Insurers, others stake claim to Puerto Rico taxes, tolls

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Bond insurers and other involved parties filed three replies Thursday defending their claims to revenues from the Puerto Rico Highways and Transportation Authority, Puerto Rico Infrastructure and Finance Authority, and Convention Center District Authority that pay off more than $5.5 billion of outstanding bonds.

The filings come in advance of a "lift stay" hearing May 13 in U.S. District Court for Puerto Rico, with bankruptcy Judge Laura Taylor Swain presiding.

Puerto Rico bankrupty judge Laura Taylor Swain
Puerto Rico bankrupty judge Laura Taylor Swain will hold a hearing on motions to protect revenue bond interests on May 13.

The decision in the case could be relevant in the central government bankruptcy. In January, Chapman Strategic Advisors Managing Director James Spiotto, who has since died, said the court decision in this matter would affect how much money the central government would have to pay on its debt and other expenditures.

Assured Guaranty Corp., Assured Guaranty Municipal Corp., Ambac Assurance Corp., National Public Finance Guarantee, and Financial Guaranty Insurance Company filed the reply concerning the HTA bonds. Ambac, FGIC, Assured, and U.S. Bank Trust National Association filed the reply concerning PRIFA rum tax bonds. Finally, Ambac, FGIC, Assured, and the Bank of New York Mellon filed the reply for the CCDA bonds.

In the 94-page HTA reply, the bond insurers argue the bond holders and insurers have “beneficial ownership of, as well as continuing liens on, HTA’s toll and excise tax revenues.”

“The linchpin of the Opposition [i.e. the Puerto Rico Oversight Board and local Puerto Rico government] is the mistaken assumption that the commonwealth owns all excise tax collections until they are transferred to HTA,” the insurers said. “The Opposition contains no support for this assumption — and there is none.”

The insurers argue their liens “apply to a perpetual stream of future revenues.”

While the Oversight Board argues the Puerto Rico Oversight, Management, and Economic Stability Act preempts bondholder property interests, the insurers said PROMESA section 407 “expressly preserves and respects [Puerto Rico] laws and property rights.”

In the 88-page PRIFA reply, the bond insurers and U.S. Bank National Trust say the PRIFA rum taxes are property of PRIFA and its bondholders, not the commonwealth government. The tax revenues are “subject to the bondholders' liens the moment the commonwealth receives them.”

In the 68-page CCDA reply, the bond insurers and Bank of New York Mellon said they have a claim to relief from the bankruptcy stay because “the commonwealth has no equity in the pledged hotel taxes (which are collected by the Tourism Company) and because movants are the equitable owners of the pledged hotel taxes and have a lien on the legal title to them.”

“The Opposition [i.e. the board and local government] fails to grapple with the basic fact that movants do not need to show ‘secured status’ to prevail on this motion, because movants are not seeking to sue the commonwealth (or interfere with its property) and merely seeking a decision confirming that it has no equity in the pledged hotel taxes,” the insurers and BNY Mellon said. “The Tourism Company is not a Title III [bankruptcy] debtor and does not enjoy protection of the automatic stay. Movants are thus entitled to pursue their claims against the Tourism Company.”

As of February 2017, there were $4.1 billion of HTA bonds and $400 million of CCDA bonds outstanding. As of July 2019, there was somewhere between $1 billion and $2.2 billion of PRIFA rum tax bonds outstanding.

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