Puerto Rico bankruptcy judge declines to create GO committee

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Puerto Rico bankruptcy Judge Laura Taylor Swain rejected a request to create a committee to represent Puerto Rico general obligation bondholders after a GO bondholder asked her to do so.

However, Swain pointed out that the bondholder could seek the committee by petitioning the United States Trustee. The U.S. Trustee is part of the U.S. Department of Justice and is responsible for overseeing the administration of bankruptcy cases.

The Puerto Rico Oversight Board and the Unsecured Creditors Committee is asking for the GO bonds sold in 2012 and 2014, which total $6 billion, to be declared null and void. They claim their sale contravened Puerto Rico’s Constitution.

On Jan. 30 there was a hearing to discuss procedures for handling this motion. At the hearing bondholder Peter C. Hein asked Swain to appoint a committee so that retail holders of the GO bonds that would have adequate legal representation.

After Hein’s request at the Jan. 30 hearing, UCC lawyer Luc Despins told Swain that she had ruled against a committee to represent the interests of individual bondholders. He said the GO holders already had adequate representation. Groups of investment funds holding GO bonds have lawyers involved in the Title III case.

In an order released last week, Swain said if Hein made the request to the U.S. Trustee and failed to gain the committee, Hein could make a motion with her court for the same committee.

Along with being a bondholder of Puerto Rico bonds, Hein is of counsel at the New York City law firm Wachtell, Lipton, Rosen & Katz. He appeared before the court representing his own interests and not as a lawyer with Wachtell, Lipton.

Also last week Swain released an order guiding the creation of procedures for handling the motion to vacate the 2012 and 2014 GO bonds. She said the proposed notice to bondholders and the proposed procedures for handling the dispute “must be written with an eye to clarity for lay, retail-level bondholders and other parties of interest.

“The importance of the decision as to whether to file a Notice of Participation must be made clear, by flagging the potential consequence of success by [the board and the UCC] on their objection, the benefits of filing a timely Notice of Participation (e.g., direct email or hard copy notification of case events specific to the objection as well as meet and confer opportunities) and the consequences of forgoing such a filing,” Swain continued.

The proposed procedures “must give parties in interest sixty days from entry of the order granting the motion [regarding procedures to handle the matter] to file Notices of Participation,” Swain wrote.

Procedural documents “must include methods reasonably calculated to result in service of the notice and procedures upon all individuals and entities who are beneficial holders of claims on account of the challenged GO bonds as well as upon all filers of ‘bond claims’ against the Commonwealth [of Puerto Rico] as reflected in Prime Clerk’s records,” Swain wrote.

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PROMESA Commonwealth of Puerto Rico Puerto Rico
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