Fresh from a victory on Friday, bondholders and insurers are asking the Title III bankruptcy court to award them additional documents connected to the sales and use tax backing $17.6 billion of bonds.

Title III Judge Laura Taylor Swain will consider the request at a hearing on Wednesday, along with other bankruptcy matters. The hearing is scheduled for 8:30 a.m. on Wednesday in the Moynihan Courthouse in New York City.

Puerto Rico Title III mediator Barbara Houser
Barbara Houser, chief mediator in Puerto Rico Title III bankruptcy case

On Friday Title III Magistrate Judith Dein ruled mainly for bondholders and insurers of Puerto Rico bonds that a discovery process called a 2004 Motion was at least partially relevant to the case. Dein is acting as an assistant judge to Judge Swain in the case.

Dein said that court discovery by movants in a bankruptcy adversary proceeding is normally done through Federal Rules of Bankruptcy Procedure 7026 et seq. rather than through a Rule 2004 process. However, she said movants are allowed to seek discovery of items unrelated to the adversary proceeding through Rule 2004.
Dein called on the bondholders and insurers, together with Puerto Rico, to present a list of documents to be released by 3 p.m., Dec. 22.

Whereas Dein ruled on wide ranging requests for financial information, the insurers and bondholders being heard Wednesday are focusing on Puerto Rico sales and use tax revenue information. Among other things, they want Puerto Rico’s government to provide them with documents and communications connected to the impact of depressed business activity and the names of retailers that haven’t transferred sales and use tax collections.

They also want documents and communications concerning a Puerto Rico government order after Hurricane Maria to suspend the requirement for small and medium sized businesses to collect sales and use taxes. They are also seeking documents and communications connected to possible wider and permanent suspensions of the sales and use tax.

Bond insurer Ambac Assurance Corp. filed the Rule 2004 discovery motion concerning sales and use tax matters on Nov. 28. Since then a group of large mutual funds holding Puerto Rico bonds, the Official Committee of Unsecured Creditors, Financial Guaranty Insurance Company, Assured Guaranty Corp., and Assured Guaranty Municipal Corp. have filed in full or partial support of Ambac’s filing.

In response, Puerto Rico’s government said in a court filing, “While the government already is, and is prepared to continue, sharing information regarding current and projected SUT collections, Ambac has no right to a wide-ranging inquiry into either the granular details of all operations related to SUT collections or the government’s ongoing considerations and deliberations related to tax policy.

“Ambac’s requests are inconsistent with [the Puerto Rico Oversight Management and Economic Stability Act] and impose unreasonable and inappropriate financial and logistical burdens on the commonwealth for no legitimate purpose.”

Also on Wednesday Title III mediation team leader Barbara Houser will present a status report on the several cases in mediation concerning Puerto Rico’s debts.

Subscribe Now

Independent and authoritative analysis and perspective for the bond buying industry.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.