IN THE 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,

Debtor.

PROMESA

Title III

Case No. 17-BK-03283 (LTS)

RESPONSE IN OPPOSITION OF FINANCIAL GUARANTY INSURANCE COMPANY 

TO PUERTO RICO FUNDS AND MUTUAL FUND GROUP’S MOTION FOR RELIEF 

FROM THE AUTOMATIC STAY AND MOTION OF DEBTORS FOR ORDER 

APPROVING PROCEDURE TO RESOLVE COMMONWEALTH-COFINA DISPUTE

[Dkt. ## 270, 303]

Financial Guaranty Insurance Company (“FGIC”), by and through its attorneys, Rexach 

& Picó, CSP and Butler Snow LLP, files this Response in Opposition of Financial Guaranty 

Insurance Company to Puerto Rico Funds and Mutual Fund Group’s Motion for Relief from the 

Automatic Stay and Motion of Debtors for Order Approving Procedure to Resolve 

Commonwealth-COFINA Dispute (the “Response”). In support of the Response, FGIC 

respectfully states as follows:

Response

I. Procedure Motion

The Motion of Debtors for Order Approving Procedure to Resolve CommonwealthCOFINA Dispute [Dkt. # 303] (the “Procedure Motion”)1

presumes incorrectly that the 

Commonwealth and COFINA are the only true parties in interest with respect to what the 

Debtors label, “the Commonwealth-COFINA Dispute.” FGIC insures approximately $282 

 

1 All capitalized terms used but not otherwise defined herein shall have the meaning ascribed to such terms 

as in the Procedure Motion.

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million of GO Bonds and, to date, has made payments with respect to approximately $43 million 

in claims resulting from the Commonwealth’s default on certain of the GO Bonds. FGIC and all 

other holders and insurers of the GO Bonds have direct, material rights conferred via 

PROMESA, the Puerto Rico Constitution, the COFINA Act,

2

and the applicable GO Bond 

documents and issuing statutes, that entitle FGIC to directly negotiate or litigate any resolution 

of the Commonwealth-COFINA Dispute.

At a minimum, FGIC is entitled to “raise and may appear and be heard on any issue” in 

these Title III Cases.3That necessarily includes protecting FGIC’s rights under Article VI, 

Section 8 of the Puerto Rico Constitution, which provides that, if Puerto Rico’s “available 

resources” are insufficient to meet all of its desired spending, “interest on the public debt and 

amortization thereof shall first be paid, and other disbursements shall thereafter be made in 

accordance with the order of priorities established by law.” P.R. Const. art. VI, § 8 (emphasis 

added). This promise of first priority (the “Constitutional Debt Priority Guarantee”) 

unambiguously requires Puerto Rico to pay Constitutional Debt ahead of any other expenditure.

In addition, Section 16(b) of the COFINA Act is an express statutory protection conferred 

upon individual “holders of bonds or notes that constitute the public debt of the 

Commonwealth,” against any interpretation or application of the COFINA statute that would 

undermine the Constitutional Debt Priority Guarantee. Id (emphasis supplied):

None of the provisions of §§ 11a 16 of this title shall be interpreted or applied in 

such a manner as to undermine the rights of the holders of bonds or notes that 

constitute public debt of the Commonwealth of Puerto Rico pursuant to the 

provisions of Section 2 of Article VI of the Constitution of the Commonwealth of 

Puerto Rico.

 

2 Act of July 5, 2007, No. 56-2007, 2007 P.R. Laws 173 (codified as amended at P.R. Laws Ann. tit. 13, §§ 

11a–16) and Act of Dec. 26, 2006, No. 291-2006, sec. 1, § 2, 2006 P.R. Laws 1110, 1112 (codified as amended at 

P.R. Laws Ann. tit. 13, § 12) (collectively, the “COFINA Act”).

3

See 48 U.S.C. § 2161 (incorporating 11 U.S.C. § 1109 as applicable in Title III cases under PROMESA).

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13 L.P.R.A. § 16(b).

FGIC has direct and protectable economic rights at stake in the so-called

Commonwealth-COFINA Dispute.” By appointing Agents representing only the Commonwealth 

and COFINA, as the sole parties to resolve the Commonwealth-COFINA Dispute, the Procedure 

Motion would override the constitutional and statutory rights that were granted directly to FGIC 

and other bondholders, in contravention of the express provisions of PROMESA and the 

Bankruptcy Code. See also In re Ludlow Hosp. Soc., Inc., 124 F.3d 22, 27–28 (1st Cir. 1997)

(“Although expansively phrased, section 105(a) affords bankruptcy courts considerably less 

discretion than first meets the eye, and in no sense constitutes a roving commission to do 

equity....Bankruptcy Code § 105(a) may not be invoked to alter substantive debtor rights defined 

under the applicable nonbankruptcy law.”) (quotations and citations omitted).

Further, this Court in its Order and Notice of Preliminary Designation of Mediation 

Team Setting Deadline for Objections to Membership [Dkt. # 329] (the “Mediation Order”) has 

appointed an esteemed panel of jurists to mediate the multitude of significant issues raised in 

these Title III Cases, including the Commonwealth-COFINA Dispute. FGIC is ready and willing 

to participate directly in mediation, other settlement discussions, or where necessary, litigation. 

It would be improper to deprive FGIC and other parties in interest of their right to do so.

For these reasons, FGIC respectfully requests that the Procedure Motion be denied.

II. The Stay Motion

The Debtors assert that time is of the essence with respect to resolving several significant 

legal and factual disputes that must be resolved before plans of adjustment can be confirmed in 

these Title III Cases. As identified by counsel to the Debtors at the “first day” hearing on May 

17, 2017, these significant disputes include not only the so-called Commonwealth-COFINA 

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Dispute, including the rights of bondholders contained within that dispute, but also significant 

issues related to the Fiscal Plans for these Debtors, and issues involving the special revenues 

pledged to bondholders of PRHTA and other prospective debtors.

4

The CommonwealthCOFINA Dispute and the dispute between holders of GO Bonds and holders of COFINA Bonds 

raised in the existing Lex Claims case and elsewhere constitute but one portion of these 

significant issues. Certifying that one piece to the Puerto Rico Supreme Court, as requested in 

the Puerto Rico Funds and Mutual Fund Group’s Motion for Relief from the Automatic Stay

[Dkt. # 270] (the “Stay Motion”), is unlikely to result in a timely resolution of these Title III 

Cases. For that reason, FGIC respectfully requests that the Court deny the Stay Motion.

Conclusion

For the foregoing reasons, FGIC respectfully requests that the Court enter an order 

denying the Procedure Motion and the Stay Motion.

Dated: June 16, 2017. Respectfully submitted,

REXACH & PICÓ, CSP

By: /s/ María E. Picó

María E. Picó

USDC-PR 123214 

802 Ave. Fernández Juncos

San Juan PR 00907-4315

Telephone: (787) 723-8520 

Facsimile: (787) 724-7844 

E-mail: mpico@rexachpico.com 

 

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FGIC is an insurer of GO Bonds and bonds issued by the Puerto Rico Highways and Transportation 

Authority, the Puerto Rico Convention Center District Authority, and the Puerto Rico Infrastructure Financing 

Authority (“Agency Bonds”). As an insurer, FGIC is obligated to make payments when either the Commonwealth 

defaults in respect of paying GO Bonds or when its agencies default in respect of paying Agency Bonds from which 

pledged revenues have been clawed back or otherwise. While FGIC is not only affected by the Commonwealth’s 

failure to pay GO Bonds with clawed back funds, FGIC is also uniquely impacted as an insurer of Agency Bonds 

due to the disparate application of the claw back to funds pledged to Agency Bonds. 

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BUTLER SNOW LLP

By: /s/ Martin A. Sosland

Martin A. Sosland (pro hac vice)

5430 LBJ Freeway, Suite 1200

Dallas, TX 75240

Telephone: (469) 680-5502

Facsimile: (469) 680-5501

E-mail: martin.sosland@butlersnow.com

Stanford G. Ladner (pro hac vice admission 

forthcoming)

1700 Broadway, 41st Floor

New York, NY 10019 

Telephone: (646) 606-3996 

Facsimile: (646) 606-3995 

E-mail: stan.ladner@butlersnow.com 

Christopher R. Maddux (pro hac vice)

J. Mitchell Carrington (pro hac vice

1020 Highland Colony Parkway, Suite 1400 

Ridgeland, MS 39157 

Telephone: (601) 985-2200 

Facsimile: (601) 985-4500

E-mail: chris.maddux@butlersnow.com

mitch.carrington@butlersnow.com

Attorneys for Financial Guaranty Insurance 

Company

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CERTIFICATE OF SERVICE

I HEREBY CERTIFY, that I electronically filed the foregoing with the Clerk of the 

Court using the CM/ECF system, which will notify case participants.

Respectfully submitted.

Dated: June 16, 2017.

Respectfully submitted,

/s/ Maria E. Picó___________________________

María E. Picó – USDC-PR 123214

Rexach & Picó, CSP

Ave Fernández Juncos 802

Miramar, San Juan, Puerto Rico 00907

mpico@rexachpico.com

Telephone: 787-723-8520

Facsimile: 787-724-7844

Attorney for Financial Guaranty Insurance Company

36995063v3

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