The fate of the Puerto Rico Highways and Transportation Authority’s $6.2 billion in bond debt is unclear after the Puerto Rico Oversight Board Friday told the court that its adversary complaint was not settled with regard to the authority.
While the terms of the HTA bond restructuring appeared largely set in the central government Plan of Adjustment executed March 15, HTA bondholders did not get cash, bonds, or Contingent Value Instruments at that time. Observers expected them to get their consideration when the U.S. District Court for Puerto Rico approves their Plan of Adjustment, which the board hopes will happen this year.
As part of the execution of the Plan of Adjustment, on March 25 the board informed the United States District Court for Puerto Rico, which handles the Puerto Rico government bankruptcies, that scores of adversary complaints were settled, including the Financial Oversight and Management Board of Puerto Rico v. Ambac Assurance Corp et al., in which the board objected to highway-related "proofs of claim and priorities" and to the "scope, validity, and priority of certain liens or security interests asserted therein."
The board, at that time, said this along with other suits were “dismissed and/or denied, with prejudice.”
On Friday, the board told the court that this particular adversary complaint was not settled. “The Oversight Board has engaged in discussions with parties to certain matters identified in the [March 25] Informative Motion, and has determined that the adversary proceeding entitled The Financial Oversight and Management Board for Puerto Rico v. Ambac Assurance Corporation, et al., Adv. Pro. No. 20-00007-LTS, has not been resolved by the plan and should remain pending.”
Cate Long, principal of Puerto Rico Clearinghouse, said the board “has asserted repeatedly that approval of the Commonwealth Plan of Adjustment settled $33 billion of Puerto Rico's debts including those of the Highway Transportation Authority."
The sudden "U-turn" wasn't surprising, she said, since the Board "repeatedly misrepresented the facts of the bankruptcy." Further, the change in status on the HTA bonds followed the publishing of “fiscal year 2019 audited financials which show the government had a $4 billion surplus,” Long said. “This substantial surplus means there was no need for a clawback of Highways revenues, which is what the [board] asserted to creditors, the Title III [bankruptcy] court and presumably the mediation team. The fact that the [board] has now reversed course potentially throws a significant part of the bankruptcy into question."
The ability to pay teachers pensions was also misrepresented by the Board, Long said. “At some point the Title III court needs to step back and question the veracity of what the [board] has put forward.”
Puerto Rico attorney John Mudd said Friday’s motion might mean the board believes the HTA bond terms are open for negotiation “but the motion is in the commonwealth [of Puerto Rico central government] case so we don’t know for sure.” HTA has a separate case.
A representative of one party to the 2020 adversary complaint said he believed Friday’s filing simply corrected an error in the March 25 filing.
