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 

Case No. 17 BK 3283-LTS 

(Jointly Administered) 

In re: 

THE FINANCIAL OVERSIGHT AND 

MANAGEMENT BOARD FOR PUERTO RICO, 

as representative of 

PUERTO RICO ELECTRIC POWER 

AUTHORITY, 

Debtor. 

PROMESA Title III 

 

Case No. 17 BK 4780-LTS 

Court Filing Relates Only to PREPA 

and Shall only be Filed 

Case No. 17-BK-4780 (LTS) and 

Main Case 17-BK-3283 (LTS) 

OBJECTION OF U.S. BANK NATIONAL ASSOCIATION, 

IN ITS CAPACITY AS PREPA BOND TRUSTEE, 

TO PAN AMERICAN GRAIN CO., INC.’S 

MOTION FOR RELIEF FROM STAY TO EXECUTE SET-OFF 

To the Honorable United States District Court Judge Laura Taylor Swain: 

 

1

The Debtors in these Title III cases, along with each Debtor’s respective Title III case 

number and the last four (4) digits of each Debtor’s Federal tax identification number, as 

applicable, are the (i) Commonwealth of Puerto Rico (Bankruptcy Case No. 17 BK 3283-LTS) 

(Last Four Digits of Federal Tax ID: 3481); (ii) Puerto Rico Sales Tax Financing Corporation 

(“COFINA”) (Bankruptcy Case No. 17 BK 3284-LTS) (Last Four Digits of Federal Tax ID: 

8474); (iii) Puerto Rico Highways and Transportation Authority (“HTA”) (Bankruptcy Case No. 

17 BK 3567-LTS) (Last Four Digits of Federal Tax ID: 3808); (iv) Employees Retirement

System of the Government of the Commonwealth of Puerto Rico (“ERS”) (Bankruptcy Case No. 

17 BK 3566-LTS) (Last Four Digits of Federal Tax ID: 9686); and (v) Puerto Rico Electric

Power Authority (“PREPA”) (Bankruptcy Case No. 17 BK 04780-LTS) (Last Four Digits of 

Federal Tax ID: 3747). 

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U.S. Bank National Association, solely in its capacity as trustee (the “PREPA Bond 

Trustee”) under the Trust Agreement dated as of January 1, 1974 (as amended and supplemented 

from time to time, the “Trust Agreement”),2 between it and the Puerto Rico Electric Power 

Authority (“PREPA”) pursuant to which PREPA has outstanding more than $8 billion in 

principal amount of Power Revenue and Power Revenue Refunding Bonds (“PREPA Bonds”), 

respectfully submits this objection (the “Objection”) to the Motion for Relief from Stay to 

Execute Set-Off [Case No. 17-BK-4780 ECF No. 974, and Case No. 17-BK-3283 ECF No. 4004] 

(the “Motion”) filed by Pan American Grain Co, Inc. (“Movant” or “Pan American Grain”). In 

support of its Objection, the PREPA Bond Trustee states as follows: 

PRELIMINARY STATEMENT 

1. This is an improper motion by a single PREPA Bondholder contrary to the terms 

of the governing Trust Agreement seeking relief from the automatic stay and an order effecting a 

setoff of its PREPA Bond investments against its prepetition electricity bill owed to PREPA. 

2. In its Motion, Pan American Grain asserts that it is the “holder” of PREPA Bonds 

having a total value, including accrued interest, of $1,028,507.50.3

 It seeks in the Motion to use 

 

2

 A copy of the Trust Agreement is attached as Exhibit A-1 through A-7 to the Declaration 

of John T. Duffey, submitted on October 17, 2018 in support of the PREPA Bond Trustee’s 

Objection. 

3

 Based on its Proof of Claim that is referenced in the Motion (see Proof of Claim No. 

21352), Pan American Grain’s PREPA Bond positions consist of multiple separate investments in 

PREPA Bonds maturing on July 1, 2017, held through Popular Securities and Oriental Securities. 

The Proof of Claim indicates that they were purchased between May 2015 and April 2016.. The 

PREPA Bond Trustee assumes that the “value” referenced in the Motion is par value. 

Virtually all of the PREPA Bonds are legally registered in the name of Cede & Co. as 

nominee for Depository Trust Company (“DTC”). Such PREPA Bonds are beneficially held by 

investors through one or more intermediaries in the indirect holding system that is in prevalent 

use throughout the United States for publically traded debt securities of this type. 

 

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its Bond position as a setoff against $2,211,780.76 being charged by PREPA for electricity and 

related services incurred prior to the filing of PREPA’s Title III Petition. 

3. The PREPA Bond Trustee objects to the Motion on the limited grounds (a) that 

Pan American Grain lacks standing to seek the remedy of setoff because it is prohibited from 

doing so under the controlling “no action” provision in the Trust Agreement; and in the 

alternative, (b) that “cause” for relief from the automatic stay does not exist under Section 

362(d)(1) of the Bankruptcy Code because Pan American Grain has no legal or equitable right 

under the Trust Agreement to enforce setoff unilaterally for its disproportionate benefit. 

4. Accordingly, the PREPA Bond Trustee requests that the Motion be denied in its 

entirety. 

OBJECTION 

I. PAN AMERICAN GRAIN DOES NOT HAVE STANDING UNDER THE TRUST 

AGREEMENT TO SEEK SETOFF OF ITS PREPA BONDS

5. Movant correctly acknowledges that the automatic stay made applicable to this 

PROMESA Title III case covers setoff by creditors of prepetition claims against prepetition debts 

and that Section 362(d)(1) permits the Court to grant relief from the automatic stay “for cause.” 

See 11 U.S.C §§ 362(a)(7), 362(d)(1) (made applicable by PROMESA § 301(a)). 

6. In its Motion, Pan American Grain seeks both relief from the automatic stay for 

cause and an order effecting setoff of its PREPA Bond investment.4

 

7. The PREPA Bonds are special revenue bonds, and the Trust Agreement provides 

mechanisms for the collective enforcement of the property rights and remedies supporting the 

 

4

 Movant does not explain how setoff of its beneficial interests in various PREPA Bonds 

would work mechanically to avoid affecting the rights of other legal and beneficial holders of the 

PREPA Bonds in question. 

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PREPA Bonds following an event of default. Such rights are to be enforced by either the PREPA 

Bond Trustee (as it may be requested or directed by PREPA Bondholders) or by PREPA 

Bondholders having the requisite amount of PREPA Bonds who follow the procedural and 

substantive requirements of the Trust Agreement. (Trust Agreement §§ 804, 808.) The rights 

and interests granted to the PREPA Bond Trustee and PREPA Bondholders under Trust 

Agreement are “for the equal and proportionate benefit and security of all and singular the 

present and future holders of the bonds.” (Id. at 14-15.) Recoveries from enforcement actions 

and the expenses thereof are generally to be shared on a proportionate basis. (Id. § 805.) 

8. Pan American Grain’s Motion is fundamentally flawed because Pan American 

Grain does not have standing unilaterally to bring proceedings—such as the Motion—to enforce 

collection of its PREPA Bonds, let alone to do so for its disproportionate benefit. 

9. The form of each PREPA Bond expressly makes the holder thereof subject to all 

of the terms and conditions of the Trust Agreement, and further provides that the holder “assents 

to all of the provisions of the [Trust] Agreement.” (Id. at 6.) The PREPA Bonds further provide: 

“The holder of this bond shall have no right to enforce the provisions of the [Trust] Agreement or 

to institute action to enforce the covenants therein, or to take any action with respect to any event 

of default under the [Trust] Agreement, or to institute, appear in or defend any suit or other 

proceeding with respect thereto, except as provided in the [Trust] Agreement.” (Id. at 9.) 

10. Section 808 of the Trust Agreement includes an express “no action” provision, 

which prohibits small individual PREPA Bondholders from pursuing remedies in their own name 

without complying with the requirements contained in that provision: 

It is understood and intended that, except as otherwise above 

provided, no one or more holders of the bonds hereby secured shall 

have any right in any manner whatever by his or their action to 

affect, disturb or prejudice the security of this Agreement, or to 

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enforce any right hereunder except in the manner herein provided, . 

. . and that any individual right of action or other right given to one 

or more of such holders by law is restricted by this Agreement to 

the rights and remedies herein provided. 

(Id.) 

11. Pursuant to Section 808, an individual PREPA Bondholder is prohibited from 

pursuing remedies in its own name if it holds (or is acting together with other PREPA 

Bondholders that hold in aggregate) less than ten percent of the principal amount of PREPA 

Bonds then outstanding.5 (Id.) 

12. Moreover, under Section 808, an individual PREPA Bondholder is prohibited 

from pursuing remedies in its own name for its own special benefit. Instead, Section 808 

requires that “all proceedings at law or in equity” brought by an individual PREPA Bondholder 

must be maintained for the benefit of all of PREPA’s bondholders. (Id.) 

13. Pan American Grain’s Motion directly violates the “no action” clause contained in 

Section 808 of the Trust Agreement because Pan American Grain (a) holds far less than ten 

percent of the outstanding principal amount of outstanding PREPA Bonds, and (b) is seeking 

setoff for its sole benefit, not for the benefit of all of PREPA’s bondholders. Thus, under Section 

808 of the Trust Agreement, Pan American Grain lacks standing to bring the present Motion 

seeking unilateral payment of its PREPA Bonds—and its Motion should be denied accordingly. 

 

5

 Section 808 further provides that PREPA Bondholders holding between ten percent and 

twenty percent of the outstanding principal amount of the PREPA Bonds must (in addition to 

other steps) first request that the PREPA Bond Trustee take an action and have the PREPA Bond 

Trustee decline before taking the requested action independently. 

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14. “No action” provisions like that contained in Section 808 of the Trust Agreement 

are enforceable in bankruptcy proceedings.6

 In re Am. Roads LLC, 496 B.R. 727, 729-31 (Bankr. 

S.D.N.Y. 2013) (“[N]otwithstanding the broad standing provisions of Bankruptcy Code section 

1109, bankruptcy courts have routinely held that a party lacks standing to take an action in 

bankruptcy in violation of a “no action’ clause.”); see also In re Innkeepers USA Trust, 448 B.R. 

131, 144 (Bankr. S.D.N.Y. 2011); In re Ion Media Networks, Inc., 419 B.R. 585, 597 (Bankr. 

S.D.N.Y. 2009); In re Enron Corp., 302 B.R. 463, 477 (Bankr. S.D.N.Y. 2003). 

15. One of the purposes of “no action” clauses is to prevent small bondholders from 

bringing enforcement actions and litigating issues for their own reasons in a manner that may not 

be in the strategic interests of bondholders generally. In re Am. Roads LLC, 496 B.R. at 729-30. 

II. THERE IS NO CAUSE FOR RELIEF FROM THE AUTOMATIC STAY 

16. Even if Pan American Grain had standing to bring the Motion (and it does not), 

the Court should deny the Motion because, in light of the restrictions in the Trust Agreement, Pan 

American Grain cannot establish either (a) that there is “cause” for relief from the stay within the 

meaning of Section 362(d)(1) of the Bankruptcy Code; or (b) that there is any basis for setoff 

under Section 553 of the Bankruptcy Code. 

17. Pan American Grain argues that “cause” exists because, according to Pan 

American Grain, it possesses an enforceable right pursuant to Section 553 of the Bankruptcy 

Code to the setoff it seeks. 

 

6

 The PREPA Bond Trustee is not questioning the general standing of Pan American 

Grain to participate in these Title III proceedings as a creditor within the meaning of 11 U.S.C. 

§ 1109; Pan American Grain does lack standing, however, to enforce collection of its own 

beneficial PREPA Bond investment through the exercise of remedies in violation of the Trust 

Agreement. 

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18. But, Section 553 permits setoffs in bankruptcy only if two conditions are 

satisfied: (i) the creditor must enjoy an independent right of setoff under applicable nonbankruptcy law; and (ii) the setoff must satisfy the requirements set forth in Section 553 of the 

Bankruptcy Code. 11 U.S.C. § 553 (made applicable by PROMESA § 301(a)); In re SemCrude, 

L.P., 399 B.R. 388, 393 (Bankr. D. Del. 2009), aff'd, 428 B.R. 590 (D. Del. 2010) (“[S]etoff is 

appropriate in bankruptcy only when a creditor both enjoys an independent right of setoff under 

applicable non-bankruptcy law, and meets the further Code-imposed requirements and 

limitations set forth in section 553.”). 

19. The party seeking setoff bears the burden of proving that both of these conditions 

are satisfied. In re Williams, 61 B.R. 567, 570 (Bankr. N.D. Tex. 1986). Pan American Grain 

cannot carry its burden here as to either condition. 

20. The first condition—an independent right to setoff under non-bankruptcy law—is 

lacking because, as explained above, the “no action” clause contained in Section 808 of the Trust 

Agreement prohibits Pan American Grain from seeking the setoff it requests in the Motion. 

(Trust Agreement § 808.) 

21. Further, Pan American Grain’s requested setoff contravenes Section 805 of the 

Trust Agreement, which contemplates that moneys received from PREPA through the exercise of 

remedies for default be distributed on a pro rata basis. (Id. § 805.) 

22. The second condition—compliance with the requirements of Section 553 of the 

Bankruptcy Code—is similarly lacking. To be eligible for setoff under Section 553, Pan 

American Grain’s claim against PREPA and PREPA’s claim against Pan American Grain must be 

“mutual.” 11 U.S.C. § 553(a). Although the Bankruptcy Code does not define “mutuality,” 

numerous courts that have analyzed this requirement have concluded that debts are mutual only 

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if “they are due to and from the same persons in the same capacity.” In re SemCrude, L.P., 399 

B.R. 388, 393 (Bankr. D. Del. 2009), aff’d, 428 B.R. 590 (D. Del. 2010). “Put another way, 

mutuality requires that each party must own his claim in his own right severally, with the right to 

collect in his own name against the debtor in his own right and severally.” Id. (emphasis added) 

(internal quotation marks omitted); see also 4 Norton Bankr. L. & Prac. 3d § 73:5 (“As a general 

rule, mutuality is predicated on the right of each claimant to collect its claim against the debtor in

its own right and severally.”) 

23. Pan American Grain’s requested setoff fails Section 553’s mutuality requirement 

because Pain American Grain—as result of the Trust Agreement’s “no action” clause—lacks the 

right to collect in its own name against PREPA. See In re Mayco Plastics, Inc., 389 B.R. 7, 31 

(Bankr. E.D. Mich. 2008) (concluding that mutuality was lacking because the party seeking 

setoff lacked a right under the contract at issue to assert a claim directly against the debtor). 

24. Even if the setoff requested by Pan American Grain was permissible in 

bankruptcy (which it is not), the Court still has discretion to find that “cause” is lacking where 

lifting the stay would inequitably affect other creditors. See In re Opelika Mfg. Corp., 66 B.R. 

444, 448 (Bankr. N.D. Ill. 1986) (“Cause to lift the stay exists when the stay harms the creditor 

and lifting the stay will not unjustly harm the debtor or other creditors.”) 

25. Here, the setoff proposed by Pan American Grain would be inequitable to the 

other PREPA Bondholders because it would (a) contravene the express terms of the Trust 

Agreement and (b) enable Pan American Grain to collect moneys from PREPA 

disproportionately. 

26. Therefore, the PREPA Bond Trustee respectfully requests that the Court deny Pan 

America Grain’s Motion because cause does not exist for relief from the automatic stay here. 

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CONCLUSION

For the reasons detailed above, the Motion must be denied because Pan American Grain 

does not have standing to pursue setoff unilaterally and because Pan American Grain has not 

established any grounds for relief from the automatic stay imposed on setoffs pursuant to 11 

U.S.C. § 362(a)(7). 

RESPECTFULLY SUBMITTED, in San Juan, Puerto Rico, today October 17, 2018. 

We hereby certify that on this same date we electronically filed the foregoing with the 

Clerk of the Court using the CM/ECF system of the U.S. Bankruptcy Court for the District of 

Puerto Rico for Case No. 17 BK 4780, and also in Case No. 17 BK 3283, which will send 

notification of such filing to all counsel of record participating in the CM/ECF system. 

RIVERA, TULLA AND FERRER, LLC

/s/Eric A. Tulla 

Eric A. Tulla 

USDC-DPR No. 118313 

Email: etulla@ riveratulla.com

/s/Iris J. Cabrera-Gómez 

Iris J. Cabrera-Gómez 

USDC-DPR No. 221101

Email: icabrera@riveratulla.com 

Rivera Tulla & Ferrer Building 

50 Quisqueya Street 

San Juan, PR 00917-1212 

Tel: (787)753-0438 

Fax: (787)767-5784 (787)766-0409 

MASLON LLP 

By:/s/Clark T. Whitmore 

Clark T. Whitmore (admitted pro hac vice) 

William Z. Pentelovitch (admitted pro hac vice) 

Jason M. Reed (admitted pro hac vice) 

John T. Duffey (admitted pro hac vice) 

90 South Seventh Street, Suite 3300 

Minneapolis, MN 55402 

Telephone: 612-672-8200 

Facsimile: 612-672-8397 

E-Mail: clark.whitmore@maslon.com

 bill.pentelovtich@maslon.com 

 jason.reed@maslon.com

 john.duffey@maslon.com 

ATTORNEYS FOR U.S. BANK NATIONAL 

ASSOCIATION, IN ITS CAPACITY AS PREPA 

BOND TRUSTEE

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