COFINA Seniors Coalition Exposes Significant Flaws in General Obligation Ad Hoc Group's Desperate Litigation

NEW YORK, March 20, 2017 /PRNewswire/ -- The COFINA Seniors Coalition has filed a memorandum of law in support of its motion for judgment in Lex Claims, LLC et al. v. Garcia-Padilla et al. In addition to asking the Supreme Court of Puerto Rico to provide complete validation of COFINA, we intend to demonstrate that the plaintiffs' case is fundamentally flawed and that there are fatal legal issues that prevent the Lex Claimants from even pursuing litigation. This includes showing that their debt may be completely void and was unconstitutionally issued in violation of the Puerto Rico Constitution's debt limit.

• The plaintiffs' central claim that their right to COFINA's property comes from the Puerto Rico Constitution is desperate, false and barred by an array of legal doctrines.
  We will demonstrate that Puerto Rico's Constitution grants COFINA its property rights, which must be respected in the face of baseless challenges from a litigious group of unsecured creditors with no property rights. Since its creation through bi-partisan legislation in 2006, COFINA's property has been held separately from the Commonwealth's "available resources"—the revenue stream used to pay the Government's general expenses and the GO bonds held by the plaintiffs. It is clear that the GO Ad Hoc Group's only recourse now is to ask that it should be paid before unessential expenses or to take the untenable position that essential services, such as paying teachers and supporting pensioners, must be sacrificed to pay off their bonds. But in a Title III restructuring permitted under PROMESA, these rights will be even further curtailed.

• The plaintiffs' case should be prevented from proceeding based on the doctrines of laches and equitable estoppel.
  In addition to attempting to misrepresent the difference between a secured and unsecured bond, the plaintiffs' case should be prevented from proceeding based on the doctrines of laches and equitable estoppel. The bi-partisan legislation that created COFINA more than a decade ago gave it the ability to provide the Government of Puerto Rico with the most affordable financing and the highest investment grade rating out of all of Puerto Rico's tax-backed debt—during a time when policymakers needed a rescue vehicle to avoid fiscal peril.

• The GO Ad Hoc Group's bonds may be completely void and were unconstitutionally issued in violation of the Puerto Rico Constitution's debt limit.
  We also assert the claims of many of the plaintiffs should be dismissed immediately because their 2014 GO bonds were issued in excess of the Puerto Rico Constitution's debt limit and thus they are not valid or entitled to constitutional priority. Under the Puerto Rico Constitution, the Government can only provide full faith and credit to bonds issued in conformity with the constitutional debt limit. That limit was clearly reached in 2011, meaning that bonds issued thereafter that purport to be backed by full faith and credit are void and effectively worthless.

• We encourage Puerto Rico's leaders to respect COFINA and look to constructive creditor groups for negotiations that respect all stakeholders' rights.
  While the COFINA Seniors Coalition has been a long-standing proponent of respecting PROMESA's litigation stay and attempting to work toward consensual deals, the Government of Puerto Rico has yet to engage us in any meaningful discussion. But in the week since the fiscal plan was approved, in a very surprising move against the best interests of local bondholders, the Government appears to have aligned with the most litigious and aggressive creditor group, Lex Claimants, whose debt may not even be valid. This is the same creditor group currently running attack ads against COFINA every week in Puerto Rico, much like they did in Washington, D.C. when vilifying members of Congress in their districts when they supported PROMESA. Our group has been willing to help the Government in its liquidity crisis and has offered to enter into meaningful negotiations as early as February 2016, which was reiterated to Governor Rosselló several times, including in the only official meeting held with COFINA's senior creditors on January 18, 2017 at a meeting with AAFAF. As a result, we find it curious that the newly appointed officials at AAFAF have chosen to begin negotiations with this small group of stateside hedge funds over the citizens of Puerto Rico, especially when COFINA bonds are the most widely held locally by a 7-to-1 margin compared to GO bonds. This has placed AAFAF in the unenviable position of placing the Government in a position of not fulfilling the Puerto Rico Attorney General's legal obligation of always defending the constitutionality of all Puerto Rico statues, including Act 91 of 2006, the COFINA enabling act, and the specific contractual obligations that the COFINA Agency, the GDB, and AAFAF of defending the constitutionality and legality of every COFINA issuance.

In closing, Puerto Rico clearly faces a monumental crisis and its recovery will be substantially hindered by a loss of access to securitized finance mechanisms as the Government is already operating in excess of its GO constitutional debt limits. Respecting the first securitized rescue bond, COFINA, which the Government is legally supposed to do, is in the long-term best interests of Puerto Rico's leaders and is paramount to ensuring that the island is placed back on the right road to fiscal reform and economic recovery. 

About the COFINA Seniors Coalition

The coalition of creditors is made up of retirees and individual investors in Puerto Rico and throughout the United States, as well as asset managers GoldenTree Asset Management LP, Merced Capital LP, Tilden Park Capital Management LP, Whitebox Advisors LLC, and others. 

Media Contact
Greg Marose (on behalf of COFINA's senior creditors)
O: 212-277-4321
M: 201-936-4126 
[email protected]

Kate Sylvester (on behalf of COFINA's senior creditors)
O: 202-756-2422
M: 202-361-1283
[email protected] 

SOURCE COFINA Senior Bondholders