Puerto Rico bond insurer gets split rulings on cash, asset discovery


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(Reuters) – A bond insurer can access a limited pool of information explaining Puerto Rico’s cash position amid ongoing efforts to restructure the commonwealth’s debt stack, but it is not entitled to more information related to the territory’s real estate assets right now, a judge ruled on Monday.

U.S. Magistrate Judge Judith Dein issued a pair of written decisions largely rejecting bond insurer Ambac Assuranc Corp’s calls for more detailed explanations of Puerto Rico’s cash that can be used to pay creditors and real estate properties that could be sold for the benefit of creditors. (Dein works in the Massachusetts federal court but is providing some oversight in the commonwealth’s bankruptcy-like Title III proceedings.)

Her rulings come as the federally appointed Financial Oversight and Management Board for Puerto Rico (FOMB), represented by Proskauer Rose, continues its efforts to build support for its proposed debt adjustment plan for the commonwealth, which would reduce $35 billion in public debt to $7.4 billion and restructure more than $50 billion in pension liabilities. Though the board has lined up support from two other major bond insurers, Ambac has not yet signed on to the proposal.

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Ambac, represented by Milbank, in November requested information surrounding three analyses that break down which of the commonwealth’s cash accounts are restricted – meaning unavailable to pay off creditors – and which are unrestricted. Puerto Rico has about $11.4 billion in unrestricted cash sitting in various accounts, according to court papers filed last week.

In one of her two rulings on Monday, Dein held that Ambac did not prove that it needs access to so-called process documents showing the evolution of the analyses. Additionally, Dein said, the board already provided information it used to identify accounts as restricted or unrestricted and additional details Ambac seeks is likely protected by attorney-client privilege.

The burden of forcing the oversight board to collect additional documents from its various advisors would outweigh any benefit Ambac would receive, she added.

However, Dein granted Ambac’s request to access certain materials used to calculate the analyses. The status of the cash accounts, she added, are “clearly” relevant to the proposed plan of debt adjustment.

In her ruling on Puerto Rico’s real estate properties, Dein held that Ambac offered no legal authority showing that it has the power to designate which properties are available to sell or require the sale of those assets. Ambac has argued that Puerto Rico holds valuable properties that, if sold, could generate more than $1.3 billion that could be used to pay down creditors.

Ambac can access information about the properties through publicly available information, she said.

“To the extent that Ambac truly believes that appraising specific parcels of real estate and assessing the propriety and likelihood of sale is helpful in these proceedings, nothing herein will prevent its experts from making these determinations from public records as well as from the documents that have already been produced,” Dein wrote.

The judge also noted that Ambac will have the opportunity to raise concerns about the commonwealth’s assets when the debt adjustment plan is considered by the court.

Atara Miller of Milbank, representing Ambac, did not immediately respond to a request for comment.

U.S. District Judge Laura Taylor Swain, who oversees the majority of the Title III case, is scheduled to hear arguments in July on whether the disclosure materials for the plan are ready to be sent out to creditors for voting purposes.

The case is In re Commonwealth of Puerto Rico, U.S. District Court, District of Puerto Rico, No. 17-03283.

For the oversight board: Martin Bienenstock, Brian Rosen, Mark Harris, Ehud Barak, Timothy Mungovan and John Roberts of Proskauer Rose; and Hermann Bauer-Alvarez of O’Neill & Borges

For Ambac: Dennis Dunne, Atara Miller, Grant Mainland, John Hughes III and Jonathan Ohring of Milbank; and Roberto Camara-Fuertes and Sonia Colon of Ferraiuoli.

Read more:

Puerto Rico debt proposal disclosures will go up for court approval in July

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