Fiscal board opposes an official committee for small GO, PBA bondholders

By The Star Staff

The Financial Oversight and Management Board on Monday objected to the appointment of an official committee of small general obligation (GO) and Public Buildings Authority (PBA) bondholders that hold less than $1 million, arguing that retail investors are adequately represented.

The petition was made by Peter Hein, an individual investor. A previous petition he had filed was denied.

“Hein does not cite any authority that would support this Court reconsidering its prior denial; instead, the Motion is based on certain provisions of the Plan relating to retail bondholders and the proposed Plan confirmation process, each of which Hein finds objectionable,” the motion read. “As this Court previously observed, ‘tak[en] to its logical conclusion, Mr. Hein’s rationale would require the Court to appoint committees to represent the interests of subgroups of holders of practically every type of debt issued by any of the Title III debtors, and that outcome is just unworkable.’”

Consistent with the court’s prior rulings, adequate representation of the interests of holders of GO bonds and PBA bonds is provided through the zealous representation of such holders by ad hoc groups formed over the past several years. And there is no different treatment of retail holders of bonds that would lead to such holders needing their own committee to assure adequate representation of creditors, the oversight board said.

By a letter dated March 1, 2019, Hein requested that the U.S. Trustee appoint an official committee comprising solely GO bondholders with “modest” holdings. On March 4, 2019, the U.S. Trustee responded to Hein’s letter, stating that the office does not comment on the appointment or selection process for official committees beyond what appears on the public record.

On April 4, 2019, Hein filed the request seeking an order from the court appointing an additional statutory committee composed solely of GO bondholders with modest holdings.

Hein asserted, among other things, that certain Puerto Rico Sales Tax Financing Corp. (COFINA by its Spanish acronym) creditors received favorable treatment at the expense of others and that the COFINA plan solicitation process was purportedly designed to confuse and hasten the creditor voting process. The court denied that first motion by Hein to create the committee.

After the oversight board in February entered into a plan support agreement to restructure some $35 billion in central government debt, Hein in July asked the court for the creation of the committee, arguing that retail investor classes are a significant group of creditors, but, unlike other groups of creditors — who have hired and paid for their own professionals, or are having their expenses paid by the debtors — are not being adequately represented in the Title III cases.

Currently, however, the Title III court has preliminarily approved a debt disclosure statement toward a debt adjustment plan that is expected to be ratified by the end of the year. On July 27, the court will again discuss the debt disclosure statement and is expected to issue an order.

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