducted by Kobre & Kim and whose findings will be discussed in a public hearing next September 18.
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