Puerto Rico Title III bankruptcy judge Laura Taylor Swain has decided to address the dispute between Puerto Rico and the Puerto Rico Sales Tax Financing Corp. bondholders prior to other Title III matters, according to a bondholder source.

In this way, bondholder challenges to the Oversight Board’s fiscal plan have been put on hold.

Puerto Rico Title III bankruptcy Judge Laura Swain introduced Chief Mediator Barbara Houser on Wednesday.
Judge Laura Taylor Swain said she wants to rule on the dispute over COFINA by Dec. 15. U.S. Courts

Swain has ordered parties to address the dispute over Puerto Rico Sales Tax Financing Corp. (COFINA) in mediation, according to the source.

The issue is “whether … the sales and use taxes purportedly pledged by COFINA to secure debt (the ‘Pledged Sales Taxes’) are property of the commonwealth or COFINA under applicable law,” according to Swain’s Aug. 10 stipulation and order.

In the Aug. 10 stipulation and order the judge said she intended to rule on the dispute by Dec. 15.

The Board told Swain that it would be best for her to first settle the Commonwealth’s dispute with COFINA and COFINA bondholders, according to the bondholder source.

Along with the confidential mediation process on this topic, on Aug. 29 Swain approved a schedule for the parallel track of court proceedings on the dispute. On Friday she revised the schedule.

Swain set Sept. 8 as the deadline for the commonwealth to submit its position [“complaint”]. On Sept. 15 COFINA, through Whyte, is to file its answer and any counterclaims it intends to assert.

According to Swain, from Dec. 4 to Dec. 8 she will preside over hearings on the dispute.

Once there is a settlement in the Commonwealth-COFINA dispute the Oversight Board is charged with creating a plan of adjustment for the relevant debts. For the plan to go forward the judge would have to approve it. However, “if the court determines no confirmable plan for COFINA can be proposed consistent with the settlement, then the settlement shall be deemed null and void,” according to Swain’s Aug. 10 stipulation and order.

In this issue’s mediation, attorney Luc Despins is representing the commonwealth’s positions and attorney Bettina Whyte is representing the position of COFINA and its bondholders. In the settlement discussion the Ad Hoc Group of GO Bondholders and Assured Guaranty Corp. will jointly appoint a representative. The Official Committee of Retirees will also represent themselves in the discussions.

Willkie Farr & Gallagher LLP will be the lead counsel for the COFINA group.

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