UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF PUERTO RICO

----------------------------------------------------------x

In re: PROMESA

Title III

THE FINANCIAL OVERSIGHT AND

MANAGEMENT BOARD FOR PUERTO RICO,

as representative of No. 17 BK 3283-LTS

THE COMMONWEALTH OF PUERTO RICO, (Jointly Administered)

et al.,

Debtors.1

----------------------------------------------------------x

NOTICE OF CORRESPONDENCE RECEIVED BY THE COURT

The Court has received and reviewed the attached correspondence, described 

below, from interested persons in the above-captioned cases. Although the Court cannot respond 

individually to all of those who have expressed their thoughts or concerns, the Court is deeply 

mindful of the impact of the fiscal crisis on lives, institutions, and expectations, and of the 

importance of the issues that are raised in these unprecedented cases.

1. Letters dated June 20, 2018 from Maria Mercedes Navia.

2. Letter dated June 22, 2018 from Eric Cohen.

3. Letter dated June 22, 2018 from Seema Balwada.

4. Letter dated June 29, 2018 from Stephen Mangiaracina.

 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 4780-LTS) (Last Four Digits of Federal Tax 

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

limitations).

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5. Letter dated June 29, 2018 from Carlos Sumpter.

6. Letter dated July 7, 2018 from Berta Gonzalez.

7. Letter dated July 12, 2018 from Nanette Escobar.

8. Letter dated July 16, 2018 from Hiram Rodriguez

9. Letter dated July 17, 2018 from Carlos Sumpter.

10. Letter dated July 23, 2018 from Mark Elliot.

Dated: July 24, 2018

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June 20, 2018 

Judge Laura Taylor Swain 

U.S. District Court for the District of Puerto Rico 

Fed. Court of PR Office 150, Fed. Building 

San Juan, Puerto Rico 00918 

Dear Judge Swain, 

I am a well-informed experienced municipal bond investor and own Subordinate COFINA, PREPA and G.O. bonds. 

It is very unsettling that the Commonwealth Agent has conceived a Tentative Agreement that disregards the Statutory 

Lien that secures subordinate COFINA bondholders, which is the same Lien that secures the Senior bondholders. I 

follow events in Puerto Rico closely, and receive Puerto Rico market updates at least weekly from my municipal bond 

broker. PROMESA’s Title III debt restructuring fiasco taking place in the Territory of Puerto Rico along with the 

actions of the FOMB, are a disgrace to the ideals and standards of the 50 United States of America. 

Congress has allowed Puerto Rico’s self-proclaimed 3-year old bankruptcy to become a heinous 3 ring circus. The 

rings being the Puerto Rico Senate, Puerto Rico House and the FOMB. The ringmaster is Ricky Rosselló. The Clowns 

are the Commonwealth lawyers. The main attraction is a “White Elephant” called PROMESA. The spectators are 

disillusioned bondholders being tortured as they are forced to watch a tragedy unfold. The sideshows are the 

mediations that to date have only produced a scheme conceived by the Commonwealth Agent called a Tentative 

Agreement that if approved would be an abomination to PROMESA and the municipal bond market. 

It is time for those in the media to report on the third world politics in Puerto Rico and expose the true crux of the 

Island’s problems. The reality is that various forms of corruption are so prevalent in Puerto Rico that 

dishonesty and fraudulent actions have become accepted as the way the Puerto Rico Government and the 

private sector do business. 

In the Commonwealth vs COFINA dispute a summary judgement ruling would resolve who owns the pledged 

Sales and Use Tax (SUT). A ruling could save millions in litigation expense, send a message to the government, 

the FOMB and the Municipal Bond Market that laws and liens must be respected. By delaying the ruling the 

Court has encouraged the Commonwealth to unveil its current scheme labeled a Tentative Agreement. The 

Tentative Agreement seems to be viewed by the Court as the foundation on which a final Agreement to the 

Commonwealth vs COFINA dispute can be built. The Agreement supports a market opinion that the Court would 

rule that the COFINA structure is legal and the Statutory Lien would likely be confirmed by the Court. However, 

the Tentative Agreement makes a portion of the pledged SUT funds available to the Commonwealth before 

completely honoring the Subordinate bondholder Statutory Lien. In essence the Commonwealth is telling the 

Court... What difference does it make that the COFINA structure is legal and the Lien is valid and we 

previously told investors the pledged SUT is “Not Available” to us...We still want the Court to approve the 

Tentative Agreement that gives us 43% of the Subordinate bondholders money. Your honor, the market realizes 

that you are trying to comply with “PROMESA” and reach consensual agreements. I have faith that no 

Agreement would be approved at the expense of the municipal bond market and in this case Subordinate 

COFINA bondholders. 

The threat to COFINA Subordinate bondholders does not come from insolvency, COFINA is solvent, or the 

legality of the COFINA structure, which the Tentative Agreement wishes to maintain, the threat comes from a 

scheme conceived by a dishonest government. 

The Tentative Agreement presented by the Commonwealth and Senior COFINA bondholders is a perfect 

example of the Commonwealth’s lack of integrity. Prior to the Tentative Agreement market sentiment pointed to 

a Summary Judgement ruling favoring COFINA. Therefore, the Commonwealth had to act quickly or risk being 

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shutout of getting any of the pledged SUT. A Commonwealth that since 2006 told investors the pledged SUT 

revenue is “Not Available” to the Commonwealth. In essence what the Commonwealth appears to have done 

was to authorize its Agent to offer the Senior COFINA bondholders a deal, that to some may be viewed as a 

bribe. The Commonwealth Agent offered the Senior COFINA bondholders a Tentative Agreement that in 

principle would give the senior bondholders a 100% recovery, all back interest and principal, a First Priority Lien 

on future pledged SUT and a potential end to litigation. An offer no hedge fund could refuse. It would be in the 

best interest of the hedge funds’ shareholders for the hedge funds to get on board with the Commonwealth and let 

the unorganized Subordinate COFINA bondholders fend for themselves, which is exactly the objective of the 

Commonwealth’s scheme. The Commonwealth once again attempts to pit Senior and Subordinate COFINA 

bondholders at odds with each other. 

When purchasing COFINA bonds, investors relied on “AA” and “A+” bond ratings, impressive credit reports, 

and the Commonwealth’s promise that the pledged revenue is “Not Available” to the Commonwealth. The fact 

that the Commonwealth has directed their Agent to fabricate a scheme to take back a large portion of the pledged 

SUT, is nothing less than unscrupulous. In most legal jurisdictions if a government borrowed over $15 billion 

under false pretenses and refused to pay it back, it would be interpreted as wrongful deception intended to result 

in financial gain... Fraud. 

The COFINA structure under any scenario is not in default or impaired in any way. It would be irrational for 

Subordinate bondholders to agree that the Senior COFINA bondholders under the Tentative Agreement can 

choose to receive a 100% recovery while they get less than 40% recovery, especially since there are adequate 

pledged funds available to pay both Seniors and Subs. It would also be unreasonable for anyone to agree that the 

Commonwealth should receive over 43% of the pledged SUT revenues at the expense of Subordinate 

bondholders. I believe the court realizes the Tentative Agreement in its current form is unlikely to be approved 

by all involved parties. However, by perpetuating the Commonwealth vs COFINA dispute the Court will open a 

legal can of worms that could change the municipal bond market forever. 

The COFINA structure was created in 2006 to seduce reluctant investors, who were no longer willing to trust the 

corrupt Puerto Rico government, into investing in pledged Sale Tax revenues “Not Available” to a Puerto Rico 

government that lacked integrity. 

Why Puerto Rico politicians were forced to create the COFINA structure has been lost in the Tentative 

Agreement. The same reasons investors did not trust the Puerto Rico Government in 2006 are surfacing 

again, corruption, deception, dishonesty and lack of transparency. Unfortunately, for the people of Puerto Rico 

the FOMB is allowing the dishonesty, incompetence and mismanagement to persist. 

The Tentative Agreement treats COFINA Subordinate bondholders worse than an unsecured creditor. Unsecured 

GDB appropriation bonds are being restructured at 55 cents on the dollar. While secured Subordinate COFINA 

bondholders, are being offered around 40 cents. The Subordinate bondholders are secured by the same Act 91 

and Statutory Lien as Senior COFINA bondholders. Four Puerto Rico governments confirmed that the pledged 

SUT is “Not Available” resources to the Commonwealth. Now the Commonwealth Agent and the COFINA 

Agent seem to have agreed in principal to ignore ACT 91 and the Statutory Lien and divide the pledged SUT 

funds as they see fit. There is no legal precedent that allows for COFINA Subordinate bondholders to no longer 

be secured by Act 91 and a Statutory Lien, especially since COFINA is not an insolvent entity. The Subordinated 

bondholders may be willing to take a reasonable haircut (10% to 15%) to become Senior bondholders. The 

proposed 60% haircut on a secured bond is outrageous. 

The Court’s enthusiastic comment concerning the Tentative Agreement, “This is an enormously significant 

development” is worrisome for many municipal bond market professionals and investors. The comment is 

definitely not what Subordinate bondholders secured by a Statutory Lien wanted to hear. I am confident that the 

Court sees the Tentative Agreement as a starting point for a much more equitable final agreement. 

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What is most unbelievable about the whole Puerto Rico debt debacle is that the Commonwealth has yet to prove 

it is insolvent and that there even is a Puerto Rico financial crisis. There is little doubt among municipal bond 

market participants that if Puerto Rico had integrity it could pay both COFINA and G.O. bondholders. Should 

the Puerto Rico Government and FOMB make it a priority to enforce their laws and collect 85% of the SUT 

instead of around 65%, make realistic budget adjustments and address the government condoned underground 

economy estimated to be equal to 20% to 25% of the Island’s $100 billion GDP, Puerto Rico would easily be 

able to pay its entire debt. Obviously the Commonwealth and Board fine it more beneficial politically to attack 

bondholders than strive to reform Puerto Rico. 

The fact that Puerto Rico has accrued around $9 billion in cash, approximately $3 billion in liquidity and $6 

billion in various banks accounts, proves it can afford to pay bondholders... but is unwilling. Threatening 

bondholders with prolonged litigation by allotting $1.5 billion in their Fiscal Plan for legal expenses over the 

next 5 years is a deplorable commitment of money owned to bondholders. The U.S. Government, FOMB and the 

Court are all making a big mistake allowing Puerto Rico to treat bondholders as the least important group they 

have to address. The fact that Puerto Rico is willing to spend $1.5 billion in an effort to cheat bondholders out of 

what is legally owed to them is not a sign of a bankrupt government, it is a sign that Puerto Rico politicians and 

the FOMB lack integrity and could not care less about market access. 

The Puerto Rico Government and FOMB act like they truly believe they can attract quality P3 partners and 

receive qualified interest in the PREPA Privatization while they treat all debt like it doesn’t exist; they either 

have qualified parties on the sidelines interested in their very unique strategy or they are complete idiots not in 

touch with reality. 

I have encouraged Puerto Rico bondholders I know to petition their Congressmen. The U.S. Congress could put 

an end to the suffering inflicted on the Puerto Rico people by a group of corrupt and elitist politicians. These so 

called populists have manipulated a susceptible population to believe they are victims of colonialism, which 

makes them second-class citizens and is the root of the Island’s problems. 

Puerto Rico bondholders must trust that the Court will sees through the Commonwealth’s devious maneuvers. 

The Commonwealth vs COFINA dispute is just another illustration of the lack of integrity consistently exhibited 

by most Puerto Rico politicians and the FOMB. The lack of transparency and integrity exhibited by Puerto 

Rico’s rogue leaders is responsible for the anti-U.S. law attitude of the mislead and ill-informed population. 

The bottom line is for Puerto Rico to prosper the various forms of corruption prevalent on the Island must be 

addressed by a serious Oversight Board. Until an Oversight Board with values similar to the NYC and Washington 

DC Boards is in place, Puerto Rico will likely remain a welfare territory dependent on U.S. taxpayers. 

Respectfully yours, 

Maria Mercedes Navia 

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June 21, 2018

Judge Laura Taylor Swain

U.S. District Court for the District of Puerto Rico

Fed. Court of PR Office 150, Fed. Building

San Juan, Puerto Rico 00918

I’m writing this urgent letter to inform the court that I believe my constitutional rights as a 

creditor of Puerto Rico are being trampled upon.

The “Tentative Agreement”, to resolve the Commonwealth-COFINA dispute, agreed upon in 

principle by both the Commonwealth Agent and Cofina Agent is insulting to anyone with 

background knowledge of the Commonwealth-COFINA dispute.

Both Agents were picked by the Oversight Board.

Clearly, the Cofina Agent, Bettina Whyte is not defending the Subordinate Cofina Bondholder.

The Cofina Agent should not allow a Municipal Bond issued by a solvent entity and secured by a 

statutory lien to be subject to a 60% loss of Principal.

As a holder of COFINA Subordinate bonds I feel the name Subordinate is a misnomer.

Per ACT 91 there are actually (2) classes that are Subordinate to the COFINA Bondholders.

1) Senior Cofina bondholders (Cofina Trustee)

2) Junior Cofina Bondholders (Cofina Trustee)

3) The General Fund

4) Municipal Administration Fund

The year prior to the Hurricane, the Commonwealth collected about $2.5 billion in SUT 

Revenue. The Annual Debt service to meet both principal and interest payments on both 

Senior and Subordinate bonds was approximately $700 million. There was a surplus after 

satisfying Cofina Debt Service of about $1.8 billion that was divided accordingly between the 

General Fund and the Municipalities.

No one can argue that COFINA is insolvent.

COFINA is a Solvent Entity. There is no legitimate reason for secured Subordinate bondholders 

to accept a 60% haircut.

The Cofina Subordinate bond I bought years ago was A + rated by S&P. The Senior Cofina bond 

at that time had been upgraded to AA while the GO rating was BBB. It’s incredible that the 

parties involved want to maintain the COFINA Bond Resolution and Structure but not respect 

the lien that secures the Subordinate bondholder.

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The only way the Commonwealth was able to access the market in 2006 was to assure investors 

corrupt Puerto Rico politicians could not get their hands on the Pledged SUT revenue until all 

Cofina bondholders got paid in full.

I lent the commonwealth money at a preferred rate because of the mechanism and security the 

COFINA structure provided. The COFINA bond was Puerto Rico’s rescue bond in 2006. The 

Commonwealth created and passed ACT 91 to pledge the SUT revenue as property to secure 

the payment of principal and interest on all Cofina bonds. The commonwealth took in billions 

of dollars and the structure worked for over a decade and continues to work today. The 

Commonwealth and the Government Development Bank promoted and sold this structure to 

investors, predominately retail investors, both on the island and the mainland. They marketed 

Cofina as being Safe from the antics of dishonest Puerto Rico politicians.

The Official Statement (Prospectus) clearly states the SUT revenue pledged to Cofina 

bondholders is NOT AN AVAILABLE RESOURCE TO THE COMMONWEALTH. The Commonwealth 

obviously misled Retail Investors and is Guilty of the Textbook Definition of Fraud.

I’ve highlighted excerpts from the official Statement.

1) Creation of Law 91

2) Pledges Sales Tax Base Amount

3) Debt Service Maturity schedule

4) Flow of funds chart

5) Not Available resource.

In May of 2016, The United State Congress with bipartisan support passed PROMESA which 

allowed a solvent entity like COFINA to be included in a Quasi-Bankruptcy proceeding. 

No one can believe that Congress enacted PROMESA so that the Commonwealth of Puerto Rico 

could go ahead and break liens at will and raid COFINA’s Lock Box.

Many have the opinion the Commonwealth is NOT insolvent.

They currently have $9.0 billion in funds including $2.9 billion in liquidity.

The Commonwealth couldn’t even meet the guidelines from the US Treasury to obtain the CDL 

loans because they have too much liquidity. Treasury Secretary Mnuchin told Rosello in order 

to receive CDL loans liquidity must go down to $1.1 billion. At that time liquidity was 1.3 billion. 

Today it’s $2.9 billion in spite of the Government’s spending spree.

Again, the Commonwealth appears solvent enough to pay the debt service on its GO Bond. 

There is no reason to be even talking about haircuts to Cofina bondholders. Cofina is a solvent 

entity and its bonds are secured by a statutory lien. The Commonwealth has $3.0 billion in 

liquidity which does NOT include any of Cofina’s Pledged SUT revenue.

In fact, COFINA was designed so that Cofina bondholders would have nothing to do with the 

solvency or insolvency of the Commonwealth.

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Now comes a tentative agreement where the Commonwealth, for no legitimate reason,

believes it’s entitled to 60% of the Pledged Sales Tax to pay Subordinate bondholders. The 

commonwealth has offered Senior bondholders an opportunity to recover 100% leaving 40% 

recovery for Subordinate Bondholders. The Senior bondholders can’t turn down such an 

opportunity. The Commonwealth’s offer to the Senior bondholders reflects the legitimacy of 

the Cofina Structure and the Statutory Lien, which also covers the Subordinate bondholders.

The Commonwealth of Puerto Rico by ACT 91 is NOT entitled to any of the Pledged Sales Tax 

Base Amount.

The Commonwealth had one year in Title VI and one year in Title III to resolve the 

Commonwealth- Cofina dispute. After two years their offer of 40% recovery is a a mockery to 

the Rule of Law and Municipal Bond Market Precedent.

Judge Swain, 

1) You narrowed the scope to, Who owns the SUT revenue. 

2) You told the lawyers do not prepare for a trial on April 10th 2018.

3) You expressed your concern to the amount of legal fees this process has already 

accumulated. Yet the Puerto Rico Government and the FOMB have allocated $1.5 

billion for legal expenses in their current Fiscal Plan to threaten bondholders.

4) You said a fiscal plan and plan of adjustment could not be finalized until the 

Commonwealth-Cofina dispute is resolved.

5) You ruled against sending this case to the Puerto Rico Supreme Court

6) You said The “Tentative Agreement” was an enormous significant development.

Then you give them sixty days and more if necessary to finalize a Tentative Agreement that in 

principal gives me a 60% haircut. I trust you believe any Agreement presented to the Court will 

be more equitable.

In my opinion, both Senior and Subordinate Cofina bonds are not impaired and should continue

paying debt service not unlike Detroit Water and Sewer. However, I would accept a small 

haircut from $100 to receive a Senior Bond in a debt exchange.

My opinion of a reasonable settlement is Senior $95-$100 and Subordinates $80-$85 based on 

a Subordinate to Senior debt exchange.

A 20% haircut on $9.7 billion Subordinate bonds is a savings of at least $1.8 billion in principal

and $100 million in annual debt service over 40 years that equates to around $6.0 billion in 

savings.

Then, by reducing the average rate of interest by 20% the Commonwealth can save another 

$200 million in annual debt service, which equates to another $4 billion after 40 years.

Combined, that’s a reduction in debt service in the neighborhood of $10 billion over 40 years.

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Again, the Commonwealth either defrauded me when I bought the bonds or they are 

attempting to defraud me now. They have disregarded the very law they enacted and the often 

used statement that the Pledged SUT is NOT Available to the Commonwealth..

Please post my letter so that the Unorganized Subordinate Cofina Bondholders can become 

aware of the lengths the Commonwealth is willing to go to defraud our rights, which include 

ignoring the “Takings Clause” and “Contract Law” protection afforded us by the US 

Constitution.

Please post my letter so when it’s time to VOTE on a Restructuring Agreement, Subordinate

Cofina Bondholders will know the value of their bonds is much greater than the current 

Tentative Agreement offering of 40 cents on the dollar.

Please post my letter so that other Subordinate Cofina bondholders know that the COFINA 

Agent Bettina Whyte is not protecting the interests of all Cofina bondholders.

Please post my letter so that other Municipal Bond Investors realize that PROMESA, which 

states bondholder liens must be respected, is not being followed by Puerto Rico.

Only you Judge Swain can prevent potential chaos in the Municipal Bond Market by upholding 

the Rule of Law and Respecting the Priority of Liens required by PROMESA . 

The timing of the Tentative Agreement, just prior to an anticipated ruling expected to be

favorable to COFINA bondholders, makes the agreement conceived by the Commonwealth

suspect. The flawed Tentative Agreement just may be another delaying tactic.

Respectfully,

Eric R. Cohen

 

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June 22, 2018

Seema Balwada, CFA

Judge Laura Taylor Swain

U.S. District Court for the District of Puerto Rico

Fed. Court of PR Office 150, Fed. Building

San Juan, Puerto Rico 00918

CC:  The Bank of New York Mellon

Attn: Mr. Alex Chang

101 Barclay Street, New York, NY 10286

CC: Reed Smith LLP

Attn: Mr. Eric A. Schaffer

225 Fifth Avenue, Suite 1200, Pittsburgh, PA 15222

CC: COFINA Agent

Attn: Ms. Bettina M. Whyte

Counsel: Willkie Farr & Gallagher, LLP

INVESTOR APPEAL: PLEASE DO NOT ALLOW AN INEQUITABLE PROPOSED

SETTLEMENT TO STALL SUMMARY JUDGEMENT

Dear Judge Swain,

The narrow question of who owns Puerto Rico sales and use tax pledged to COFINA bondholders was put before

the court for summary judgement by all parties litigating the Commonwealth‐COFINA Dispute.  After a grueling

schedule of hearings and briefings, facts and figures supporting a lien ruling appear to have been put to rest so

that a few parties can advance a selected agenda.   

An ‘In‐Principle’ tentative agreement dated June 7, 2018 (“Proposed Settlement”) between the Commonwealth

Agent and COFINA Agent raises questions on equitable treatment of COFINA’s Subordinate bondholders.    The

Court’s suspension of summary judgement for at least 60 days stalls the expedited resolution of the gating

Commonwealth‐COFINA dispute.

Per the Proposed Settlement, the COFINA Agent and the Commonwealth Agent “agree to SHARE the statutory

Pledged Sales Tax Base Amount”: 53.65% of first dollars of the SUT going to COFINA and the remainder 46.35% to

the Commonwealth.   This could amount to a 100% recovery with a 1.25x debt service coverage on outstanding

COFINA Senior Bonds and a meager 40% recovery for COFINA Subordinate Bonds.

The Proposed Settlement reveals that the COFINA Agent, appointed by the Oversight Board, is compromising the

property, contract and due process rights of COFINA Subordinate Bondholders.  COFINA Subordinate

Bondholders’ interests are not being fairly represented in Puerto Rico’s Title III debt restructuring.   The Proposed

Settlement violates the spirit and intent of the August 10, 2017 Stipulation which seeks to prevent Agents from

modifying creditors’ legal and contractual rights and interests in property unilaterally.   

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“Before the Agents negotiate away others’ interests in property, the Commonwealth‐COFINA Stipulation and due

process demand that such beneficial holders have adequate notice and an opportunity to be heard,” COFINA

Bond Trustee Bank of New York Mellon added that a large percentage of beneficial holders is not a party to the

gating Commonwealth‐COFINA Dispute or Puerto Rico’s Title III bankruptcy.  “Non‐party beneficial holders have

not received adequate notice of the Proposed Settlement among the Agents,” Bank of New York informed the

federal court.     

The Proposed Settlement is disturbing because it exemplifies how large public institutions with hefty legal teams

barter away the rights of household investors.  Households own $1.57 trillion or 41% of the $3.9 trillion municipal

bond market directly through retail brokerage accounts.  Direct holdings of tax‐exempt municipal bonds allows

households to access broker advice, research and eliminates recurring fund management fees.  Despite being the

largest owners of municipal bonds, household interests’ are barely represented in the largest ever municipal

bankruptcy.    

COFINA Subordinate Bondholders are dominantly Household bond investors: they have no voice in the Proposed

Settlement signed by the COFINA Agent to represent the unilateral interests of institutionally held COFINA Senior

Bonds.  Household investors are traditional ‘buy and hold’ investors, not speculators looking for quick gains.  

Household investors are Main Streets’ savers, Islanders and pensioners who rely on bond indentures and

contracts taking considered risks to meet financial goals.  Households can least afford the harsh terms of the

Proposed Settlement.   It is easy for the vested interests of large institutions who own COFINA Senior Bonds to

ignore the unorganized household investors who own COFINA Subordinate Bonds.   

It would be a myth to think that COFINA Subordinate Bonds are held by Wall Street institutions or hedge funds or

bond insurers.  Household municipal bond investors are the largest holders of COFINA Subordinate Bonds.  

Institutional holders of less than $2 billion COFINA Subordinate Bonds or 20% of outstanding COFINA Subordinate

Bonds have COFINA Subordinate positions exceeding COFINA Senior positions.  Institutions hold only $2.6 billion

or 27% of $9.72 billion COFINA Subordinate Bonds outstanding.  In contrast, $5 billion or 66% of $7.58 billion

outstanding COFINA Senior Bonds are institutionally held.   Large hedge funds’ and bond insurers’ COFINA Senior

Bond positions dominate COFINA Subordinate positions.  That is the reason why COFINA Senior Bonds are well

represented in Puerto Rico’s Title III bankruptcy.  Due to lack of institutional holding, there is hardly any way to

organize an effective COFINA Subordinate Creditor group.  It is not surprising that not a single institution has

come forward to represent the interests of COFINA Subordinate Bondholders in the Proposed Settlement.   

As both a household bond investor and a Chartered Financial Analyst, I was taken aback when I learnt that under

court led confidential mediation the COFINA Agent has signed up for a deal that barters away COFINA

Subordinate bondholders’ interests to the Commonwealth and favors COFINA Senior Bondholders

disproportionately.  In Court, where the fate of COFINA bondholders is to be decided, we see the legal might of

COFINA Senior Bondholders day in and day out.  It is commendable that COFINA Senior Bondholders have

brought statutory bondholders rights front and center in advance of a summary judgement ruling.  

Unfortunately, valuable legal facts developed during the extensive summary judgement hearings have been

displaced by the Proposed Settlement ‘agreement to SHARE Pledged Sales Tax Base Amount’.   

At the outset, investors were encouraged to learn about court‐led confidential mediations occurring in‐tandem

with summary judgement appeals.  However, investor confidence in court‐led confidential mediations took a

downturn after the one‐sided Proposed Settlement which asks COFINA Subordinate Bondholders for a 60%

discount in contrast to full recovery for COFINA Senior bonds.  The Proposed Settlement is an attempt to blur the

distinction between an issuer’s secured and unsecured obligations: the Agents had no qualms about grabbing

value from secured bondholders not able to muster the organizational presence to speak up for property rights.   

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Bond investors could not comprehend your comment, “I am pleased with the settlement agreement...It is an

enormous significant development,” reported by Reuters.  The Court’s abeyance of summary judgement by at

least 60 days is disconcerting to the municipal bond market anticipating a federal court lien ruling and expedited

resolution.

As the court‐appointed representative of COFINA, does the COFINA Agent have a fiduciary duty and to whom?  

Broadly, COFINA issued two types of bonds: Senior Bonds and Subordinate Bonds; Subordinate Bonds carry  

higher interest rates and have a lien priority subordinate to Senior Bonds.  Both Senior and Subordinate Bonds

are secured by pledged sales tax without any recourse to other assets.  Issued under the same COFINA Bond

Resolution, COFINA Subordinate Bond issuance outnumbers COFINA Senior Bond issuance.  The COFINA Agent

and COFINA Bond Trustee must preserve the integrity of the COFINA Bond Resolution and ensure that covenants

and agreements are enforced ‘for the equal benefit, protection and security’ of ALL bondholders: such a mandate

would be consistent with COFINA’s role as the Island’s conduit for capital.   

Judge Swain, a lien ruling from your court could stem the adverse impact to the $3.9 trillion municipal bond

market.  Last month, Fitch ratings downgraded $2.5 billion of Illinois’ sales tax secured bonds by five steps,

dropping them closer to the state’s unsecured general obligation rating.  It may not be the last ratings cut for

state and local government bonds backed by a dedicated revenue pledge.  S&P is currently reviewing its method

for rating priority lien bonds.  Such moves augur higher capital costs for building the nations’ schools, bridges and

hospitals.  Under the auspices of the federal court, the delaying tactics of the Agents including the one‐sided

Proposed Settlement is testing the municipal bond market – an important capital avenue for states and local

governments.

Judge Swain, investors appreciate that ‘give and take’ is necessary for consensus which carries immense value for

Puerto Rico’s speedy recovery.  However, any consensus through court‐led mediation should not penalize

secured bondholders disproportionately and violate statutory rights of property, contract and due process of

those unable to afford legal representation.  Although, the Proposed Settlement may never come to fruition, I

urge the federal court to not delay summary judgement on account of a one‐sided unilateral agreement.   

Your Honor, COFINA Subordinate Bondholders do not have the ability to participate in the court proceedings.  I

trust, both the Bond Trustee and the Federal court will not overlook the interests of the COFINA Subordinate

Bondholders in confidential court‐led mediations.   

I urge the COFINA Bond Trustee to prevent the Proposed Settlement’s attack on the subordinate lien granted to

COFINA Subordinate Bondholders.

Judge Swain, the $3.9 trillion municipal bond market is looking to you for affirming the value of statutory liens.   

Sincerely,

Seema Balwada, CFA

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Territory of Puerto Rico Bankruptcy

 to: swaindprcorresp 06/27/2018 09:23 AM

Cc:

From:

To: swaindprcorresp@nysd.uscourts.gov

Cc:

 Sent Via Email & Overnight Delivery

 Hon. Laura Taylor Swain

 U.S. District Court S.D.N.Y.

 500 Pearl Street

 New York, N.Y. 10007

 Dear Judge Swain:

 My name is Stephen T. Mangiaracina. I recently sent you emails on behalf of my family regarding the 

above on June 15, 2018 and May 17, 2018. Please see below.

 The sales tax secured bond holders are not creditors of the Commonwealth of Puerto Rico which is in 

bankruptcy. Our bonds were not purchased from, nor secured by the full faith and credit of the 

Commonwealth. The Commonwealth has not defaulted on any obligations it owes us, since it has none.

 Sales tax bond holders are secured creditors of Cofina, established as an independent corporation by 

the Commonwealth government. It is made independent, free of any control by the Commonwealth, 

because there would have been no market for its bonds otherwise.

 The Cofina bond trustee has been ready, willing and able to continue to meet all its obligations to all 

its sales tax bond holders. The stay imposed by the Court is not a default. If Cofina did default, we sales 

tax bond holders could not claim recourse against the Commonwealth.

 Unless the Court were to first find in the motion papers for summary judgment before it on April 10, 

2018, that the establishment of Cofina and its commitments to its bondholders are invalid, any settlement 

regarding Commonwealth creditors, cannot include Cofina. Although its very existence is being 

challenged, it is not part of the bankruptcy. Since Cofina is not in default, its bond holders have no claim 

against it.

 Arguments for both sides of the issue have been fully briefed and submitted to the Court on April 10, 

2018 for decision. It is one thing for the Court requiring sufficient time to render a decision on a matter 

submitted to it over two months ago. It is quite another for those seeking the demise of Cofina to request 

a delay in the publication of a decision. This would be to the detriment of the sales tax bond holders such 

as my family who have already missed two bond payments due to the stay and another payment is due 

August 1st.

 Settlement efforts regarding the many creditors of the Commonwealth are not the issue. Cofina and 

its sales tax bond holders just do not belong in them.

 I called and spoke with someone at Willkie Farr. I was told a settlement had been reached and not to 

expect anything to happen until sometime in September when I will be given an opportunity to object to 

any settlement then. When I asked if the Court was informed, the reply was the Court said something like 

"This sounds monumental".

 I am hoping this was the Court simply making an innocuous tongue in cheek comment and will think 

this out. Yet, it is troubling that those having clout, compared to others who do not, have ready easy 

access to the Court and accommodation. It challenges one's faith in the fairness of the judicial process.

 If this is true, how can this Court justify holding off on publishing a decision, as soon as reasonably 

possible, with the stay still in effect?

 The efforts of those seeking "settlement" would result in the taking of property belonging to others and 

having it anointed by judicial process. This is hubris at its best. What plot would they hatch to have the 

Court gain jurisdiction over thousands of sales tax bond holders?

 It is my understanding that the Cofina trustee will receive a sales tax money delivery shortly for the 

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benefit of Cofina sales tax bond holders. How long will we be in a state of uncertainty as to whether

Cofina will be permitted to pay its bond obligations, including the next one due August 1st.

Sales tax bond holders, particularly retirees including Puerto Rico residents, have suffered so much already. 

Financial distress grows greater by the day, while the position of those trying to avoid a decision gets brighter each 

day the stay remains in effect.

 It would be unconscionable to expose sales tax bond holders,under financial duress,to these settlement 

predators. If the stay were removed and all back interest payed, these settlement machinations would die forthwith.

 The equitable remedy of a stay never should have happened. At the time it was sought there was no one acting, 

on behalf of the Cofina sales tax bond holders, to oppose the request with the clout to match that of those seeking it. 

If briefs, of the quality of those submitted to the Court on April 10, 2018, arguing for the validity of Cofina's existence, 

were before this Court in opposition to the stay, I suggest the Court would not have granted it.

 Those seeking the stay would have had an insurmountable burden to overcome. For over 10 years, no one 

including the Commonwealth,ever challenged Cofina's existence, its bond issues and sale of bonds, and timely 

payments by the Cofina trustee of interest to its bond holders. Issues and points of law would have been presented 

to the Court such as the unlikelihood of success of the claim against Cofina's existence, laches, bond buyer reliance 

and the irreparable harm to them, estoppel, etc. in opposition to the stay being granted.

 I respectfully ask the Court to render its decision and remove the stay sua sponte. Thank you.

 Stephen T. Mangiaracina

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POMTEKIN VILLAGE

Carlos Sumpter to:

, 

06/29/2018 03:46 PM

From:

PUERTO RICO ADMISSION ACT - A POTEMKIN VILLAGE ACT

- In politics a Potemkin village is any construction literal or figurative - built solely to deceive 

others into thinking that a situation is better than it really is - 

- This is what they are doing with this bill - 

- They are giving false hope to real statehood believers - Why?the length of our recovery 

process is much longer than the length of their political carreers - 

- Bishop is President's Trump legislative partner - he will soon retire - has to sponsor it - be close 

to it - in order to monitor it - 

- President Trump is really tired of child play with Gov. Rosello - he is doing business with JGO 

instead -

- Back in September of 2017 - a few days before hurricane María - I flew into DCA and visited 

Puerto Rico's Residents Comissioner Office - with the following sugestion - Build a 

decolonization plan for Puerto Rico - bring something to the table - 

- My intention - to teach her a cultural aspect of dealing with a businessman turned into 

President - 

- Having a plan makes sense - 

Why ? - in power first they plan and then they execute - you just have to ask for a seat at the 

table - and make sure that your plan is compatible with the Head of State agenda -

- President Trump just finished his Republican party power grab - changing the party forever by 

adding to its foundation a larger base of both wealthy and poor uneducated Americans - 

- Those wishing to claim back their Republic and go back to their post WW2 concept of white 

America first - 

- This is why I am certain that they wont give us statehood - 

- They will keep us on a short leash through federal funding - giving us what we need not what 

we want - 

- As they keep on holding their wallets tight - acting slow enough - to delay any real opportunity 

of a Puerto Rican statehood endeavor - 

- As now statehood - remains unachievable - 

- We continue to hide the truth from our people back in the island - how American people really 

think about Puerto Rico is impprtant - not knowing is impeding succeess in American politics - 

- Yes if we want to be a State - we will have to act in compliance with American politics - 

- In order to achieve a vibrant economy under a financial servitude from those too big to fail - 

- True statehood leaders will have to come to Washington DC - act politically on FOX news - so 

POTUS could pay atention - and see if he can use it in his reelection favor - 

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- Is kind of the opposite approach of what Carmen Yulin did when she became the female latino 

pro LGBTT mouthpiece for the liberal anti Trump media - 

- We need an antagonist in order to neutralize her strategy - 

- This will create damage control with the WHO - 

- This damage needs to be fixed - 

- If the American people sees it on TV they will believe it - 

- This pro statehood political actor will have to speak in American english - understand the 

levels of his audience and adapt to a simple public - in order to convince taxpayers about paying 

more taxes to include us as a new state - 

- All this as we bring to the table a billionaire debt load - after a category 4 huricane devastation 

- under a FEMA Region 2 and USACOE administration - with a newly appointed Congressional 

PROMESA - FOMB - while being supervised by those enjoying the benefits of Act 20 - who 

will also have much to say - knowing that the American taxpayers already absorbed the losess of 

our AAA - ponzi scheme bonds - causing many todo loose their pensions and life savings - 

- As we have no credibility with Washington - our only reliable source of funding - due to our 

incapacity to treat federal funds correctly - 

- Why would President Trump will allow statehood ? 

- Doesn't goes against his MAGA philosophy ?

Didn't he complaint about the cost of our recovery ? 

If President Trump and Senator Bishop are party allies - then this bill is just a Pomtekin Village -

Carlos Sumpter

-

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Re: Swain DPR Correspondence Email

nanette escobar to: SwainDPRCorresp 07/12/2018 02:29 PM

From:

To: SwainDPRCorresp@nysd.uscourts.gov

Hola David mi nombre es Nanette Escobar soy de Caguas, PR actualmente resido 

desde hacen 6 año en el estado de Tennessee disculpa que te escriba en 

español, pero mi inglés aún no es bueno en la escritura se que encontrarás a 

alguien que te lo traduzca. Bueno aunque no resido en mi bella isla me 

preocupa cada día más lo que pasa y se que usted nos tomo mucho cariño y le 

agradezco grandementeeeeey de corazón ♥ todo lo que ha estado haciendo sobre 

todo llevándola cruda realidad que se está viviendo a la tv y su web page. Por 

este medio le pidió que se que podemos hacer más sólo si la deuda pública es 

auditada ya que de no hacerlo el dinero que EU y otra tantas entidades han 

aportado ha la isla no han sido utilizado como es debido ya que lo asignan 

para algunas cosas en expesificas y las misma administraciónes lo mal gastan. 

Entiendo que tengo derecho como hija puertorriqueña que soy aún viviendo fuera 

como le comenté puedo expresar mi sentir y sufrimiento por mi isla y que mejor 

que con ustedes. Es por eso que quisiera se abriera una campaña donde se 

obligue a auditar al país entero ya que es la única manera que existe para ver 

por qué tubo o a qué wallets y de que personas se está yendo el dinero que mi 

isla recibe y sin que me quede nada por dentro la llamada junta fiscal no han 

resuelto nada y ya llevan alrededor de dos años proponiendo tonterías que 

muchas de ellas no tienen nada que ver con el dinero que se necesita colectar 

para pagar. Alguien debe ya tomar cartas a este asunto pues el Gobernador Sr. 

Rosselló le tocó a su corta edad asumir todo esto sumando además el azote del 

huracán Maria del cual toda la estrategia para ayudar aunque con buenas 

intenciones de alguno no sirvió ya que la desorganización que hubo pues muchos 

querían mandar. En mi opinión personal era más fácil llevar una campaña de 

adopta un pueblo ya que muchos artistas y no artistas se desbordaron ayudando 

al país que muchas de esas ayudas no se sabe aún que pasó y otros ni la 

recibieron. Entiendo que la deuda debe ser auditada inmediatamente y debería 

serlo hasta la fecha de hoy, pues cada vez es más un circo lo que pasa y 

nosotros los puertorriqueños en especial los que viven en la isla siguen 

sufriendo aunque muchos siguen viviendo de apariencias y te lo digo yo que soy 

boricua y muchas veces nos ponemos vendas en los ojos a ver cuanto y quien 

resuelve nuestro problema. Pero le digo más con el show de hoy de AEE eso me 

molesto tanto pues es tan bochornoso como mi país en lugar de hacer y 

levantarse con amor a la patria y al prójimo cada cual quiere solo sus propios 

intereses y ya PR no queda más para repartir pues lo han despilfarrado todo y 

ya no hay más ayuda. La auditoría es lo que nos puede salvar ya que en la 

política hay mucha gente con muchos intereses y la corruption a sido horrible 

por años y lo sigue siendo, es muy lamentable. Disculpe mi atrevimiento pero 

ya uno no confía en nadie y ustedes puede seguir haciendo la diferencia por 

nosotros ya que es un hijo más de PR al haber ayudado tanto la isla se ha 

ganado el corazón de la gran mayoría o quisas la isla entera. Gracias por su 

interés en siempre decir la verdadad aún así la misma nos duela y nos deje mal 

parados ante otros países pero es una realidad que no la podemos tapar, 

gracias, graciassss y que Dios lo continúe bendiciendo una admiradora más  

 from my iPhone

On Jul 12, 2018, at 2:23 PM, SwainDPRCorresp@nysd.uscourts.gov wrote:

Please help us  is to much for pain in my island. 

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Justice

Carlos Sumpter to: swaindprcorresp 07/17/2018 07:40 AM

From:

To: swaindprcorresp@nysd.uscourts.gov

"The Righteous One knows what is going on in the homes of the wicked; 

he will bring disaster on them." 

(Proverbs 21:12)

Your Honor:

Peace be with you Madam in Jesus our Lord and Savior.

Who placed us in financial servitude?

The majority of Puerto Ricans know who.

They understand that this macro economical dis adjustment was a 

cumulative legacy of bon vivant rulers - who misused our borrowed money.

Every single dollar owed to our creditors is islandwide - just follow the 

money.

Governors between Hernandez Colon and Alejandro Garcia Padilla 

borrowed billions of dollars - to sustain their lavish lifestyles, to satisfy the 

island's oligarchies, to plug in budget deficits, and to cover government 

operational expenses.

A model that took NYC and DC both into bankruptcy.

The people of Puerto Rico knows - that after three decades of corrupción: 

private bankers, political leaders, and oligarchs are in urgent need of 

rehabilitation. It will be just if all the responsable parties could also face the 

federal justice system.

So far their untouchable juridical personality of local leaders is deeply 

rooted in a historical entitlement stronghold.

That includes their boricua federal piers as well.

In order to repay the debt, they need to return everything they took for 

themselves.

Otherwise, our so called “natural way” out of this crisis will be a painful 

process of decades of unemployment, bankruptcy and starvation. 

Your Honor if there is a visible, honest law enforcement initiative at all 

levels - that will equally prosecute - financial executives, bipartisan 

government officials, and local oligarchs - it will bring justice to our people.

By cleansing this failed leadership, a new one would emerge. 

A less corrupt one .

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Sincerely,

Carlos Sumpter -

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Dear Honorable Judge Swain:

I previously wrote a letter to you in October 2017 outlining my thoughts and feelings about the

GO/COFINA matter now pending before your court. I run a very small investment management firm

and represent many clients of modest to relatively modest means. In my letter I urged all players to

find a compromise to allow Puerto Rico rapid access to debt markets essentially through a grand

compromise and shared relative losses. I still hope such a compromise is attainable, but I fear that the

ongoing negotiations are essentially between general obligation bondholders (“GO”) and Senior

COFINA bondholders (Sr.), with subordinate COFINA bondholders (“Subs”), who are without legal

representation, being left to bear all the negative costs and outcomes of the compromise, including the

costs of the ongoing litigation.

When the COFINA Bonds were presented to investors, extraordinary steps were taken to ensure

investors understood and believed the structure to be constitutional and that investors’ money was safe,

despite the already distressed state of Commonwealth finances. You have ruled already that this matter

is one of federal jurisdiction. Although it appears likely that the Puerto Rico Supreme Court would rule

that the structure is legal under the Puerto Rican Constitution, this issue truly must be resolved under

Federal law, since the U.S. Constitution the field and, therefore, is preemptive. That is, no government

entity can pledge assets as private investments and then take them back without just compensation. 

Secondly no government (or any other) entity can breach the covenants of a contract in these

circumstances. 

Puerto Rican law and the bond offering statements are simple and clear: the sales tax revenue was

pledged as security to protect investors in return for a substantially lower cost of capital. Neither the

financial distress nor the recent hurricanes has changed those simple terms. The law is clear that these

contracts cannot be canceled, the dedicated revenue stream is enforceable, and the property rights

cannot be taken from bondholders without just compensation. 

This case, as I’m sure you would agree, is highly unusual. The COFINA bonds and their funding are

NOT directly distressed: there is more than enough secured revenue that was pledged to adequately

cover the bond payments – and these payments have been customarily made to the custodian at

BONY. Thus, as Puerto Rico has attained ever greater cash balances in the general fund while not

paying their other bondholders, this has been done while the COFINA mechanism has been intact. 

There is no need to raid the secured assets that were validly and legally pledged for the security of the

COFINA investors who sacrificed to save for their retirements. 

The assets that were validly pledged are enough to cover all COFINA bonds by a factor of 2, even with

the recent economic stressors. Rather, the threat is to the entire structure. Therefore, the outcome is

purely binary because there is little to no distinction between the Senior and First Subordinate issues. 

The distress is purely one of legal distress and not of financial distress. To make matters worse, losses

sustained by this legal distress were/are clearly avoidable because the legal challenge to the structure is

frivolous. The Senior bondholders, who negotiated the deal, have no incentive to protect Junior rights

and the GO bondholders eye the Jr assets to cover their unsecured losses. Please carefully consider that

the parties who were negotiating the current proposed settlement both stand only to gain at the expense

of the only party who has not been represented-and is still not adequately represented- at the beginning

table. Any proper first subordinate representitive (also representing the largest group of on-island bond

holders) should be insisting that there be no distinction in cuts between the first and second lien

COFINA bonds because the risk isn't getting paid with today's funds but that the whole structure would

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be rolled invalid - which means there should be no loss distinction between between the two debt

tranches.

Now the settlement discussions appear to be in the final stretch a couple of Jr COFINA holders have

started to negotiate a settlement. However, they, too, are conflicted parties. 

Oppenheimer owns a large amount of GO, creating for Oppenheimer a conflict as a negotiating party. 

Anything that is successfully taken back from the cofina structure may go toward paying the unsecured

GO HOLDERS.

We contacted the law firm representing Oppenheimer and it has refused to discuss this matter with us

(we give the Sr COFINA Coalition credit, for at least talking with us). The large hedge fund with Jr

COFINA holdings stands to benefit more from a strong recovery on its Sr lien than negotiating a fair

compromise for the Jr tranche – a clear conflict. If they hold 50% in net par of each (they own more Sr

than Jr) then an outcome that favors Sr would be better for them as Sr bonds represent less than half of

COFINA par outstanding. An easy way to look at it is if the Sr and Jr each had 50% of par and each

got 50% of revenues in any adjustment they would be treated equally. If Srs are 40% of par and Jrs

60% (roughly accurate) and they split the revenue 50/50 then a firm owning half of each tranche would

come out better. 

No one, then, is adequately representing the Jr lienholders - an injustice especially since Jr debt

disproportionately is held by small private investors, largely on the Island of Puerto Rico, whereas the

Sr COFINA holders represent over half the net par outstanding of that tranche and are almost

completely off island (even more so for GO bondholders).

Another added “bonus” the senior bondholders are trying to achieve at the expense of the Jr

bondholders (in addition to more than par by increasing their interest rates) is to impair the Juniors and

redistribute the funds that they can then justify as being a replacement, thus making them completely

tax free. As far as I can tell, their rationale is that by pooling the funds and eliminating almost 50% of

the pledged funds (all taken from the 2nd lien debt) they can claim the remaining funds were all from

funds that are qualified as tax deductible. Pretty slick. Between the increased interest rates and the

tax-free nature of those interest payments some of the zero coupon senior holders, I estimate, will get

rates of return in excess of more than 100% above their pre-reorganization figures. Soo not only is the

Sr COFINA group not aligned with the Jrs, ironically their interests are absolutely in conflict: the

seniors get a windfall payout by impairing the Jr lienholders.

This also has the added benefit of appealing to the other largest litigants in this matter, the monoline

(bond) insurers who only insure largely long-term Sr zero coupon bonds. Such an exchange offer

would likely see virtually all their insured risk come off their books overnight – not only without a

penny of losses, but with massive gains on the insured bonds they repurchased from panicked

individual investors. Most of these bonds were judicially impaired after the COFINA Sr holders argued

to Bank of New York (“BONY”) a default event had taken place and that BONY should not pay Jrs

and should accelerate Srs. That led BONY to ask the Court to allow them to withhold payments –

which directly led to the proposed distressed settlement agreement that unfairly benefits Sr COFINA

and monoline insurers. I don’t think this is coincidence.

The current distress did not stem from a natural disaster. It is easy to feel sympathy for the victims of a

major disaster and compensate accordingly, but no hurricane caused this controversy. A hurricane

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cannot rewrite a constitutional mandate that has existed for nearly 230 years. Our forefathers

presciently foresaw this exact issue and determine its outcome long before Puerto Rico suffered any

recent natural disaster.

The cause of this controversy is systemic. The Puerto Rican Government failed to provide accurate

financial accounting and actively misled the public (and did so for decades - the true cause of its

financial distress). 

Now, because the constitutionally protected interest payments and principal are being withheld (placing

the unproven and tenuous “rights” of unsecured lienholders over the rights of secured lienholders),

investors surviving on limited income are forced to sell at losses to cover medical expenses and even

the loss of a home. Correcting the problems, injustices, and bad luck of one group of people by

impairing others is not a way to impart justice. This situation cannot be corrected by disenfranchising

all the small investors on and off the island who hold the secured debt.

But the situation is even more dire for those who hold junior COFINA bonds. The senior bondholders

negotiated a “solution” that not only doesn’t impair their superior assets but, as the GO holders

complained, actually may give the senior bondholders a windfall return of more than par. I confronted

the attorneys representing the senior COFINA bondholders with this fact immediately after the recent

settlement outline was announced. What the GO holders failed to mention was those same proposed

settlement terms gave the GO holders similar increased returns (the same as the Sr COFINA investors)

relative to the announced headline numbers. 

Counsel for the senior coalition confided to me that no one was representing junior bondholder

interests during the settlement talks, which is abundantly clear by the outcome. Further, under the

same proposed settlement, the general obligation bondholders would also receive more than par value. 

So, both senior COFINA and general obligation bondholders will benefit u at the expense of the junior

COFINA bondholders.

The agreement the GO and Senior COFINA bondholders agreed to in principle is also not in

accordance with the Federal Law that allowed and set the rules for bankruptcy restructuring,

PROMESA. Most notably the settlement proposed does not respect the existing liens before the

bankruptcy proceedings went into effect as it effectively grants the unsecured bondholders the Jr

holders’ pledged assets. The revised agreement takes away the majority of the pledged assets from the

Jr holders and gives them back to the state. The Commonwealth is obliged by contract and their own

laws to defend and uphold the COFINA structure; PROMESA reaffirms the Commonwealth must

uphold those vows. It should be noted that the GO holders are still trying to negotiate to acquire (or

more accurately, “gifted”) the Jr COFINA bondholders pledged assets to placate the large institutional

holders of GO bonds while not damaging the large institutional holders who own Sr COFINA. 

Meanwhile, the less sophisticated majority of small investors absorb a disproportionate burden and are

the primary losers and furthermore must foot the bill for these billion dollar plus funds to carve up the

more pedestrian public’s pie. This type of capital cronyism cannot be allowed to prevail in our court

system,

EAM, my clients and I are of very modest size and we detest waste. We do not want to lawyer up and

add to the massive legal costs. This is especially so since, by awarding legal fees out of the COFINA

fund while allowing the senior bondholders to receive 100% of their investment, the actual costs are

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being borne only by the junior bondholders. This is the real-world result of a negotiation by counsel

representing only the senior bondholders’ interests. 

If this case continues then it is clearly fair to approve funds for proper and separate representation for

the subordinate bondholders who have thus far not been represented and yet are set to bear all the

adjustment and legal fees for the parties involved. This is not justice. This is not what is best for the

island and regular Joe investors. It is what is good for an elite few at the expense of justice for the

majority.

While I firmly believe that the legal basis for the COFINA structure is clear, I would welcome a

settlement in which all parties share in the relative losses. I will say, though, that despite my eagerness

to participate in a fair compromise that would benefit my fellow Americans in Puerto Rico, I believe

the time has come to put this matter to rest so all stakeholders can move forward – including the

municipal bond markets which, as a whole, shall likely come to rely more and more on securitized debt

as a second chance to right runaway expenses(just like individuals and corporations do each and every

day in their respective financing/debt markets). The recent disasters in Puerto Rico have put political

pressure on Puerto Rican leaders to deny payment of valid, secured liens. But you do not have to bend

to political pressure. You are bound by the rule of law, and only the rule of law. And your decisions

will impact not just the people of Puerto Rico today, but also every other distressed municipality into

the future. Often the best course of action isn’t the easiest one for the immediate situation. That is why

these decisions are thankfully left in the hands of judge and not politicians.

Even though I would prefer a negotiated settlement I do believe the right legal decision is to honor the

valid, secured lien of COFINA bondholders. I believe it will most rapidly (that is, immediately) get

Puerto Rico access to credit markets and on its way toward recovery. One factor I have not heard

mentioned by either party is that most COFINA bonds are callable and the moment the COFINA

structure is upheld it is likely these bonds could be seen at much lower interest rates – and that will lead

to greater recovery for all participants, including GO and the Commonwealth, itself. 

The time has come to move on and heal. It is time for the majority of COFINA secured subordinate

bondholders (about 6 billion dollars according to GO arguments) to be released to provide a boost to

the Puerto Rican economy while providing the commonwealth immediate access to additional

inexpensive financing as Congress mandated by PROMESSA. 

Finally it should be noted the current solution is in the interest of NO ONE, except for the cofina senior

holders. If the bonds were simply affirmed then seniors wouldn't get a winddfall and Juniors would get

paid their rightful amount. But this would also be better for Puerto Rico because by AFFIRMING the

debt structure it would bit prevent PR from accessing the cofina structure for future, and even

immediate financing. In fact over half the par outstanding of the cofina structure is immediately or

almost immediately CALLABLE. If the structure is upheld then most the bonds could be refinanced

immediately at half the current interest rates providing more saving to the commonality than unpairing

the structure. Additionally with refinancing additional first and second lien bonds could be issued at

those lower interest rates that would provide a huge boost to the economic recover and even to

recoveries on other classes of bonds.

The cofina senior group is a sophisticated and very large group of multi-billion dollar hedge funds, as

are the GO/unsecured debtors group. It is quite telling the scheme the two of them hatched was to carve

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up secured revenues from the subordinate holders rather than the GOs continuing their independent

fight or the COFINA senior group giving up so much as a dime - quite the contrary they only

negotiated a windfall I'm shocked hasn't been highlighted to the court until now.

I do not live on the island, but I feel a connection to the island, so much so that I have begun the

process of moving to the island to increase my role in helping the economy recover. The cloud placed

on what I believe are constitutionally protected assets has proven immensely costly to me and those I

serve. My company has a mere, approximately, $30 million under management AFTER the recent

increase in COFINA bond prices. This attack on the COFINA structure damaged my business, my

clients’ savings, and my personal investments.

In fact, I have many clients and friends on and off the island who have been harmed during this assault

on a valid, secured lien and constitutionally protected pledge of assets. I have had one client who

during this time had a massive heart attack. He is wondering where the money is coming to pay for his

monthly care – and he had less than 2 years left as of the end of 2017 as most his remaining funds are

in COFINA. Neither he nor I are diversified, but it is my job to allocate funds to the place that will

give the best return. I warned my clients about housing market crises and other excesses; Puerto Rico

is another case example in excess spending and being too hopeful and “kicking the can down the

road”. Certainly, all was done under the laws of both Puerto Rico and the United States. But the result

has favored the desperate calls of true junk bond investors over that of the law of our great country. I

still believe this country is the best place to work and live – and it is because we can count on rule of

law, even when there exists political pressure to do otherwise.

I don’t think it is right to continue to hold our assets from our ownership and continue to cause

financial hardship when ultimately the matter becomes an issue of US Constitutional Law, which

supersedes all other law. It is this strong body of law that allows efficient working capital markets. 

Imagine, for a minute, if COFINA is overturned. How can I, as an investment manager, know when a

bond is truly what is represented if I can’t trust the bond attorneys, underwriters, rating agencies, and

even the elected legislature and laws to protect my rights in the event things don’t go well?

I researched beyond what I believe 99% of other investors, individual and institutional, have put into

this matter. I traveled to the island and met with the people who were instrumental in creating and

funding this issue, I read almost all the case law and every research report, press release, and PR Govt

Development Bank/COFINA/PR Elected and Chief Justice I could get my hands on. I explained this to

all of the people who give me the honor of guiding them in investing their very hard-earned and finite

resources. And I actually foresaw this precise situation and stated the GO would likely sue where the

money was (COFINA) but ultimately lose. I knew this situation would be scary. However, we would

have to plug our noses and make it through the rhetoric to endure and not succumb to panic. My

income was hurt and, as I make most my money from my own relatively modest investments (and due

to my disability) my income has been effectively cut off during this time. But, disabled and in pain,

with my house burned and now gone forever(due to my money also being locked into distressed

COFINA securities that should be protected by the US Constitution), I must endure and move on – as

must everyone else in this matter.

I am honored you chose my letter to read to the court last year. I didn’t mention my emotional story

because it really wasn’t material to your decision. However, I believe by sharing my story now I can

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help put any decision into context for the other players. I am not poor nor am I rich. But I work very

hard and I made a decision to lend my money to Puerto Rico through COFINA based on the highest

laws of the land. If this decision goes against COFINA, how can any individual investor lend his or her

money to any government entity if every word can be challenged in court and imperil what is a

constitutionally sound and well secured promise to pay? Surely that is the heart of our entire economic

success as a country. 

Parsing the language of the PR Constitution, which I believe is preempted by the US Constitution, it

states (I paraphrase) “the [general obligation/unsecured] debt must be paid from all available resources 

before anything else.” If the term “available” were intended to mean “every” resource I would think it

would clearly say that. And if it did mean every resource as the GO bondholders argue then it would 

mean the writers of the Puerto Rican Constitution meant for the bondholders to be paid before the

roads, public welfare, police, prisons, health, education, disaster recovery, etc. Surely that cannot be

the intention of the drafters. The legislature clearly seemed to understand it the way most of us do when

they created COFINA (and toll highway bonds and tobacco revenue bonds, and public housing bonds,

and university bonds, etc.); that is, the assets which secure those bonds are not an available resource.

A decision which upholds the rights of clearly defined secured creditors, with the time and damages 

and money spent on this litigation, and those costs will then be ultimately born by GO holders, will

serve as an example to future GO bondholders to litigate at their own peril, for doing so in the face of 

such clearly defined legal precedent is to waste precious resources that could be better spent helping a

struggling commonwealth and its struggling people.

In closing I, once again, urge you to follow the mandates in the U.S. Constitution and rule in favor of

COFINA’s constitutionality. Equally important is the equity in treatment of ALL bondholders - GO,

Sr, and Sub COFINA bondholders alike. As it stands now, Sub bondholders stand to bear the burden

of this ongoing litigation(including so the legal fees of the parties that negotiated to catch up the second

liens pledged assets. Fairness dictates that this should not stand. We ask that you keep the Subs in

your mind and/or allow the Subs to engage separate counsel to advocate for their interests.

Sincerely Yours, 

Mark Elliott, 

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