On June 30, 2021, the Financial Oversight and Management Board filed its 4th (or 5th) Plan of Adjustment and Disclosure Statement. Although it has received no press in PR, this is significant for several reasons. Not only is it longer by 141 pages but it also has points of interest.

            In the section entitled Conditions Precedent to the Effective Date, the new disclosure statement and plan state as to conditions precedent to the effective date:

(xvii) Provide that neither the Governor nor the Legislature shall enact, adopt, or implement any law, rule, regulation, or policy that impedes, financially or otherwise, consummation and implementation of the transactions contemplated by the Plan; and

(xviii) Provide that the Governor and the Legislature, individually and jointly, as appropriate, shall take any and all actions necessary to consummate the transactions contemplated by the Plan.

This language was pointed out by AAFAF in its reservation of rights as to the latest plan. Their point, and a valid one, is that this condition precedent seems to imply that Judge Swain, by approving the plan, is ordering the Commonwealth to legislate the necessary legislation to effectuate the plan, which would include legislation for the issuance of new bonds. Problem is, that nowhere in PROMESA is it specifically spelled out that Judge Swain has that power.

Obviously this new language is precipitated by AAFAF’s own objection to the previous plan, where it said that the Board did not explain how it would get around the Legislature’s refusal to legislate if the plan included pension cuts. The Board, upped the ante by specifying what it implied with requesting an order pursuant to Section 305 of  PROMESA. To this controversy we have to add the Board’s complaint to invalidate law 7-2021, which it says is contrary to PROMESA for it includes a plan of adjustment where bondholders receive less and the Legislature prohibits the Government from supporting a plan that includes pension cuts. Since the case was filed last Friday, it will not be decided by the time the disclosure statement approval hearing is held on July 13, 2021.

This is nothing short of a mess. The Legislature has challenged the Board, saying it will not approve legislation if the plan of adjustment includes pension cuts, which it does, modest as they may be. AAFAF warned the Board of this, requiring an explanation of how it would deal with it and the Board did just that. It is an open question, in my opinion, whether Judge Swain would agree to order the Government and Legislature to enact the legislation or to otherwise waive the requirement of said legislation. If she does not, however, the plan cannot be confirmed and pursuant to 11 U.S.C. § 930, the Title III would be dismissed. The question is whether the Government or Legislature is willing to risk said dismissal.

I am sure the Governor would not risk it but the Legislature is not controlled by his party. The House is in the hands of the Popular Democratic Party and has a plurality in the Senate. Both Legislative presidents have, in my opinion, an eye on their party’s candidacy for Governor. Hence, it is entirely possible that they could, with the battle cry of “No Cuts to Pensions” let the Title III be dismissed and blame the Governor.

On the other hand, will Judge Swain let 5 years of PROMESA go down the tubes because of party politics? Your guess is as good as mine.



El día 15 de junio de 2021 era el último día para objetar a la información que presentó la Junta en el Disclosure Statement que presentó. Este documento se rige bajo el 11 U.S.C. § 1125 y requiere que contnga “adequate information”, la cual se define así:

“adequate information” means information of a kind, and in sufficient detail, as far as is reasonably practicable in light of the nature and history of the debtor and the condition of the debtor’s books and records, including a discussion of the potential material Federal tax consequences of the plan to the debtor, any successor to the debtor, and a hypothetical investor typical of the holders of claims or interests in the case, that would enable such a hypothetical investor of the relevant class to make an informed judgment about the plan, but adequate information need not include such information about any other possible or proposed plan and in determining whether a disclosure statement provides adequate information, the court shall consider the complexity of the case, the benefit of additional information to creditors and other parties in interest, and the cost of providing additional information.

El disclosure statement y el plan constan de sobre 2,200 paginas, más un best interest analysis presentado a última hora. A pesar del corto tiempo disponible, varias entidades como mi cliente, Servicios Integrales en la Montaña, el Comité de Acreedores no Asegurados y la aseguradora Ambac, radicaron mociones cuestionando la falta de información del documento.

Sorpresivamente, AAFAF radicó una objeción al mismo argullendo que la Junta no había explicado adecuadamente como iba a aprobar el plan si la Legislatura no iba a favorecer legislación que el mismo requería. La Junta dijo en el Disclosure Statement que no era seguro que la Legislatura la aprobará y si era así acudiría al Tribunal bajo la sección 305 de PROMESA que prohíbe al mismo interferir con la propiedad y poderes del deudor sin la autorización de la Junta.

El miércoles 16 de julio se celebró la vista Omnibus de PROMESA y durante la misma se le pide a la Junta dar un informe, el cual ya se había radicado. Sorpresivamente, la Juez Swain, luego que la Junta dijo que no tenía nada que añadir nada al informe, dijo que iba a señalar algo. Dijo que ya que la Junta seguía que era obvio que este no era un plan consensual y no iba a permitir el enviar las papeletas para votar por el plan (si no se envían las papeletas, el plan no se puede aprobar) a menos que la Juez Houser, jefa del grupo de mediadores, certifique unos días antes de la vista del 13 de julio de 2021 que las partes han negociado de buena y de no ser así, quien no lo ha hecho. Esto podría interpretarse que la Juez Swain quiere que las diferencias entre la Junta y el Gobierno de PR se resuelvan, cosa poco probable ya que la Junta se ha mantenido firme en el recorte a las pensiones y el Gobierno en su oposición al más mínimo cambio a las mismas. Lo cual trae varias preguntas.

¿Está dispuesto el Gobierno de Puerto Rico a arriesgar la desestimación del Título III por defender a ultranza la pensiones? ¿Estará la Juez Swain dispuesta a ignorar o invalidar selectivamente la ley de Puerto Rio que requiere legislación  para la aprobación de nuevas emisiones de bonos? ¿Si la Juez Swain aprueba el plan de ajuste como esta, lo pondrá en vigor el Gobierno o nuevamente tomará la defensa a ultranza de las pensiones? ¿Si la Junta transa y elimina el recorte a las pensiones, lo aceptará la Juez Swain? ¿Si la Juez Swain aceptará este cambio, exigirá más cambios la Legislatura como la cancelación del contrato de LUMA?

Yo no tengo las respuestas pero entiendo que sus implicaciones tienen gran importancia, máxime que la prensa no ha reportado nada de esto.  


            Today, President Donald Trump appointed Justin M. Peterson to the Fiscal and Supervisory Board for Puerto Rico. I was alerted to the appointment by a source in DC and was told that he was appointed by the President to “bring transparency to the Board.” What does that mean?

            From day one of its operation, the Board’s workings have been shrouded in mystery. Every so often it has meetings open to the public, but it is clear that all decisions have been made beforehand and rehearsed for public consumption.  I have attended or watched all its meetings and only once has there been any public dissent. Ana Matosantos voted against one of the Board’s fiscal plans for the Commonwealth. We also know that the Board’s decision not to approve the PREPA RSA negotiated between the Government and bondholders was not unanimous but rather 4-3, but this was leaked weeks after the fact. Also, the Board has negotiated deals with creditors in secrecy, leaving the taxpayers who fund its operation in the dark. Many, including myself, have criticized this continued secrecy, even though PROMESA section 101(f)(4) makes executive sessions the exception rather than the rule.

Now the Board’s business will be more transparent. Although Mr. Peterson is only one member, nothing in PROMESA prohibits a member of the Board from speaking out about what he believes should be discussed. Other members have resorted to Twitter to espouse their ideas on what should be done in the Title III and their views on the Government’s actions. “Sunlight is said to be the best of disinfectants; electric light the most efficient policeman” wrote Louis Brandeis in Other People’s Money And How the Bankers Use It (1914), a collection of his best essays. That is as true today as it was over 100 hundred years ago. Even if the Board was imposed on Puerto Rico, its inhabitants have a right to know how it conducts its business.

Also, this transparency will have to spill over into the Puerto Rico Government. Contrary to what the ample case law says, the island’s government is extremely opaque, something that the Board constantly criticizes. More transparency will help control corruption and waste, a major source of concern both for the President and for the island’s residents.

Finally, there are already voices criticizing Peterson for having advised GO bondholders. Need I remind them that many Puertorricans held and hold GO bonds? Need I remind them that GO bondholders settled their claims with the Board? Additionally, Andrew Scurria of the Wall Street Journal reported in his Twitter account that he spoke with Peterson and he said he did not work anymore for bondholders in the Puerto Rico case. If that is true, he would have no conflict of interest, especially since this is a known fact. Lest we forget, José Ramón González and Carlos García, both issued debt for Puerto Rico and were members of the Board. 

My only hope is that this appointment will help the Board become a better entity and finish Puerto Rico’s Title III cases in a satisfactory fashion.