• The Star Staff

Filing indicates debt settlement shouldn’t be expected anytime soon

By The Star Staff

A document filed in the commonwealth bankruptcy process by monoliner Ambac Assurance Corp., which insures Puerto Rico debt, shows that the U.S. commonwealth is very far from arriving at the terms of a debt settlement by the Feb. 10 deadline imposed by the federal court.

Ambac is a holding company whose subsidiaries provide financial guarantee products, including insurance on $2.5 billion in Puerto Rican debt, plus $8 billion in additional exposure for interest due on the bonds.

In a recent court document, Ambac, which is battling to obtain discovery to ascertain the cash capacity of the commonwealth, said arguments by the federal Financial Oversight and Management Board objecting to the discovery should be overruled, but suggested there would be litigation to contest the plan of adjustment.

“The [oversight] Board admits that it intends to rely on the most up-to-date version of the cash restriction analysis in the forthcoming ‘contested plan of adjustment’ litigation,” Ambac said. “Given this admission, the Board’s suggestion that creditors are entitled to discovery only into raw data on cash restrictions (and not into the Board’s analysis of them) is meritless.”

Ambac filed the motion because the oversight board flatly refused during a meet-and-confer process to produce any documents. The board is asking the court to rule categorically that no process documents should be produced and that a Rule 2004 request be denied. Rule 2004 provides the basic discovery mechanism in bankruptcy outside the context of a specific litigated dispute.

Ambac is seeking discovery on the commonwealth’s assets since October 2019. More specifically, Ambac Is seeking information concerning the commonwealth cash restriction analysis. While the island government has some $20 billion in bank accounts, it has said a huge portion of the bank accounts are restricted in their use. Ambac has said it wants to evaluate the analysis to determine whether the restriction in some of the bank accounts is justified.

Ambac also requested recently to conduct third-party discovery of Milliman, which has worked for at least 13 years as adviser to Puerto Rico’s pension systems, in order to ascertain if the government is telling the truth that there are $50 billion in pension liabilities.

In its role as the commonwealth’s actuarial consultant for over 13 years, Milliman conducts annual valuations of the commonwealth’s pension liability. The analysis is published in a valuation report, which is the single source relied on by the oversight board for the pension obligation amounts included in the Commonwealth Fiscal Plan. Understanding Milliman’s analysis is critical to any assessment of the amounts available for debt service included in the Commonwealth Fiscal Plan. Over the past three years, Ambac says, it has “diligently sought information from the [oversight board] and from the Puerto Rico Fiscal Agency and Financial Advisory Authority concerning the Milliman actuarial valuation reports.”

After numerous meetings and confers, the government parties have maintained that they are not in possession of key information needed to understand Milliman’s analysis, and refuse to obtain the relevant information from Milliman for production to Ambac, the holding company said.

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