Judge Taylor Swain reserves ruling on GDB agreementThe intention of the Unsecured Creditors Committee (UCC) to stop the voluntary debt adjustment of the Government Development Bank (GDB) under Title VI of PROMESA was suspended after Judge Laura Taylor Swain hold her ruling at the end of yesterday's hearing in Hato Rey Federal Court.
Shortly before, the Fiscal Agency and Financial Advisory Authority (FAFAA) had informed that 95 percent of the bondholders that responded to the consultation process to modify the GDB debt endorsed the transaction. This would imply a major step in completing the process established by PROMESA for the voluntary adjustment of the debt.
"The agreement must be made and it must be made now," said Peter Friedman, FAFAA’s lawyer, in fighting the arguments of Luc Despins, representative of the UCC.
Despins basic reasoning was that the agreement implied a violation of the litigation standstill established by PROMESA. He argued that, if carried out, the rights of other creditors of the central government would be annulled in case they have direct debts with the former fiscal agent of the government.
Likewise, the UCC considers that Act 109- 2017, which the Legislature passed in order to restructure the GDB debt, would be contrary to PROMESA and the US Bankruptcy Code. This would happen by enabling municipalities to cancel their debts with the GDB using the deposits in the books of this entity. This remedy, according to Despins, could only be used if it does not represent unequal treatment among the creditors.
"The State cannot pass bills that affect the outcome of a bankruptcy process," said Despins, in referring to Act 109.
Meanwhile, the perspective of the Board’s lawyer, Martin Bienenstock, is that neither the UCC nor the Retirees Committee have the legal capacity to raise these questions in Court. He stressed that the PROMESA Act provides for the voluntary negotiation process between a government entity and its creditors.
The intervention of the Court was described by the Board’s attorney in this process as a verification of compliance with PROMESA´s basic requirement and not an evaluation on the measure merits.
"I am not surprised that GDB bondholders have endorsed the agreement because they are keeping the company's (GDB) assets," said Despins while fighting Friedman and Bienenstock´s counter arguments.
The judge, meanwhile, asked the lawyer of the Unsecured Creditors why the Court should stop the GDB restructuring process when the Board, which is the entity created by Congress to renegotiate the island´s debt, had already approved it.
That, however, did not necessarily show Swain's opinion on the matter. Shortly after this questioning, the judge asked the Board’s lawyer if they had ensured that Act 109 (which enables the agreement between the Bank and its creditors) complies with PROMESA. To answer this, Bienenstock suggested that the analysis was not made and indicated that the Board had not expressed on the statute.
Bienenstock tried to minimize the details of the state law. He justified that "they (the Legislature and the state government) love having laws to micromanage the government."
On the other hand, yesterday they also discussed the government´s request for Judge Swain to issue an order establishing how a debt adjustment should be addressed under PROMESA Title VI, as outlined for the GDB.
Swain was reluctant by saying that the government's proposal was too general, so major changes were required, especially because the Court is aware that the GDB agreement will be subject of litigation in the case of Title III.
Government lawyer Suzanne Uhland agreed to withdraw her proposal and submit a new draft of the order before the judge on or before next Thursday.
During the hearing, the judge approved a series of new rules or standards for the payment of fees to attorneys that work in the government's bankruptcy cases. The fee examiner explained that, with this changes, they seek to avoid overbilling.