Puerto Rico court denies motion for retail bondholder committee

By Sarah Lizee

Olympia, Wash., Aug. 9 – Retail bondholders of the Commonwealth of Puerto Rico had their motion to appoint an official committee to represent investors in the eight retail classes denied by the U.S. District Court for the District of Puerto Rico, according to an order filed Monday.

As previously reported, the financial oversight and management board for the commonwealth had objected to the bondholders’ motion.

“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,” the board said.

“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 debtor has proposed a plan that specifically defines retail investors and sets up eight separate classes comprised of individuals whose aggregate holdings of GO bonds are $1 million par amount or less and/or whose aggregate holdings of PBA bonds are $1 million par amount or less.

The retail bondholders said in their motion seeking the appointment that proposed plan has a “coercive, contingent and not predictable” retail support fee provision which may be addressed through collective action by what are thousands of currently unorganized retail investors in the eight classes, since whether a particular retail investor receives the fee is dependent upon the vote of other bondholders in their class.

“Debtors have proposed a plan and confirmation procedures that make it necessary to have adequate representation of these retail investors in these eight retail investor classes in connection with the proposed plan and in proceedings related to confirmation, through a committee whose members and professionals owe fiduciary duties to the retail investors in the eight retail investor classes,” the bondholders said in their motion.

The Commonwealth of Puerto Rico announced its Title III petition filing on May 3, 2017. The case number is 17-03283.

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