Puerto Rico's bankruptcy case is set to resume in a New York court for the first time since Hurricane Maria hit, with creditors arguing with the local government over the legal conditions for federal aid money.
Lawyers for the Ad Hoc Group of General Obligation Bondholders and bond insurers Ambac Assurance Corp. and National Public Finance Guarantee will face off against lawyers representing Puerto Rico and its electric power authority and highways and transportation authority, as the Title III bankruptcy process continues.
Both Ambac and National insure Puerto Rico bonds. The Ad Hoc group consists of investment funds that hold Puerto Rico bonds.
The hearing will be held at 10 a.m. in the Daniel Patrick Moynihan Courthouse, courtroom 17C, 500 Pearl St., New York, N.Y.
Hurricane Irma skirted Puerto Rico on Sept. 7 and Maria hammered the island on Sept. 20. Pres. Trump is expected to approve loans and other federal aid later this week for Puerto Rico.
On Oct. 15 Puerto Rico, the power and highway authorities, and the Puerto Rico Fiscal Agency and Financial Advisory Authority filed a motion to “clarify that the federal disaster relief funds being provided to Puerto Rico will be used solely for their intended and required purposes, will be deposited into segregated and non-commingled accounts, and will not be subject to any existing creditor or third-party claims,” according to the court summary.
Since then Ambac, National, and the Ad Hoc Group have filed limited objections to Puerto Rico’s motion.
In a filing on Oct. 19 Ambac said Judge Laura Taylor Swain should include in her order a directive that Puerto Rico, FAFAA and the Puerto Rico Oversight Board identify all recipients of federal disaster relief funds and the use of the funds.
In its Oct. 23 response, Puerto Rico said that federal law and the Federal Emergency Management Agency Agreement would “impose rigorous monitoring and reporting requirements” on Puerto Rico. “Any additional reporting requirements would impose an unnecessary burden on the commonwealth” and its authorities and municipal governments.
On Oct. 19 the Ad Hoc Group argued that Puerto Rico’s proposed order should be modified so that it only covers funds provided by FEMA or by other federal agencies under the Stafford Act for disaster relief or recovery purposes. As it stands the proposed order would also include aid from other federal agencies.
Puerto Rico responded that this would require it, its authorities, and its municipal governments return to court every time aid from a new federal program became available. “Such a requirement may unnecessarily delay the receipt and use of urgently needed aid,” Puerto Rico said, arguing against the change.
On Oct. 19 National objected to Puerto Rico’s central government being given “superpriority” to use dis-obligated or otherwise disallowed federal relief funds for its own administrative expenses. It said making this determination would be premature.
In response, Puerto Rico disagreed and said in its response to the insurers and the Ad Hoc Group that, “The commonwealth should have assurance that it will be made whole for any payment on account of disallowed federal disaster relief funds.” Accordingly, it said the government should be given that “superpriority.”
In addition to arguments on topics related to federal aid, at Wednesday’s hearing there will be arguments on the rules and conditions of the agent acting in the interests of the Puerto Rico Sales Tax Financing Corp. (COFINA).