Fiscal board: Local bondholder group is ineligible for requested $7 million payment
By The Star Staff
The Financial Oversight and Management Board for Puerto Rico this week opposed a request by local bondholder group Bonistas del Patio for the commonwealth to foot a $7 million bill to pay certain professional fees and expenses.
On Oct. 11, Bonistas del Patio Inc. filed a motion requesting payment of fees and expenses by the commonwealth claiming that it provided a substantial contribution to the restructuring and ultimate confirmation and consummation of the Puerto Rico Sales Tax Financing Corp. (COFINA by its Spanish acronym) debt adjustment plan and that its retained legal and financial advisors should be compensated for the services they provided to the Bonistas in the amounts of $2 million and $5 million, respectively.
Furthermore, the Bonistas claim that it was “understood” by all that such expenses would be paid and not reimbursed by the commonwealth. On Dec. 14, the federal Title III bankruptcy court held a hearing to consider the request and expressed its concerns about the applicability of Section 503(b)(4) and the appropriateness of the relief being requested. At the conclusion of the hearing, the court requested the oversight board, as the sole representative of COFINA and the commonwealth in their respective Title III cases, to provide an opinion.
“The Oversight Board does not believe that either the Commonwealth or COFINA had, or has, an obligation with respect to the Bonistas or to satisfy any obligation, if one existed, of the Bonistas to either its legal or financial advisors,” the board said in a motion filed late Wednesday.
The oversight board said that therefore payment of the expenses by the Commonwealth is not required.
“Simply stated, while it is unclear whether the Bonistas actually committed to paying the Expenses, if so, the Expenses were incurred by the Bonistas, and not the Commonwealth or COFINA,” the oversight board said. “As such, Section 15.2 of the COFINA Plan is inapplicable.”
The oversight board noted that there is no document or application supporting the Bonistas’ contention that it injected itself into the restructuring process at the suggestion of the mediation team appointed by the court, or establishing any payment. Although the Bonistas assert the oversight board “knowingly caused” the incurrence of the expenses by soliciting the assistance and support of Bonistas, there is no written undertaking by any commonwealth entity, or an understanding between the Bonistas and the oversight board, to pay the expenses, the board contended.
The request, according to the oversight board, also seeks to circumvent the debtor’s and oversight board’s sole discretion to employ professionals pursuant to the Puerto Rico Oversight, Management and Economic Stability Act (PROMESA) Section 316 by suggesting that an employment relationship may be inferred.
The Bonistas is not a creditor of the commonwealth and the motion seeks payment and not reimbursement of expenses.
“Further, Section 503(b)(4) limits compensation to professional services rendered by an attorney or an accountant of any entity. Here, more than two-thirds of the relief being requested is with respect to a financial advisor, an entity expressly outside the four corners of the statute,” the oversight board said. “Accordingly, as a threshold matter, such Expenses are not eligible for payment.”
While the Bonistas point to, among other things, its assistance in the negotiation and finalization of the COFINA Plan, related materials and other definitive documents, that is insufficient to establish a substantial contribution to the resolution of the case, the oversight board added.
“The Bonistas also could have sought, early in COFINA’s Title III case, official recognition pursuant to section 1103 of the Bankruptcy Code as a committee representing the interests of on-island bondholders with fiduciary and other duties to such bondholders, and the right to seek compensation for its professionals pursuant to PROMESA Section 316,” the oversight board said. “The Bonistas did not avail themselves of seeking such relief — opting instead to forego the fiduciary obligations of an official committee while seeking reimbursement of the Expenses long after the COFINA Plan was consummated.”