Unsecured Puerto Rico creditors want wider delay in bankruptcy

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In light of the coronavirus crisis and a statement from the Puerto Rico Oversight Board chairman that the board is reconsidering its central government debt agreement, the Unsecured Creditors Committee told the court that a range of bankruptcy matters should be delayed.

The chief lawyer for the UCC, Luc Despins, stated these positions in a filing Wednesday afternoon in the United States Court for the District of Puerto Rico.

Paul Hastings and Unsecured Creditors Committee Attorney Luc Despins
Puerto Rico Unsecured Creditors Committee Attorney Luc Despins said the progress of the bankruptcy has been shaken by the Oversight Board chairman's statements.

On Sunday the Oversight Board, through its attorneys, filed a motion to delay the plan of adjustment’s disclosure hearing and related earlier deadlines.

In the committee’s filing it quoted the board as saying in a press release that the local government and board’s “sole focus” should be on dealing with the virus outbreak.

Despins said “the committee is at a loss to understand why, if all energy and efforts should be focused on addressing this crisis, the Oversight Board is pursuing a piecemeal litigation approach by seeking to adjourn some matters (such as the hearing on the disclosure statement) while pressing forward on others (with, in some instances, only a limited adjournment of a few weeks).”

As examples of legal activities the board is moving forward with, Despins mentioned a Tuesday motion to seek a stipulation to treat the claims of $78 million in Puerto Rico Infrastructure Finance Authority Bond Anticipation Notes, a motion to approve a restructuring support agreement for the Puerto Rico Electric Power Authority, motions connected to the Highways and Transportation Authority, Convention Center District Authority, and Infrastructure Finance Authority, and Employment Retirement System bonds. All of these currently have deadlines in April.

Despins also mentioned statements made by board Chairman José Carríon in a radio interview on Puerto Rico radio station WKAQ and reported on in a Reorg Research story. El Nuevo Dia also reported on the interview.

According to these accounts, Carríon said that in light of the spread of the virus to the island and the governor’s order to shut most of the island down, “it is evident that Puerto Rico is facing a situation of such magnitude that it is necessary to reevaluate [the pensions cut] and that would imply also reevaluating the amount that we would pay in debt and the entire adjustment plan.

“Puerto Rico does not have the capacity to pay the debt that it had few weeks ago," he said. Carríon said that the board’s members are discussing these issues.

In February the board announced a plan support agreement for the central government’s debt that it and a wide variety of funds and credit unions holding the debt supported.

“The Oversight Board needs to put forth a clear and consistent rationale (particularly in light of the statements of its chair) as to why certain matters should be adjourned, certain matters should remain stayed, and other matters should move forward,” Despins said.

He said that the court should consider freezing consideration of all issues or should let all issues continue in litigation.

On the secondary market the price of the Puerto Rico GO due in 2035 has declined 26% from Feb. 28 to March 25, going from 74.5 cents on the dollar to 55 cents on the dollar, according to IHS Markit data.

While the GO bonds have been sliding in tandem with growing virus concerns marketwide, the restructured Puerto Rico Sales Tax Finance Corp. (COFINA), which slid earlier with the market, have rallied since March 20. On March 20 the A-1 bonds due in 2053 were trading at 73.6 cents to 77.6 cents on the dollar but on Thursday they were trading 83.6 cents to 96 cents.

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