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Lawful Constitutional Debt Coalition Takes Action to Uphold the Indisputable Validity of the PBA and Show How Puerto Rico’s Debt Limit was Actually Breached

April 11, 2019

NEW YORK & SAN JUAN, Puerto Rico--(BUSINESS WIRE)--Apr 11, 2019--The Lawful Constitutional Debt Coalition (the “ Coalition ” or “ LCDC ”), which includes certain holders of Puerto Rico’s General Obligation (“ GO ”) and Public Buildings Authority (“ PBA ”) bonds issued prior to March of 2012 (collectively, “ early vintage constitutional debt ”), today filed its Notice of Participation in the legal action initiated by the Special Claims Committee of the Financial Oversight and Management Board (“ FOMB ”) and the Unsecured Creditors Committee (“ UCC ”) to invalidate GO bonds issued after March of 2012 (collectively, “ late vintage GO bonds ”). The Coalition also filed its response to the Ad Hoc Group of GO Bondholders’ recent Conditional PBA Claims Objection.

Susheel Kirpalani of Quinn Emanuel Urquhart & Sullivan, LLP, in his capacity representing the LCDC, added the following:

“We believe recent efforts to mischaracterize PBA debt are predicated upon a fundamental misunderstanding of the public corporation’s history and a strained reading of Puerto Rico’s Constitution that adds words that are not there while omitting words that are. Since the passage of the PBA Enabling Act in 1958 by the Legislative Assembly, both the Commonwealth and every court that has reviewed the matter have found that the PBA is not an arm of the central government, but rather a validly established and separate entity. Indeed, numerous states have mirrored the PBA structure to design, construct, and develop critical government buildings.

Language added to Puerto Rico’s Constitution in 1961 – after the PBA’s establishment – makes clear that payments made by the central government ’for principal and interest on account of any outstanding obligations evidenced by bonds or notes guaranteed by the Commonwealth’ count towards the constitutional debt limit. Although the Commonwealth has guaranteed the principal and interest payments on PBA bonds since 1968, prior administrations and their advisors improperly omitted payments made by the central government on account of these guaranteed bonds. It is important to underscore, however, that leases between the PBA and its tenants, including the Commonwealth itself, openly and appropriately defined a portion of the Commonwealth’s payments as ‘Debt Service Rent,’ removing any doubt as to how the central government should have accounted for those payments in the debt limit.

We look forward to demonstrating that Puerto Rico’s Constitution requires that payments made by the central government for debt service on PBA bonds guaranteed by the Commonwealth be counted toward the debt limit. Had the Constitution been faithfully applied, GO bonds and guarantees issued after March of 2012 could not have been backed by the Commonwealth’s full faith and credit.”

About the LCDC

The LCDC consists of institutional holders of Puerto Rico’s GO and PBA bonds issued prior to March of 2012. The Coalition’s mission is to reach an equitable, economically-viable restructuring that respects the lawful priority of early vintage constitutional debt and properly characterizes the PBA structure.

Cautionary Statement

This communication and accompanying material are not intended to represent a recommendation or investment advice of any kind. Such content is not provided in a fiduciary capacity, may not be relied upon for or in connection with the making of investment decisions, and does not constitute a solicitation of an offer to buy or sell securities. All content has been provided for informational purposes only and, as such, should not be construed as legal or investment advice and/or a legal opinion.

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Greg Marose / Charlotte Kiaie, 347-343-2999




SOURCE: Quinn Emanuel Urquhart & Sullivan, LLP

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PUB: 04/11/2019 03:40 PM/DISC: 04/11/2019 03:40 PM