Bondholders and bond insurers won a court fight in their effort to use Oversight Board and Puerto Rico government documents in their litigation over the territory's bankruptcy.

Magistrate Judge Judith Dein made an oral decision in Boston’s U.S. Court of Appeals Monday that will aid the creditor groups, according to attorney John Mudd and a creditor source.

Andrew Rosenberg, attorney for the Puerto Rico GO Bondholders Group
Andrew Rosenberg, an advisor to General Obligation bondholders, said the group agreed that "more transparency is required about the information and economic assumptions behind this fiscal plan and that creditors should be fully integrated into the process."

The ruling affects the debt addressed by Puerto Rico’s April 2018 fiscal plan — about $45 billion owed by Puerto Rico’s central government and closely related entities.

Dein is overseeing the discovery process and the use of documents in the Title III cases. Judge Laura Taylor Swain is the primary judge for these cases.

“The board and the commonwealth’s joint-strategy to evade accountability and limit transparency from the public and creditors has obviously failed,” Mudd wrote in his Control Board Watch blog. Dein’s decision “will also expose their analysis underpinning the fiscal plans to expert examination. This is a significant victory for the movants who can now use this information in litigation.”

Creditors have sought to have fiscal plan development documents for both the March 2017 and April 2018 certified fiscal plans available for challenge in the Title III process.

Up to now they have been aware of the documents’ contents but they have been bound by non-disclosure agreements and, in particular, an order that they were not to be used in litigation. The documents under these conditions have been said to be in a “data room,” though they were not physically segregated to a room.

The 47 documents contain the models and assumptions the board used to create its economic and revenue projections for the fiscal plans.

On Monday Dein said that the documents will be removed from the data room within the next 14 days. Some may still be kept semi-secret in a protective order that Dein plans to issue within 14 days. However, all will move a step closer being usable in the Title III case.

Once they are removed from the data room, the board and Puerto Rico’s Fiscal Agency and Financial Advisory Authority will have an opportunity to argue that some should still not be used in the legislative process because of “deliberative process privilege.”

A creditor source said that Dein’s moving of the documents from the data room is a good sign that she will allow most or all of them to be used for the Title III court case.

The entities seeking to use the documents are the Ad Hoc Group of General Obligation Bondholders, Ambac Assurance Corp., Assured Guaranty Corp., Assured Guaranty Municipal Corp., the Mutual Fund Group, and National Finance Guarantee Corp.

On Jan. 25 Andrew Rosenberg, an advisor to the Ad Hoc Group of General Obligation Bondholders, said, “We agree with Congressman Rob Bishop that more transparency is required about the information and economic assumptions behind this fiscal plan and that creditors should be fully integrated into the process. Absent this level of transparency and integration, which to date has been actively opposed by both the commonwealth and the board, there is no means available for stakeholders to evaluate the fiscal plan.”

Rosenberg is a partner at Paul, Weiss, Rifkind, Wharton and Garrison.

“We are pleased that the court recognizes the importance of making fiscal plan development materials available so they may be used in the Title III proceedings, despite Puerto Rico’s resistance to releasing such information from the data room," said Robert Tucker, senior managing director of communications and investor relations for Assured Guaranty. "It is disappointing that fiscal transparency is having to be enforced through the court, instead of being achieved through reasonable and consensual problem solving.”

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