Hearing Date: March 7, 2018 at 9:30 a.m. (AST)

Objection Deadline: February 20, 2018 at 4:00 p.m. (AST)

UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF PUERTO RICO

In re:

THE FINANCIAL OVERSIGHT AND 

MANAGEMENT BOARD FOR PUERTO RICO,

as representative of

THE COMMONWEALTH OF PUERTO RICO,

et al.,

Debtors. 1

PROMESA

Title III

No. 17 BK 3283-LTS

(Jointly Administered)

NOTICE OF HEARING ON MOTION OF THE 

PBA FUNDS FOR THE PAYMENT OF RENT

PLEASE TAKE NOTICE that a hearing on the Motion of the PBA Funds for the Payment 

of Rent (filed February 13, 2018) (the “Motion”) will be held before the Honorable Laura Taylor 

Swain, United States District Court Judge, at the United States District Court for the District of 

Puerto Rico, in Room 3, 150 Carlos Chardón Street, Federal Building, San Juan, Puerto Rico 

00918-1767, as part of the next Omnibus Hearing, which is currently scheduled to occur on March 

7, 2018 at 9:30 am (Atlantic Standard Time).

PLEASE TAKE FURTHER NOTICE that any responses or objections (“Objections”) 

to the Motion shall be in writing; shall conform to the Federal Rules of Bankruptcy Procedure, the 

Local Bankruptcy Rules for the District of Puerto Rico, and the Order Further Amending Case 

Management Procedures [ECF No. 1512] (the “Case Management Order”); shall be filed with the 

Court (a) by attorneys practicing in the District Court, including attorneys admitted pro hac vice, 

1 The Debtors in these title III cases, along with the last four digits of each Debtor’s federal tax identification number, 

are the (i) Commonwealth of Puerto Rico (the “Commonwealth”) (No. 17-BK-3283-LTS) (3481); (ii) Employees 

Retirement System of the Government of the Commonwealth of Puerto Rico (“ERS”) (No. 17-BK-3566-LTS) (9686); 

(iii) Puerto Rico Highways and Transportation Authority (“HTA”) (No. 17-BK-3567-LTS) (3808); (iv) Puerto Rico 

Sales Tax Financing Corporation (“COFINA”) (No. 17-BK-3284-LTS) (8474); and (v) Puerto Rico Electric Power 

Authority (“PREPA”) (No. 17-BK-4780-LTS) (3747).

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electronically in accordance with rule 5 of the Local Civil Rules for the District of Puerto Rico, and 

(b) by all other parties in interest, on a CD-ROM, in text-searchable portable document format 

(PDF), to the extent applicable; and shall be served on (i) counsel for the PBA Funds, Morrison & 

Foerster LLP, 250 West 55th Street, New York, New York 10019 (Attn: Gary S. Lee and James M. 

Peck) and G. Carlo-Altieri Law Offices, LLC, 254 San Jose St., Third Floor, San Juan, Puerto Rico 

00901 (Attn: Gerardo A. Carlo) and (ii) the Master Service List (as such term is defined in the Case 

Management Order), so as to be so filed and received no later than February 20, 2018 at 4:00 

p.m. (Atlantic Standard Time) (the “Objection Deadline”).

PLEASE TAKE FURTHER NOTICE that if an Objection to the Motion is not received 

by the Objection Deadline, the relief requested shall be deemed unopposed, and the District Court 

may enter an order granting the relief sought without a hearing pursuant to the Case Management 

Order.

[Signature page follows]

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Date: February 13, 2018

By: /s/ Gerardo A. Carlo

Gerardo A. Carlo

USDC PR No. 112009

Telephone: (787) 247-6680

gacarlo@carlo-altierilaw.com 

By: /s/ Kendra Loomis

Kendra Loomis

USDC PR No. 227408

Telephone: (787) 370-0255

loomislegal@gmail.com

G. CARLO-ALTIERI LAW OFFICES, LLC

254 San Jose St., Third Floor

San Juan, Puerto Rico 00901

Telephone: (787) 247-6680

Facsimile: (787) 919-0527

-andBy: /s/ Gary S. Lee

Gary S. Lee

MORRISON & FOERSTER LLP

James M. Peck (admitted pro hac vice)

Gary S. Lee (admitted pro hac vice)

James A. Newton

Andrew R. Kissner

250 West 55th Street

New York, New York 10019

Telephone: (212) 468-8000

Facsimile: (212) 468-7900

JPeck@mofo.com

GLee@mofo.com

Counsel for the PBA Funds

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ny-1310826

UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF PUERTO RICO

In re:

THE FINANCIAL OVERSIGHT AND 

MANAGEMENT BOARD FOR PUERTO RICO,

as representative of

THE COMMONWEALTH OF PUERTO RICO,

et al.,

Debtors. 1

PROMESA

Title III

No. 17 BK 3283-LTS

(Jointly Administered)

Hearing Date: March 7, 2018 at 9:30 a.m. (AST)

Objection Deadline: February 20, 2018 at 4:00 p.m. (AST)

MOTION OF THE PBA FUNDS FOR THE PAYMENT OF RENT

 

1 The Debtors in these title III cases, along with the last four digits of each Debtor’s federal tax identification number, 

are the (i) Commonwealth of Puerto Rico (the “Commonwealth”) (No. 17-BK-3283-LTS) (3481); (ii) Employees 

Retirement System of the Government of the Commonwealth of Puerto Rico (“ERS”) (No. 17-BK-3566-LTS) (9686); 

(iii) Puerto Rico Highways and Transportation Authority (“HTA”) (No. 17-BK-3567-LTS) (3808); (iv) Puerto Rico 

Sales Tax Financing Corporation (“COFINA”) (No. 17-BK-3284-LTS) (8474); and (v) Puerto Rico Electric Power 

Authority (“PREPA”) (No. 17-BK-4780-LTS) (3747).

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TABLE OF CONTENTS

Page

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PRELIMINARY STATEMENT .....................................................................................................1

JURISDICTION, VENUE, AND STANDING...............................................................................3

BACKGROUND .............................................................................................................................4

A. The Public Buildings Authority and PBA Bonds....................................................4

B. The Title III Cases ...................................................................................................7

RELIEF REQUESTED..................................................................................................................10

BASIS FOR RELIEF.....................................................................................................................11

A. The Bankruptcy Code Imposes an Unconditional Obligation on the Debtors 

to Pay Rent in a Timely Manner Until the PBA Leases are Assumed or 

Rejected..................................................................................................................11

B. In the Alternative, the PBA is Entitled to an Allowed Administrative 

Expense Claim that Continues to Accrue and Will Be Paid Under a Plan of 

Adjustment.............................................................................................................13

C. PROMESA Section 305 Does Not Excuse the Debtors from Compliance 

with Bankruptcy Code Section 365(d)(3)..............................................................14

RESERVATION OF RIGHTS ......................................................................................................15

CONCLUSION..............................................................................................................................15

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TABLE OF AUTHORITIES

Page(s)

Cases

ACP Master, Ltd. v. Commonwealth of Puerto Rico (In re Commonwealth of 

Puerto Rico),

Case No. 17-00189 (LTS) [ECF No. 124] (D.P.R. Jan. 30, 2018)..........................................14

Assured Guar. Corp. v. Commonwealth of Puerto Rico (In re Commonwealth of 

Puerto Rico),

Case No. 17-00155 (LTS) [ECF No. 125] (D.P.R. Jan. 30, 2018)..........................................14

CIT Commc’ns Fin. Corp. v. Midway Airlines Corp. (In re Midway Airlines Corp.),

406 F.3d 229 (4th Cir. 2005) ...................................................................................................12

In re Brennick,

178 B.R. 305 (Bankr. D. Mass. 1995) .....................................................................................13

In re Café La Plage Mgmt., Inc.,

No. 14-01977 (MCF), 2014 WL 7011825 (Bankr. D.P.R. Dec. 11, 2014) .............................11

In re Circuit City Stores, Inc.,

447 B.R. 475 (Bankr. E.D. Va. 2009)......................................................................................13

In re CSVA Inc.,

140 B.R. 116 (Bankr. W.D.N.C. 1992)....................................................................................11

In re J.T. Rapps, Inc.,

225 B.R. 257 (Bankr. D. Mass. 1998) .....................................................................................12

In re Narragansett Clothing Co.,

119 B.R. 388 (Bankr. D.R.I. 1990)..........................................................................................12

In re Pudgie’s Dev. of N.Y.,

223 B.R. 421 (Bankr. S.D.N.Y. 1998)...............................................................................12, 14

In re PYXSYS Corp.,

288 B.R. 309 (Bankr. D. Mass. 2003) .....................................................................................11

In re Rare Coin Galleries of Am., Inc.,

72 B.R. 415 (Bankr. D. Mass. 1987) .................................................................................12, 13

In re Vigo,

No. 08-06509, 2009 WL 4040145 (Bankr. D.P.R. Nov. 20, 2009).........................................12

Thinking Machs. Corp. v. Mellon Fin. Servcs. Corp. (In re Thinking Machs. Corp.),

67 F.3d 1021 (1st Cir. 1995)....................................................................................................12

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Towers v. Chickering & Gregory (In re Pac.-Atl. Trading Co.),

27 F.3d 401 (9th Cir. 1994) .....................................................................................................12

Statutes

22 L.P.R.A.

§ 902...........................................................................................................................................4

§ 903...........................................................................................................................................4

§ 906...........................................................................................................................................4

§ 907a.........................................................................................................................................5

§ 916.......................................................................................................................................5, 6

31 L.P.R.A. § 3374 ..........................................................................................................................3

11 U.S.C.

§ 365(d)(3) ....................................................................................................................... passim

§ 365(d)(4) .............................................................................................................................8, 9

§ 503(b)..........................................................................................................................3, 11, 13

§ 507(a)(2) .....................................................................................................................3, 11, 13

§ 922(d)....................................................................................................................................14

§ 928(a)....................................................................................................................................14

§ 1109(b)....................................................................................................................................3

Puerto Rico Oversight, Management, and Economic Stability Act

§ 301(a)......................................................................................................................................3

§ 304(a)......................................................................................................................................7

§ 305.........................................................................................................................................14

§ 306(a)......................................................................................................................................3

§ 307(a)......................................................................................................................................3

§ 314(b)(4) .........................................................................................................................11, 14

Other Authorities

“AAFAF Announces Updated Information Concerning Cash Balances at Puerto 

Rico Fiscal Plan Entities,” Dec. 18, 2017, available at

http://www.aafaf.pr.gov/assets/aafaf-presrelease-summarybankaccounts.pdf..........................9

1995 Resolution § 701 .....................................................................................................................5

1995 Resolution § 702 .....................................................................................................................5

Commonwealth of Puerto Rico Financial Information and Operating Data Report, 

Dec. 18, 2016, available at 

https://emma.msrb.org/ER1001309-ER783509-ER1184694.pdf..............................................6

P.R. Const. art. VI, § 2.....................................................................................................................5

Federal Rules of Bankruptcy Procedure Rule 2019.....................................................................1, 6

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Fiscal Plan for Puerto Rico, Mar. 13, 2017, available at 

http://www.aafaf.pr.gov/assets/planfiscal13demarzo2017.pdf..................................................7

Government of Puerto Rico, Government Development Bank of Puerto Rico, 

Investor Resources, available at

http://www.gdb-pur.com/investors_resources/pr_public_building.html...................................4

New Fiscal Plan for Puerto Rico, Feb. 12, 2018, available at 

http://www.aafaf.pr.gov/assets/newfiscalplanforpr-02-12-2018.pdf.........................................7

PRS ADC AEP Reg. 6502, Art. VI(A) (2002) ................................................................................6

Puerto Rico Public Buildings Authority, Resolution No. 1280, Authorizing the 

Issuance of Government Facilities Revenue Refunding Bonds, Series M, 

Government Facilities Revenue Bonds, Series N, and Government Facilities 

Revenue Bonds, Series O, Guaranteed by the Commonwealth of Puerto Rico, 

adopted December 6, 2007, available at 

http://www.gdb-pur.com/investors_resources/documents/PBAResolution1280

Dec62007-SeriesMNO.pdf ........................................................................................................6

Puerto Rico Public Buildings Authority, Resolution No. 468, Authorizing and 

Securing Government Facilities Revenue Bonds Guaranteed by the 

Commonwealth of Puerto Rico, adopted June 22, 1995, available at

http://www.gdb-pur.com/investors_resources/PBA-Res468.pdf...............................................4

Treasury Single Account FY 2018 Cash Flow as of January 26, 2018, available at 

http://www.aafaf.pr.gov/assets/fy18-weeklytsacashflow-1-26-2018.pdf..................................7

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The PBA Funds2hereby seek the entry of an order directing the Debtors (defined herein) to 

satisfy their postpetition rental obligations under a number of unexpired leases. In support of their 

motion (the “Motion”), the PBA Funds respectfully state as follows:

PRELIMINARY STATEMENT

3

1. For more than nine months, the Puerto Rico Public Buildings Authority (the 

“PBA”)—the owner and manager of numerous properties leased by the Commonwealth of Puerto 

Rico and its various departments, agencies, and instrumentalities—has failed to honor its legal, 

contractual, and fiduciary obligations to do what every landlord must: collect rent. All are mindful 

of the challenges in the Commonwealth right now, but simple actions that can be taken, must be 

taken. In an effort to resolve this issue without judicial intervention, the PBA Funds reached out to 

the PBA by letter to seek assurances that the PBA is taking all appropriate steps to preserve and 

protect its rights and remedies as lessor. To date, the PBA Funds have received no response. In 

light of the PBA’s inaction, this motion followed.

2. The PBA is bound by its own duly-enacted regulations to ensure that rent is paid. 

Yet despite the substantial arrearages that continue to accrue month after month, it appears that the 

PBA has done little to enforce its rights. The commencement by the Oversight Board of these Title 

III Cases poses no legal impediment to the PBA’s ability to collect the rent it is owed: Bankruptcy

Code section 365(d)(3) states that a debtor “shall timely perform” all obligations under an 

unexpired lease of nonresidential real property until such lease is either assumed or rejected. 

 

2 The PBA Funds currently consist of (a) Fir Tree Partners, (b) Candlewood Investment Group, and (c) Inglesea 

Capital, LLC, each of which holds PBA Bonds (defined herein) or acts as investment manager or advisor (or is an 

affiliate of entities which act as investment managers or advisors) to funds and/or accounts that hold PBA Bonds. The 

PBA Funds intend to file an amended verified statement in accordance with Rule 2019 of the Federal Rules of 

Bankruptcy Procedure and the Order Further Amending Case Management Procedures [ECF No. 1512].

3 Capitalized terms used but not otherwise defined in this Preliminary Statement shall have the meanings ascribed to 

such terms in the body of the Motion.

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Nothing contained within PROMESA—or any other statutory provision—exempts the Debtors 

from compliance with this unequivocal mandate.

3. Although the PBA’s entitlement to an administrative expense claim for unpaid rent 

is beyond dispute, the possibility exists that the PBA, in its delay to assert or otherwise confirm

this claim, may impair or waive its rights. Indeed, some courts in the past have held that a landlord 

that does not timely enforce its rights under Bankruptcy Code section 365(d)(3) may forego its 

ability to collect postpetition rents in a timely manner—or, under certain circumstances, waive the 

right to payment altogether. It is imperative that this does not occur here. 

4. The PBA is entrusted by statute with planning, designing, administering, and 

maintaining physical facilities related to critical government services, including schools, hospitals, 

and courthouses. However, the proposed funding levels contained in the previous fiscal plan 

(certified by the Oversight Board long before Hurricanes Irma and Maria made landfall) were 

already insufficient for the PBA to properly invest in and maintain these facilities; there is no 

reason to believe that the PBA will fare any better under the revised fiscal plan recently published 

by AAFAF, which lacks the most basic information regarding the proposed funding levels for the 

PBA over the next five years. This makes the collection of rental payments by the PBA more 

critical than ever before. Without these payments, the PBA will be unable to make the capital 

expenditures necessary to repair, maintain, and improve the properties under its dominion and 

control, significantly impairing their value. That foreseeable deterioration will, in turn, impact the 

motivation of current and potential future tenants to lease PBA facilities and introduce additional

hurdles to any restructuring and turnaround efforts proposed by the PBA.

5. The PBA Funds have alerted the PBA to these concerns, and have requested 

assurances that the PBA understands the gravity of a continuing failure to carry out its duties under 

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applicable law. Because the PBA has failed to respond and confirm that it will fulfill its 

responsibilities as landlord, the PBA Funds seek the assistance of this Court. As third-party 

beneficiaries under PBA Leases and parties otherwise entitled to be heard in the Debtors’ Title III 

Cases, the PBA Funds are empowered to enforce the terms of the PBA Leases, and to preserve the 

PBA’s rights to be paid what it is owed as landlord.

JURISDICTION, VENUE, AND STANDING

6. The United States District Court for the District of Puerto Rico (the “Court”) has 

jurisdiction over this matter pursuant to section 306(a) of the Puerto Rico Oversight, Management, 

and Economic Stability Act (“PROMESA”).

4

7. Venue is proper pursuant to PROMESA section 307(a).

8. The statutory bases for the relief requested herein are sections 365(d)(3), 503(b),

and 507(a)(2) of title 11 of the United States Code (as amended, the “Bankruptcy Code”), made 

applicable to these cases by PROMESA section 301(a).

9. The PBA Funds are creditors of the Commonwealth entitled to appear and be heard 

on any matter in the Title III Cases (defined herein). See 11 U.S.C. § 1109(b). Furthermore, upon 

information and belief, the PBA Funds are collectively intended third-party beneficiaries of the

PBA’s leases with the Debtors and other Commonwealth departments, agencies, and 

instrumentalities (collectively, the “PBA Leases”). Under relevant provisions of Commonwealth 

law, the PBA Funds therefore have standing to enforce the provisions of such leases, including the 

obligation of tenants to pay rent when due.5

 

4

See 48 U.S.C. § 2101, et seq.

5

See 31 L.P.R.A. § 3374.

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BACKGROUND

A. The Public Buildings Authority and PBA Bonds

10. Since its creation in 1958 through the Public Buildings Authority Enabling Act (the 

“PBA Enabling Act”), the PBA has been charged with planning, designing, administering, and 

providing maintenance for physical facilities related to government services, such as schools, 

health facilities, offices, headquarters, courts, warehouses, and workshops. See 22 L.P.R.A. § 903. 

The PBA was constituted as an instrumentality of the Commonwealth, and the execution of its 

powers was “deemed and understood to be an essential function” of the Commonwealth 

government. See 22 L.P.R.A. § 902. In furtherance of its mission, the PBA has the authority to 

issue bonds “to finance office buildings and other facilities, which are leased to various 

departments, public agencies and instrumentalities of the Commonwealth of Puerto Rico.”

6

11. In 1995, pursuant to the powers set forth in sections 906, 907, and 907a of the PBA 

Enabling Act, the Board of Directors of the PBA adopted Resolution No. 468, authorizing the 

issuance of Government Facilities Revenue Bonds and Government Facilities Revenue Refunding 

Bonds (collectively, all outstanding bonds thereunder, the “PBA Bonds” and the holders of PBA 

Bonds, the “PBA Bondholders”).

7

 The PBA’s Board of Directors subsequently adopted other 

“supplemental” bond resolutions authorizing the issuance under the 1995 Resolution of each series 

or group of series of PBA Bonds and approving certain series-specific aspects of those bonds.

8

 

6

See Government of Puerto Rico, Government Development Bank of Puerto Rico, Investor Resources, available at

http://www.gdb-pur.com/investors_resources/pr_public_building.html.

7

See Puerto Rico Public Buildings Authority, Resolution No. 468, Authorizing and Securing Government Facilities 

Revenue Bonds Guaranteed by the Commonwealth of Puerto Rico, adopted June 22, 1995, available at

http://www.gdb-pur.com/investors_resources/PBA-Res468.pdf (the “1995 Resolution”). The PBA also has 

outstanding bonds issued pursuant to resolutions approved in 1970 and 1978, but the amount of bonds that remain 

outstanding under those earlier resolutions is de minimis relative to the aggregate amount of bonds outstanding under 

the 1995 Resolution.

8

See, e.g., Puerto Rico Public Buildings Authority, Resolution No. 1280, Authorizing the Issuance of Government 

Facilities Revenue Refunding Bonds, Series M, Government Facilities Revenue Bonds, Series N, and Government 

Facilities Revenue Bonds, Series O, Guaranteed by the Commonwealth of Puerto Rico, adopted December 6, 2007, 

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12. The repayment of PBA Bonds is substantially supported by rental payments made 

pursuant to the PBA Leases, under which the PBA leases facilities to various departments, 

agencies, instrumentalities, public corporations, and municipalities of the Commonwealth, as well 

to a number of private entities. Under the 1995 Resolution, the PBA covenanted that “all Lease 

Agreements which it enters into for the leasing of Authority Facilities will . . . require the lessee or 

lessees of such Facilities to pay rentals which in the aggregate will be sufficient to provide the 

sums needed from time to time to” timely pay principal, interest, and certain amortization 

requirements relating to bonds issued by the PBA in connection with such facilities. See 1995 

Resolution § 701; see also 22 L.P.R.A. § 916. In addition, the PBA covenanted that it would not 

agree to any amendment, modification, or termination of the PBA Leases that would reduce the 

amount of rental payments to levels insufficient to make the payments described above. See 1995 

Resolution § 702.

13. The PBA Enabling Act also pledges the good faith and credit of the 

Commonwealth in support of the payment of rent under any lease agreements that Commonwealth 

departments, agencies, instrumentalities, and public corporations have entered into with the PBA.9 

See 22 L.P.R.A. § 916. In the event that a governmental lessee fails to pay the full amount of rent 

due in a timely manner, the PBA’s own duly-enacted regulations require it to take affirmative steps 

to collect any such deficiencies, first from the lessee itself, and then from the Secretary of the 

 

available at http://www.gdb-pur.com/investors_resources/documents/PBAResolution1280Dec62007-SeriesMNO

.pdf. 

9

In addition to guaranteeing certain rent payments due under the PBA Leases, the Commonwealth also guaranteed the 

repayment of principal and interest on the PBA Bonds as public debt, pursuant to both the Constitution of the 

Commonwealth of Puerto Rico and various legislative enactments. See, e.g., P.R. Const. art. VI, § 2; 22 L.P.R.A. § 

907a (“The Commonwealth of Puerto Rico hereby guarantees the payment of the principal of and interest on 

outstanding bonds at any given time . . . issued from time to time by the Public Buildings Authority. . . .”); see also id.

(providing that, to make the payment on the bonds, “the full faith, credit, and the taxing power of the Commonwealth 

of Puerto Rico are hereby pledged.”); PBA Resolution No. 1280 §§ 2(d), 3(d), 4(d) (designating each of Series M, N, 

and O PBA Bonds to benefit from the Commonwealth’s guarantee of principal and interest).

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Treasury of the Commonwealth of Puerto Rico. See PRS ADC AEP Reg. 6502, Art. VI(A) 

(2002).

14. As previously noted, the repayment of PBA Bonds is substantially supported by the 

rent received by the PBA from tenants under the PBA Leases. The PBA Funds hold PBA Bonds 

from numerous series in the aggregate principal amount of approximately $670 million. 10 

Accordingly, the PBA Funds—along with the PBA’s employees and other creditors—are the 

ultimate economic beneficiaries of a substantial portion of the rent payable to the PBA. The PBA 

Funds are aggrieved by the failure of the PBA to collect from the Commonwealth and other lessees 

the contractual rent due and owing under the PBA Leases in amounts materially above the bare 

minimum necessary to fund the PBA’s operational needs (which do not include the critical capital 

expenditures necessary to maintain PBA’s facilities), in contravention of the covenants contained 

in the 1995 Resolution. The PBA appears to be allowing the Commonwealth to remain in its 

premises indefinitely while paying only minimal rent, to the detriment of the PBA and all of its 

constituents.

15. The harm here is real and growing. The Commonwealth’s most recent financial 

report shows that the PBA received rental revenues totaling $425 million for fiscal year 2016.

11

 

These revenues were used to fund, among other things, employee salaries, maintenance, 

infrastructure improvements, debt service, and general operating expenses. The pre-hurricane 

fiscal plan (the “Certified Fiscal Plan”) certified by the Oversight Board in March 2017 slashed 

PBA’s resources dramatically.

12

 The Certified Fiscal Plan provided the PBA with an “Operating

 

10 The PBA Funds intend to file an amended verified statement in accordance with Rule 2019 of the Federal Rules of 

Bankruptcy Procedure and the Order Further Amending Case Management Procedures [ECF No. 1512].

11 See Commonwealth of Puerto Rico Financial Information and Operating Data Report, Dec. 18, 2016, available at 

https://emma.msrb.org/ER1001309-ER783509-ER1184694.pdf (the “Commonwealth Financial Report”). 

12 See Fiscal Plan for Puerto Rico, Mar. 13, 2017, available at http://www.aafaf.pr.gov/assets/

planfiscal13demarzo2017.pdf. 

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Subsidy (Rent)” consisting of only a portion of the Certified Fiscal Plan’s already meager 

projected “utility” expenses. Indeed, during fiscal year 2018 the PBA has received only 

approximately $6.3 million per month, or $76 million on an annualized basis, from the 

Commonwealth’s Treasury Single Account.13 Moreover, the revised fiscal plan (the “Revised 

Fiscal Plan”) recently published by the Puerto Rico Fiscal Agency and Financial Advisory 

Authority (“AAFAF”) does not even provide for separate disbursements to the PBA; instead, all 

expenses related to the PBA are treated as consolidated with those of the “Central Government.”14 

It therefore appears that if the PBA fails to collect the substantial rental payments that remain 

outstanding, the PBA’s ability to operate will be severely constrained over the life of the Revised 

Fiscal Plan until at least 2022.

B. The Title III Cases

16. Between May 3 and July 2, 2017, the Financial Oversight and Management Board 

for Puerto Rico (the “Oversight Board”) filed voluntary petitions for relief pursuant to section 

304(a) of PROMESA, thereby commencing cases under title III thereof (collectively, the “Title III 

Cases”) for each of: (a) the Commonwealth, (b) COFINA, (c) HTA, (d) ERS, and (e) PREPA

(collectively the “Debtors”).

17. On June 1, 2017, the Court entered an order directing the joint administration of the 

Commonwealth’s Title III Case and COFINA’s Title III Case, for procedural purposes only [ECF 

No. 242]. On June 29, 2017, the Court entered an order [ECF No. 537] directing the joint 

administration of the Title III Cases of HTA and ERS with that of the Commonwealth, for 

procedural purposes only.

 

13 See Treasury Single Account FY 2018 Cash Flow as of January 26, 2018, available at 

http://www.aafaf.pr.gov/assets/fy18-weeklytsacashflow-1-26-2018.pdf (the “TSA Report”).

14 See New Fiscal Plan for Puerto Rico, Feb. 12, 2018, available at http://www.aafaf.pr.gov/assets/

newfiscalplanforpr-02-12-2018.pdf. 

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18. On July 21, 2017, the Oversight Board filed a motion seeking to extend the time to 

assume or reject unexpired leases of nonresidential real property pursuant to Bankruptcy Code 

section 365(d)(4) for the Commonwealth, COFINA, HTA, and ERS [ECF No. 705].

19. On August 10, 2017, the Court entered an order [ECF No. 994] extending the time 

for the Debtors to assume or reject unexpired leases of nonresidential real property through 

(a) November 29, 2017 for the Commonwealth, (b) December 1, 2017 for COFINA, and 

(c) December 18, 2017 for HTA and ERS.

20. On October 6, 2017, the Court entered an order [ECF No. 1417] directing the joint 

administration of PREPA’s Title III Case with that of the Commonwealth, and specifying that 

PREPA’s deadline to assume or reject unexpired leases of nonresidential real property would 

expire on January 28, 2018 unless further extended.

21. On October 24, 2017, the Oversight Board filed an additional motion [ECF No. 

1518] (the “Extension Motion”) seeking a further extension of the time to assume or reject certain 

unexpired leases of nonresidential real property through the “effective date of [the] plan of 

adjustment for each Debtor,” as consented to by certain landlords. As of the date the Extension 

Motion was filed, the only such consenting landlord was the PBA. See Extension Motion, 

Exhibit B at 1.

22. The PBA Funds, the QTCB Noteholder Group, and Ambac Assurance Corporation 

(collectively, the “Objecting Parties”) all objected to the Extension Motion [ECF Nos. 1583, 1584, 

and 1666], on the grounds that the relief requested by the Extension Motion was overly broad,

detrimental to the interests of the PBA and its stakeholders, and contrary to the protections 

afforded to landlords under PROMESA and the Bankruptcy Code. In particular, the PBA Funds 

argued that the Extension Motion sought to override the provisions of Bankruptcy Code section 

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365(d)(4) by effectively nullifying the obligation of the Debtors as lessees to timely decide 

whether to assume or reject the PBA Leases.

23. On the eve of the Extension Motion hearing, the Oversight Board agreed to a 

shorter extension of the Debtors’ deadline to assume or reject their unexpired leases. As a result, 

on November 15, 2017, the Court entered an agreed order (the “Extension Order”) [ECF No. 1800] 

pursuant to Bankruptcy Code section 365(d)(4), granting each of the Debtors an additional 120 

days to determine whether to assume or reject the PBA Leases. The Extension Order expressly 

preserved all rights and claims of PBA Bondholders with respect to the PBA Leases, whether 

asserted directly or as third-party beneficiaries of the PBA Leases.

24. On December 18, 2017, AAFAF issued a press release disclosing the preliminary 

results of an audit of the Commonwealth’s finances, revealing nearly $7 billion in cash on deposit 

in various bank accounts.15

25. On January 29, 2018, the PBA Funds sent a letter (the “Letter”) to the Executive 

Director of the PBA and the PBA’s Board of Directors, a copy of which is attached to this Motion 

as Exhibit B. By the Letter, the PBA Funds requested confirmation of the steps taken by the PBA 

to both recover delinquent rent that has gone unpaid during the pendency of the Title III Cases—as 

the PBA is required to do under Commonwealth law and its own regulations—and to preserve the 

PBA’s rights in the Title III cases going forward. To date, the PBA Funds have not received a 

response to the Letter.

26. Upon information and belief based upon publically available information, as of the 

date of filing this Motion, the PBA is owed at least $289 million in rent that has accrued since the 

commencement of the Title III Cases but remains unpaid by the Debtors.

16

 

15 See “AAFAF Announces Updated Information Concerning Cash Balances at Puerto Rico Fiscal Plan Entities,” Dec. 

18, 2017, available at http://www.aafaf.pr.gov/assets/aafaf-presrelease-summarybankaccounts.pdf. 

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RELIEF REQUESTED

27. By the Motion, the PBA Funds seek entry of an order, substantially in the form 

attached hereto as Exhibit A, directing the Debtors to (a) satisfy all outstanding postpetition rental 

obligations of the Debtors (including, for the avoidance of doubt, any amounts due from the 

Commonwealth’s agencies and departments) arising under the PBA Leases, in an aggregate 

amount believed to be not less than $289 million (the “Administrative Rent Claim”) and (b) timely 

perform all such obligations going forward until the Debtors assume or reject the PBA Leases, in 

each case as required by Bankruptcy Code section 365(d)(3).

28. Notwithstanding the Debtors’ unconditional obligation to pay rent—as well as the 

recent disclosure that government-wide deposit accounts contain nearly $7 billion—the PBA 

Funds are sensitive to the financial burdens faced by the island, and recognize that the Court may

be reticent to mandate the immediate payment of the Administrative Rent Claim in full at this time. 

For that reason, the PBA Funds alternatively request that the Court allow the Administrative Rent 

Claim in an amount to be determined subject to an accounting as a claim entitled to administrative 

priority pursuant to Bankruptcy Code sections 365(d)(3), 503(b), and 507(a)(2). The

Administrative Rent Claim should continue to accrue until the PBA Leases are assumed or 

rejected, and should be treated in the manner described in PROMESA section 314(b)(4).

 

16 The PBA Funds have requested that AAFAF provide an accounting of postpetition rental obligations owed to the 

PBA that remain unpaid by the Debtors. The PBA Funds have yet to receive such information. Accordingly, this 

amount represents a conservative estimate of outstanding postpetition rent owed to the PBA that remains unpaid by the 

Debtors, calculated as the difference (prorated for the period from May 2017 through February 2018) between: (x) the 

annual rental payments received by the PBA from governmental entities in fiscal year 2016 as reflected in the 

Commonwealth Financial Report and (y) the annualized amounts paid to the PBA from the Commonwealth’s 

Treasury Single Account as reflected in the TSA Report. The PBA Funds expressly reserve all rights to revise or 

update the amount of the Administrative Rent Claim (defined herein) to the extent that additional information is 

obtained through discovery, an accounting, or otherwise.

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BASIS FOR RELIEF

A. The Bankruptcy Code Imposes an Unconditional Obligation on the Debtors to Pay 

Rent in a Timely Manner Until the PBA Leases are Assumed or Rejected

29. Bankruptcy Code section 365(d)(3) requires a debtor to “timely perform all the 

obligations . . . under any unexpired lease of nonresidential real property, until such lease is 

assumed or rejected. . . .” 11 U.S.C. § 365(d)(3). This duty to remain current on rental obligations

postpetition is both unqualified and absolute. See In re CSVA Inc., 140 B.R. 116, 119 (Bankr. 

W.D.N.C. 1992) (“The trustee’s responsibility [to timely] perform such obligations . . . is 

mandatory, rather than merely permissive.”). Thus, in the event that a debtor-tenant fails to pay

rent on a postpetition basis, and until the underlying lease is assumed or rejected, courts in the First 

Circuit have held that landlords such as the PBA are entitled to immediate payment of past-due 

rent as an administrative expense. See, e.g., In re Café La Plage Mgmt., Inc., No. 14-01977 

(MCF), 2014 WL 7011825, at *5 (Bankr. D.P.R. Dec. 11, 2014) (ordering the debtor to pay

accrued postpetition rent and to pay all future rent as it becomes due); In re PYXSYS Corp., 288 

B.R. 309, 319 (Bankr. D. Mass. 2003) (ordering immediate payment of past-due “postpetition, 

pre-rejection rent”); In re Narragansett Clothing Co., 119 B.R. 388, 391 (Bankr. D.R.I. 1990) 

(same); In re Rare Coin Galleries of Am., Inc., 72 B.R. 415, 416 (Bankr. D. Mass. 1987) (same). 

30. Unlike other administrative expenses, claims arising under section 365(d)(3) are 

exempted from the requirement that they represent “actual, necessary costs” of preserving the 

estate. Thinking Machs. Corp. v. Mellon Fin. Servcs. Corp. (In re Thinking Machs. Corp.), 67 

F.3d 1021, 1024 (1st Cir. 1995) (citation omitted); see also CIT Commc’ns Fin. Corp. v. Midway 

Airlines Corp. (In re Midway Airlines Corp.), 406 F.3d 229, 235 (4th Cir. 2005) (landlords are 

generally entitled to administrative expense claim for postpetition rent without need to show 

benefit to the estate); In re Vigo, No. 08-06509, 2009 WL 4040145, at *7 (Bankr. D.P.R. Nov. 20, 

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2009) (same). A debtor is therefore required to pay postpetition rent at the rate specified in the 

lease, without any consideration of the “fair and reasonable value conferred . . . upon the 

estate. . . .” Towers v. Chickering & Gregory (In re Pac.-Atl. Trading Co.), 27 F.3d 401, 405 (9th 

Cir. 1994). Some courts, however, have held that this right to what is effectively a superpriority 

claim may be waived in the event that a creditor does not timely assert a claim under section 

365(d)(3). See, e.g., In re J.T. Rapps, Inc., 225 B.R. 257, 264 (Bankr. D. Mass. 1998) (declining to 

allow “an automatic superpriority” claim to landlord that did not timely assert right to payment of 

postpetition rent); In re Pudgie’s Dev. of N.Y., 223 B.R. 421, 427 (Bankr. S.D.N.Y. 1998) (under 

certain circumstances, section 365(d)(3) claims not asserted until the end of a case may be waived 

entirely).

31. To date, the Debtors have yet to assume or reject any of the PBA Leases, and are 

therefore required to “timely” pay rent under such leases. Notwithstanding this unequivocal 

obligation, the Debtors have not made their full rental payments on the PBA Leases since prior to 

the commencement of the Title III Cases. The PBA is clearly entitled under section 365(d)(3) to 

receive immediate payment of all postpetition amounts that remain due and owing by the Debtors 

under the PBA Leases, as well as to require the timely payment of rent going forward until such 

leases are assumed or rejected.

32. However, because the PBA has not yet asserted its statutory right to payment, the 

PBA Funds, as third-party beneficiaries under the PBA Leases and creditors otherwise having 

standing to raise this matter and be heard, are concerned that the failure of the PBA to act under the 

authority of section 365(d)(3) could result in a possible limitation or waiver of the PBA’s rights. 

Accordingly, the PBA Funds respectfully request that the Court both (a) order the payment of the 

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Administrative Rent Claim and (b) direct the Debtors to pay rent under the PBA Leases in a timely 

manner until the PBA Leases are either assumed or rejected.

B. In the Alternative, the PBA is Entitled to an Allowed Administrative Expense Claim 

that Continues to Accrue and Will Be Paid Under a Plan of Adjustment

33. Alternatively, if the Court is not inclined to order the immediate payment of the 

Administrative Rent Claim at this time, the Administrative Rent Claim should be allowed as a 

claim entitled to administrative priority under Bankruptcy Code sections 365(d)(3), 503(b), and 

507(a)(2), that will continue to accrue until the PBA Leases are either assumed or rejected by the 

Debtors. See In re Rare Coin Galleries of Am., Inc., 72 B.R. at 417; see also In re Circuit City 

Stores, Inc., 447 B.R. 475, 507 (Bankr. E.D. Va. 2009) (claim for accrued postpetition rent is 

entitled “to administrative expense priority under 11 U.S.C. § 507,” and, if not paid earlier, shall be 

paid on plan effective date).

34. The PBA Funds believe that, even in the absence of the relief requested by the 

Motion, the PBA would be entitled to the Administrative Rent Claim. See, e.g., In re Brennick, 

178 B.R. 305, 307 (Bankr. D. Mass. 1995) (noting that section 365(d)(3) “does away with the need 

for a hearing authorizing payment of the administrative expense claim”). Further, the PBA Funds

expect that such claim will be treated under any plan of adjustment in accordance with PROMESA 

section 314(b)(4), which requires that an allowed administrative expense claim be paid in full on 

the effective date of a plan of adjustment unless otherwise agreed by the holder of such claim. As 

previously discussed, however, certain courts have held that an otherwise valid claim for 

postpetition rent may under certain circumstances nonetheless be waived if not timely asserted. 

See, e.g., In re Pudgie’s Dev. of N.Y., 223 B.R. at 427. Because the PBA has failed to assert its 

statutory rights and has shown no inclination to assert those rights, the PBA Funds seek allowance 

of the Administrative Rent Claim now.

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C. PROMESA Section 305 Does Not Excuse the Debtors from Compliance with 

Bankruptcy Code Section 365(d)(3)

35. The PBA Funds note that the Court recently dismissed two adversary complaints 

filed by various general obligation bondholders and monoline insurers seeking to enforce sections 

922(d) and 928(a) of the Bankruptcy Code against the Debtors, holding that “[t]he Court is . . . 

precluded by PROMESA section 305 from granting the requested declaratory and injunctive 

relief. . . .”17 Specifically, the Court found that neither section 922(d) nor 928(a) “purport[s] to 

mandate action” or “imposes a payment obligation.” 18 Here, the Debtors’ unconditional 

obligations under Bankruptcy Code section 365(d)(3) are unaffected by that holding. That is 

because Bankruptcy Code section 365(d)(3), in contrast to sections 922 and 928, is mandatory, and 

does impose a payment obligation: “[t]he trustee shall timely perform all the obligations of the 

debtor” arising under a lease pending its assumption or rejection. See 11 U.S.C. § 365(d)(3) 

(emphasis added). Because the affirmative duty of a debtor to timely perform its obligations under 

unexpired leases is both express and absolute, this mandatory obligation should be enforced.

RESERVATION OF RIGHTS

36. The PBA Funds hereby reserve any and all rights with respect to the relief sought 

by the Motion, including, but not limited to, the right to pursue all available remedies with respect 

to currently outstanding or future rents or other amounts due to PBA, and the right to seek the 

appointment of a committee or independent fiduciary to represent the interests of PBA, its 

creditors, or its other stakeholders.

 

17 ACP Master, Ltd. v. Commonwealth of Puerto Rico (In re Commonwealth of Puerto Rico), Case No. 17-00189 

(LTS) [ECF No. 124] at 18 (D.P.R. Jan. 30, 2018); see also Assured Guar. Corp. v. Commonwealth of Puerto Rico (In 

re Commonwealth of Puerto Rico), Case No. 17-00155 (LTS) [ECF No. 125] (D.P.R. Jan. 30, 2018).

18 Assured at 18, 20.

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CONCLUSION

37. For the foregoing reasons, the PBA Funds respectfully request that the Court enter 

an order, substantially in form attached hereto as Exhibit A: (a) directing the Debtors to (i) pay the 

Administrative Rent Claim and (ii) continue to timely perform such obligations going forward 

until the Debtors assume or reject the PBA Leases; or (b) in the alternative, granting the PBA an 

allowed administrative expense claim in the amount of the Administrative Rent Claim as 

determined following an accounting, which will continue to accrue until the Debtors assume or 

reject the PBA Leases.

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Date: February 13, 2018 By: /s/ Gerardo A. Carlo

Gerardo A. Carlo

USDC PR No. 112009

Telephone: (787) 247-6680

gacarlo@carlo-altierilaw.com 

By: /s/ Kendra Loomis

Kendra Loomis

USDC PR No. 227408

Telephone: (787) 370-0255

loomislegal@gmail.com

G. CARLO-ALTIERI LAW OFFICES, LLC

254 San Jose St., Third Floor

San Juan, Puerto Rico 00901

Telephone: (787) 247-6680

Facsimile: (787) 919-0527

-andBy: /s/ Gary S. Lee 

Gary S. Lee

MORRISON & FOERSTER LLP

Gary S. Lee (admitted pro hac vice)

James M. Peck (admitted pro hac vice)

James A. Newton

Andrew R. Kissner

250 West 55th Street

New York, New York 10019

Telephone: (212) 468-8000

Facsimile: (212) 468-7900

JPeck@mofo.com

GLee@mofo.com

Counsel for the PBA Funds

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Exhibit A

Proposed Order

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UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF PUERTO RICO

In re:

THE FINANCIAL OVERSIGHT AND 

MANAGEMENT BOARD FOR PUERTO RICO,

as representative of

THE COMMONWEALTH OF PUERTO RICO,

et al.,

Debtors.1

PROMESA

Title III

No. 17 BK 3283-LTS

(Jointly Administered)

ORDER GRANTING THE MOTION OF THE PBA FUNDS 

FOR THE PAYMENT OF RENT

Upon the motion (the “Motion”) 2of the PBA Funds for the entry of an order (the “Order”):

(a) directing the Debtors to (i) satisfy all outstanding postpetition rental obligations arising under 

the PBA Leases and (ii) timely perform all such obligations until the PBA Leases are assumed or 

rejected; or (b) in the alternative, granting the PBA an allowed claim entitled to administrative 

expense priority pursuant to Bankruptcy Code sections 365(d)(3), 503(b), and 507(a)(2) and 

PROMESA section 301(a); and the Court having jurisdiction to consider the Motion and the relief 

requested therein in accordance with PROMESA section 306(a); and venue being proper in this 

district pursuant to PROMESA section 307(a); and the Court determining that notice was proper 

in this matter; and upon consideration of the arguments and evidence submitted in connection with

 

1 The Debtors in these title III cases, along with the last four digits of each Debtor’s federal tax identification number, 

are the (i) Commonwealth of Puerto Rico (No. 17-BK-3283-LTS) (3481); (ii) Employees Retirement System of the 

Government of the Commonwealth of Puerto Rico (No. 17-BK-3566-LTS) (9686); (iii) Puerto Rico Highways and 

Transportation Authority (No. 17-BK-3567-LTS) (3808); (iv) Puerto Rico Sales Tax Financing Corporation 

(No. 17-BK-3284-LTS) (8474); and (v) Puerto Rico Electric Power Authority (No. 17-BK-4780-LTS) (3747).

2 Capitalized terms used but not otherwise defined herein shall have the meanings ascribed to such terms in the 

Motion.

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the Motion; and any objections to the relief requested herein having been withdrawn or overruled 

on the merits, it is HEREBY ORDERED THAT:

1. The Motion is GRANTED.

2. The PBA shall have an allowed claim, entitled to administrative expense priority 

pursuant to Bankruptcy Code sections 365(d)(3), 503(b), and 507(a)(2), in an amount not less than 

$289,000,000, on account of all postpetition rental obligations of the Debtors (including, for the 

avoidance of doubt, any amounts due from the Commonwealth’s agencies and departments) 

arising under the PBA Leases currently due and owing to the PBA, which shall continue to accrue 

until each such PBA Lease is either assumed or rejected by the applicable Debtor (the 

“Administrative Rent Claim”).

3. The Debtors are directed to pay the PBA an amount not less than $289,000,000 on 

account of the Administrative Rent Claim for the period from the commencement of their 

respective petition dates through February 28, 2018, within five (5) days following entry of this 

Order.

4. The Debtors are further directed to comply with the provisions of Bankruptcy Code 

section 365(d)(3) with respect to each of the PBA Leases until each such lease is either assumed or 

rejected by the Debtor party thereto.

5. Nothing in this Order shall prejudice the rights of the PBA or the PBA Funds to 

assert additional claims in connection with the PBA Leases, including, but not limited to, general 

unsecured claims or administrative expense claims, or to pursue any other rights or remedies 

afforded to them under the PBA Leases, the 1995 Resolution, or any other applicable contract, law, 

or regulation.

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6. The Court shall retain jurisdiction to hear and determine all matters arising from or 

related to the implementation or enforcement of this order.

Dated: ________, 2018

THE HONORABLE LAURA TAYLOR SWAIN

UNITED STATES DISTRICT JUDGE

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Exhibit B

Letter to the PBA

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