The San Juan Daily Star
Debt adjustment plan leaves at least one dispute unresolved
By The Star Staff
Although the confirmation of the commonwealth debt adjustment plan settles all disputes related to the $33 billion central government debt, the Financial Oversight and Management Board informed the Title III bankruptcy court Thursday that the plan has not resolved a dispute with some bond insurers.
The oversight board said it has engaged in discussions with parties to deal with certain last-minute matters related to the debt adjustment plan but that the adversary proceeding titled “The Financial Oversight and Management Board for Puerto Rico v. Ambac Assurance Corporation” was not settled in the confirmation plan that went into effect March 15.
Under that adversary proceeding, the oversight board objected to certain proofs of claim and priorities asserted against the commonwealth.
Certain taxes and fees levied and collected by the commonwealth were historically appropriated and transferred to the Highways and Transportation Authority (HTA). The HTA granted a security interest against HTA allocable revenues, and revenues of specified tolls levied by HTA itself to secure the bonds.
HTA issued several series of bonds pursuant to two resolutions: Resolution No. 68- 18, adopted June 13, 1968 and another resolution adopted Feb. 26, 1998. Pursuant to the resolutions, payments on the bonds are funded expressly and exclusively through amounts deposited in two accounts. Payments on the 1968 bonds are funded through amounts deposited into the 1968 Sinking Fund, and payments on the 1998 bonds are funded through amounts deposited into the 1998 Sinking Funds. The bonds are non-recourse.
But Ambac and other insurers filed proofs of claim in the HTA Title III case asserting, among other things, that the bonds are secured by statutory liens against certain of HTA’s property, that the bonds are secured by equitable liens against certain of HTA’s property, and that the insurers hold ownership interests in certain of HTA’s property.
As of September 2021, Ambac had $2.4 billion exposure to Puerto Rico debt, including over $600 million at HTA.
The defendants claim they have first priority, perfected security interests against HTA’s property extending far beyond the security interests (if any) granted in the resolutions.
Besides Ambac, the other defendants in the case, originally filed in 2020, are Assured Guaranty Corp., Assured Guaranty Municipal Corp., National Public Finance Guarantee Corp., Financial Guaranty Insurance Co., Peaje Investments LLC and the Bank of New York Mellon.