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  • Writer's pictureThe San Juan Daily Star

GDB’s collateral monitor challenges PFC debt restructuring

U.S. District Judge Laura Taylor Swain

By The Star Staff

A year after a bankruptcy court approved the Public Finance Corporation’s (PFC) debt restructuring, the Government Development Bank of Puerto Rico (GDB) Debt Recovery Authority (DRA) collateral monitor Cantor-Katz is now arguing in an appeal that PFC bondholders should have received less than $47 million in replacement debt.

The petition was made in a Dec. 13 opening appeals brief to the U.S. First Circuit Court of Appeals in the case FOMB, et al v. AmeriNational Community Services, LLC.

Cantor-Katz, along with GDB DRA servicer Amerinational Community Services, argued that there was no valid claim, as required by the statute governing the GDB qualifying modification. The new bonds were issued five years after the GDB’s qualifying modification.

“It may have been expedient for the governmental parties to do an about-face and eliminate the valid claim requirement so as to have the maximum consideration to offer to PFC Bondholders -- but such expediency cannot trump [The Puerto Rico Oversight, Management and Economic Stability Act] PROMESA or governing law,” the collateral monitor and servicer argued.

U.S. District Judge Laura Taylor Swain, who oversaw both the GDB and PFC Title VI voluntary restructurings, found that there was no need for a valid claim under standby letters of credit, to issue more debt, because the bond indenture and the master trust agreement had superseded the terms set forth in the restructuring support agreement term sheet.

PFC bondholders accepted $13.8 million in cash and $47 million in bonds in exchange for their $1.1 billion in outstanding debt. They agreed that they would accept only cash if the courts did not allow the bond issuance.

The District Court entered an order approving the PFC Qualifying Modification on Dec. 30, 2022, but deferred its decision concerning whether, as contemplated by the PFC Qualifying Modification, certain additional bonds of the DRA could be issued.

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