UNITED STATES DISTRICT COURT

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)

Re: ECF Nos. 2494, 2557,

2598, and 2602

THE FINANCIAL OVERSIGHT AND 

MANAGEMENT BOARD FOR PUERTO RICO,

as representative of

THE COMMONWEALTH OF PUERTO RICO, et al.

Movants,

-againstTHE PBA FUNDS; AMBAC ASSURANCE 

CORPORATION; and THE QTCB NOTEHOLDER 

GROUP,

Respondents.

 

1

The Debtors in the jointly-administered Title III cases, along with each Debtor’s respective 

Title III case number listed as a bankruptcy case number due to software limitations 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) 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); 

(iv) Puerto Rico Highways and Transportation Authority (“HTA”) (Bankruptcy Case No. 17 

BK 3567-LTS) (Last Four Digits of Federal Tax ID: 3808); and (v) Puerto Rico Electric Power 

Authority (“PREPA”) (Bankruptcy Case No. 17 BK 4780-LTS) (Last Four Digits of Federal 

Tax ID: 3747). (Title III case numbers are listed as Bankruptcy Case numbers due to software 

limitations).

Case:17-03283-LTS Doc#:2647 Filed:03/02/18 Entered:03/02/18 11:49:30 Desc: Main

Document Page 1 of 9
2

OMNIBUS REPLY OF FINANCIAL 

OVERSIGHT AND MANAGEMENT BOARD PURSUANT 

TO BANKRUPTCY CODE SECTION 365(d)(4) TO RESPONSES

TO MOTION FOR ENTRY OF THIRD ORDER EXTENDING TIME 

TO ASSUME OR REJECT UNEXPIRED LEASES OF NONRESIDENTIAL REAL 

PROPERTY WITH PUERTO RICO PUBLIC BUILDING AUTHORITY AS LESSOR

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

The Commonwealth of Puerto Rico (the “Commonwealth”), the Puerto Rico Sales Tax 

Financing Corporation (“COFINA”), the Puerto Rico Highways and Transportation Authority

(“HTA”), the Employees Retirement System of the Government of the Commonwealth of Puerto 

Rico (“ERS”), and the Puerto Rico Electric Power Authority (“PREPA,” and together with the 

Commonwealth, COFINA, HTA, and ERS the “Debtors,” and each individually a “Debtor”), as 

Title III debtors, by and through the Financial Oversight and Management Board for Puerto 

Rico(the “Oversight Board”), as the Debtors’ representative pursuant to section 315(b) of the 

Puerto Rico Oversight, Management, and Economic Stability Act (“PROMESA”),2respectfully 

submit this omnibus reply (the “Reply”) to:

(a) the Limited Objection of the PBA Funds to the Motion to Extend Time to Assume or 

Reject Unexpired Leases [ECF No. 2557] (the “PBA Funds Objection”) filed by the 

PBA Funds (as defined in the PBA Funds Objection);

(b) the Ambac Assurance Corporation’s Joinder to the Limited Objection of the PBA

Funds to the Motion to Extend Time to Assume or Reject Unexpired Leases [ECF No. 

2598] (together with the PBA Funds Objection, the “Objections”) filed by Ambac 

Assurance Corporation (“Ambac,” and together with the PBA Funds, the 

“Objectors”); and

(c) the Reservation of Rights of the QTCB Noteholder Group to Motion for Entry of 

Third Order Extending Time to Assume or Reject Unexpired Leases of Nonresidential 

Real Property Pursuant to Bankruptcy Code Section 365(d)(4) [ECF No. 2602] (the 

“QTCB Reservation of Rights,” and together with the Objections, the “Responses”) 

filed by the QTCB Noteholder Group (as defined in the QTCB Reservation of Rights, 

and together with the Objectors, the “Respondents”).

 

2

PROMESA is codified at 48 U.S.C. §§ 2101-2241.

Case:17-03283-LTS Doc#:2647 Filed:03/02/18 Entered:03/02/18 11:49:30 Desc: Main

Document Page 2 of 9
3

In support of this Reply and the Motion, the Debtors respectfully aver:

3

 

Preliminary Statement

1. The Title III Debtors, as tenants, have requested that the Court enter an order 

extending their deadlines to assume or reject the PBA Leases for 120 days. The PBA Funds filed 

a limited objection to the Motion on the basis that any order granting it should be conditioned on 

the Debtors’ payment of any rent due under the PBA Leases, to which objection Ambac filed a 

joinder. In addition, the QTCB Noteholder Group filed a reservation of rights, which, while not 

an objection, raises legal issues related to the Objections.4 For the reasons set forth herein and in 

(a) the previous Omnibus Reply of Financial Oversight and Management Board to Objections of 

PBA Funds and QTCB Noteholder Group, and Ambac Joinder, to the Motion to Extend Time to 

Assume or Reject Unexpired Leases [ECF No. 1716], (b) the Objection of Financial Oversight 

and Management Board to Motion of PBA Funds for the Payment of Rent [ECF No. 2587] (the 

“FOMB Rent Objection”), and (c) the Preliminary Objection of Official Committee of Unsecured 

Creditors to Motion of PBA Funds for Payment of Rent Dated February 13, 2018 [ECF No. 

2586] (together with the FOMB Rent Objection, the “Rent Objections”), the Objections and the 

QTCB Reservation of Rights, to the extent construed as an objection, should be overruled.5 

 

3 Capitalized terms not otherwise defined herein shall have the meanings given to such terms in 

the Motion for Entry of Third Order Extending Time to Assume or Reject Unexpired Leases of 

Nonresidential Real Property Under Which the Puerto Rico Public Building Authority Is the 

Lessor Pursuant to Bankruptcy Code Section 365(d)(4) [ECF No. 2494] (the “Motion”).

4

The QTCB Noteholder Group asserts they are third-party beneficiaries of the PBA Leases. As 

set forth further in the FOMB Rent Objection, no creditor of PBA has the right to directly 

enforce PBA’s rights under its leases. The Court need not address the QTCB Noteholder 

Group’s assertion of third-party beneficiary rights as it is not relevant to the requested section 

365(d)(4) extensions.

5

For the remainder of this Reply, it is assumed the QTCB Reservation of Rights, or portions 

thereof, could be construed as an objection. 

Case:17-03283-LTS Doc#:2647 Filed:03/02/18 Entered:03/02/18 11:49:30 Desc: Main

Document Page 3 of 9
4

2. As a preliminary matter, the Responses should be overruled because Respondents

lack standing to object. The PBA Funds hold Government Facilities Revenue Bonds and 

Government Facilities Revenue Refunding Bonds issued by the Puerto Rico Public Buildings 

Authority (“PBA”). Ambac is an insurer of certain bonds issued by PBA and guaranteed by the 

Commonwealth. The QTCB Noteholder Group holds Qualified School Contraction Bonds and 

Qualified Zone Academy Bonds issued by PBA. As creditors of PBA, Respondents do not have 

standing to object to the Motion. To circumvent this issue, Respondents attempt to step into the 

shoes of PBA by asserting arguments that directly implicate PBA’s rights. However, PBA has 

already asserted its rights as a lessor by consenting to the extension of the time periods under 

Bankruptcy Code section 365(d)(4) as applicable to each of the Debtors. The Respondents have 

failed to establish grounds under applicable nonbankruptcy law (as PBA is not a Title III debtor) 

to assert rights as a creditor of PBA on behalf of PBA, especially where PBA has already 

exercised such rights in its own discretion to consent to the requested extension. Even if the 

Respondents had party-in-interest standing to be heard in the Debtors’ Title III cases under 

Bankruptcy Code section 1109(b), they could not control any opposition of PBA to the requested 

extensions (which, in fact, PBA does not oppose).

Reply

I. The Respondents Lack Standing to Object

3. Respondents lack standing to object to the Motion because the Responses assert 

rights belonging to PBA—the right of a purported lessor6to consent to an extension of the period 

 

6 As explained in the Rent Objections, the sole purpose of PBA’s leases is to provide debt 

service on bonds issued by PBA, and thus the purported leases are likely not true leases 

entitled to landlord rights under section 365. The Debtors reserve all rights with respect to the 

characterization of the PBA Leases, and assert this determination is a prerequisite to any order 

or judgment compelling payment of postpetition rent.

Case:17-03283-LTS Doc#:2647 Filed:03/02/18 Entered:03/02/18 11:49:30 Desc: Main

Document Page 4 of 9
5

during which a debtor-tenant must assume or reject unexpired leases of nonresidential real 

property pursuant to Bankruptcy Code section 365(d)(4), made applicable to these Title III cases 

by PROMESA section 301(a). As expressly provided in section 365(d)(4), the court may grant 

an extension upon the written consent of the lessor (and no other party). See 11 U.S.C. § 

365(d)(4)(B)(ii). As noted in the Motion, PBA has considered and exercised its purported rights 

under section 365(d)(4) and provided written consent to the requested extensions. 

4. Section 365(d)(4) does not confer on the Respondents (as creditors of PBA, a 

creditor-lessor, in these Title III cases) any rights with respect to the requested extensions. 

Courts have held, where the Bankruptcy Code has conferred rights upon a party, creditors of that 

party do not have standing to enforce those rights.7 For example, in In re Riverside Nursing 

Home, 43 B.R. 682 (Bankr. S.D.N.Y. 1984), the court held an assignee of rents does not have 

standing under section 365(d)(2) to compel a debtor-lessee to assume or reject the lease 

following the mortgagor-lessor’s default. In interpreting section 365(d)(2), the court noted “the 

statutory language does not say that any creditor or party in interest who may appear and be 

heard on any issues in a Chapter 11 case may compel a debtor to assume or reject a lease.” Id. at 

684. “Only ‘a party to such contract or lease’ has standing to seek such relief.” Id. The court 

rejected the rent assignee’s argument it had standing because the rent assignee was the only real 

party in interest who may collect the rent from the debtor due to the economic relationship 

between the rent assignee and mortgagor-lessor. Id. at 685. The court noted, “[t]his argument 

elides the fact that the statutory language in 11 U.S.C. § 365(d)(2) does not specify that a party in 

 

7

See In re Irwin Yacht Sales, 164 B.R. 678 (Bankr. M.D. Fla. 1994) (finding ex-wife of lessor, 

who was awarded one-half interest in the leased property, did not have standing to oppose 

debtor’s motion to assume lease under section 365); see also In re Tubular Techs., LLC, 362 

B.R. 243, 245 (Bankr. D.S.C. 2006) (finding that lessor has standing under section 365(d)(4) 

“[d]espite the fact that [lessor] is not receiving and may not be entitled to receive rental 

income”).

Case:17-03283-LTS Doc#:2647 Filed:03/02/18 Entered:03/02/18 11:49:30 Desc: Main

Document Page 5 of 9
6

interest, or, for that matter, a creditor with an economic relationship to a debtor’s unexpired 

lease, may compel the debtor to assume or reject it.” Id. Allowing creditors of lessors under 

section 365(d)(4) to attempt to enforce landlord rights is not supported under the plain statutory

language, and would serve only to bring disputes among nondebtors (i.e., landlords and their 

creditors) before the bankruptcy court. See In re James Wilson Assocs., 965 F.2d 160, 169 (7th 

Cir. 1992) (“[W]e find it very difficult to see who might be an intended beneficiary of [section 

364(d)(4)] other than the lessor . . . . A rule that allows other creditors to complain that the lease 

was not assumed will simply provoke arid controversies . . . .”). 

5. Furthermore, implicit in the Responses is the contention that the Motion may 

cause PBA to experience decreased revenues and that such decreased revenues will prejudice 

Respondents. This argument reveals the derivative nature of Respondents’ interests and is, thus,

an attempt by Respondents to step into the shoes of PBA and assert arguments that directly 

implicate PBA’s rights. They cite no legal authority providing them derivative standing to assert 

rights of PBA, an instrumentality of the Commonwealth.

II. The Objectors Impermissibly Request the Court 

Circumvent the Plain Language of Bankruptcy Code Section 365(d)(4)

6. The plain language of Bankruptcy Code section 365(d)(4) and the legislative 

history provides that where the lessor’s written consent has been obtained, a court may extend 

the time periods under section 365(d)(4). Bankruptcy Code section 365(d)(4)(B)(ii) provides

“the court may grant a subsequent extension only upon prior written consent of the lessor in each 

instance.” 11 U.S.C. § 365(d)(4)(B)(ii) (emphasis added). 8 By requiring only the lessor’s 

 

8 H.R. Rep. No. 109-31, 109th Cong., 1st Sess. 86 (2005) (“Any subsequent extension can only

be granted by the judge upon the prior written consent of the lessor either by the lessor's 

motion for an extension or on motion of the trustee, provided that the trustee has the prior 

written approval of the lessor.”)

Case:17-03283-LTS Doc#:2647 Filed:03/02/18 Entered:03/02/18 11:49:30 Desc: Main

Document Page 6 of 9
7

consent for extensions under this section, Congress intended to limit the court’s discretion. See

In re Dickinson Theatres, Inc., 2012 Bankr. LEXIS 5684, at *8 (Bankr. D. Kan. Dec. 4, 2012) 

(“The legislative history of § 365(d)(4) indicates that the provision requiring lessor consent for 

extensions of time in excess of 90 days, was ‘designed to remove the bankruptcy judge’s 

discretion’ . . . .” (quoting H.R. Rep. No. 109-31, Pt.1, p. 86 109th Cong. 1st Sess. (2005), 

reprinted in E-2 Colliers on Bankruptcy, App. Pt. 10(b) at 10-354 (Alan N. Resnick & Henry J. 

Sommer eds.-in-chief, 16th ed. rev. 2012))). Notably, section 365(d)(4)(B)(ii) imposes no other 

requirements other than the written consent of the lessor.

7. Respondents, however, ask the Court to insert a new condition to a section 

365(d)(4) extension – payment of postpetition rent and/or consent from not only the landlord but 

also its creditors – that the statute plainly does not require. “[W]hen the statute’s language is 

plain, the sole function of the courts–at least where the disposition required by the text is not 

absurd–is to enforce it according to its terms.” Hartford Underwriters Ins. Co. v. Union Planters 

Bank, N.A., 530 U.S. 1, 6 (2000) (internal quotation marks omitted) (quoting United States v. 

Ron Pair Enterprises, Inc., 489 U.S. 235, 241 (1989) (in turn quoting Caminetti v. United States, 

242 U.S. 470, 485 (1917))). Here, all that section 365(d)(4)(B)(ii) requires for an extension of 

time to assume or reject a lease is the prior consent of the lessor, which the Debtors have 

obtained.

8. The Respondents also overlook that PBA is an instrumentality of the 

Commonwealth. The Commonwealth’s instrumentalities are not a band of lone rangers, each out 

for themselves. They form an integrated territory under which all instrumentalities participate 

for the overall good, subject to all applicable statutes and jurisprudence protecting creditors. 

Rent payments to PBA are essentially debt service payments to PBA bondholders, which are also 

Case:17-03283-LTS Doc#:2647 Filed:03/02/18 Entered:03/02/18 11:49:30 Desc: Main

Document Page 7 of 9
8

contingent guaranty creditors of the Commonwealth. PBA has consented to the requested 

extension without requiring what are essentially postpetition debt payments, to allow the 

Commonwealth to pursue the adjustment of its debts in Title III.

III. The Debtors’ Restructuring Efforts Would Be 

Jeopardized Without the Relief Requested in the Motion.

9. As explained more fully in the Motion, if the Debtors are required to decide 

prematurely whether to assume the PBA Leases (if they are true leases in the first place), only to 

find that such leases are not necessary for their reorganization, the Debtors would be saddled 

with an administrative expense claim for all amounts due under the leases (which may extend for 

many years after a plan of adjustment is confirmed), including the cure amounts that would 

otherwise be prepetition unsecured rejection damage claims. In a scenario where any lease was 

unnecessary for the reorganization of the Debtors and was assumed only because the Debtors 

were forced to decide prematurely whether to reject or assume the lease, the Debtors would be 

saddled with lease payments until the full term ended.

10. Accordingly, for the reasons stated above and in the Motion, the Court should 

overrule any opposition to set forth in the Responses and grant the requested section 365(d)(4) 

extensions.

[Remainder of Page Intentionally Left Blank]

Case:17-03283-LTS Doc#:2647 Filed:03/02/18 Entered:03/02/18 11:49:30 Desc: Main

Document Page 8 of 9
9

WHEREFORE the Oversight Board respectfully requests the Court (a) overrule the 

Responses, (b) enter the Proposed Order, substantially in the amended form filed at ECF No. 

2571, and (c) grant the Debtors such other relief as is just.

Dated: March 2, 2018

San Juan, Puerto Rico

Respectfully submitted,

/s/ Martin J. Bienenstock

Martin J. Bienenstock (pro hac vice)

Paul V. Possinger (pro hac vice)

Ehud Barak (pro hac vice)

Maja Zerjal (pro hac vice)

PROSKAUER ROSE LLP

Eleven Times Square

New York, NY 10036

Tel: (212) 969-3000

Fax: (212) 969-2900

Attorneys for the Financial Oversight and 

Management Board as Representative for the 

Debtors

/s/ Herman D. Bauer

Hermann D. Bauer

USDC No. 215205

O’NEILL & BORGES LLC

250 Muñoz Rivera Ave., Suite 800

San Juan, PR 00918-1813

Tel: (787) 764-8181

Fax: (787) 753-8944

Co-Attorneys for the Financial Oversight and 

Management Board as Representative for the 

Debtors

Case:17-03283-LTS Doc#:2647 Filed:03/02/18 Entered:03/02/18 11:49:30 Desc: Main

Document Page 9 of 9