1

 SOUTHERN DISTRICT REPORTERS, P.C.

 (212) 805-0300

IA5PPUEC 

UNITED STATES DISTRICT COURT 

DISTRICT OF PUERTO RICO 

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

GOVERNMENT DEVELOPMENT BANK 

FOR PUERTO RICO. PROMESA 

 Title VI 

 Applicant. Case No. 18-1561 (LTS) 

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

In re: 

 PROMESA 

THE FINANCIAL OVERSIGHT AND Title III 

MANAGEMENT BOARD FOR PUERTO RICO, 

 as representative of Case No. 17-BK-3283 (LTS) 

THE COMMONWEALTH OF PUERTO RICO, 

ET AL., 

 (Jointly Administered) 

 Debtors. 

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

THE OFFICIAL COMMITTEE OF 

UNSECURED CREDITORS OF THE DEBTORS 

(OTHER THAN COFINA), 

 Plaintiff, 

 v. Adv. Proc No. 18-00101 (LTS) 

THE COMMONWEALTH OF PUERTO RICO, 

THE PUERTO RICO FISCAL AGENCY AND 

FINANCIAL ADVISORY AUTHORITY, THE 

GOVERNMENT DEVELOPMENT BANK FOR 

PUERTO RICO, AND THE FINANCIAL 

OVERSIGHT AND MANAGEMENT BOARD FOR 

PUERTO RICO, 

 Defendants. 

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

 New York, N.Y. 

 October 5, 2018 

 10:22 a.m. 

Before: 

HON. LAURA TAYLOR SWAIN, 

 District Judge 

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case:17-03283-LTS Doc#:4049 Filed:10/15/18 Entered:10/15/18 17:00:51 Desc: Main

Document Page 1 of 14
2

 SOUTHERN DISTRICT REPORTERS, P.C.

 (212) 805-0300

IA5PPUEC 

APPEARANCES 

O'MELVENY & MYERS LLP

 Attorneys for The Puerto Rico Fiscal Agency and Financial 

Advisory Authority ("AAFAF") and the Government Development 

Bank for Puerto Rico ("GDB") 

BY: PETER FRIEDMAN, ESQ. 

 SUZZANNE UHLAND, ESQ. 

 MATTHEW KREMER, ESQ. 

PAUL HASTINGS LLP 

 Attorneys for The Official Committee of Unsecured 

Creditors ("UCC") 

BY: LUC DESPINS, ESQ. 

PROSKAUER ROSE LLP

 Attorneys for The Financial Oversight and Management Board 

for Puerto Rico (the "FOMB")

BY: MARTIN BIENENSTOCK , ESQ. 

 EHUD BARAK, ESQ. 

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case:17-03283-LTS Doc#:4049 Filed:10/15/18 Entered:10/15/18 17:00:51 Desc: Main

Document Page 2 of 14
3

 SOUTHERN DISTRICT REPORTERS, P.C.

 (212) 805-0300

IA5PPUEC 

(In open court) 

THE COURT: Buenos dias. Please be seated.

(Case called) 

THE COURT: Again, good morning. Greetings to all of

the attendees here in New York and San Juan and by telephone.

Just briefly, the electronic devices rules that always 

apply apply today; so there's to be no communicating from the 

courtroom and no recording or retransmission of any kind. 

Mr. Friedman, you have an update?

MR. FRIEDMAN: Good morning, your Honor. Peter

Friedman from O'Melveny & Myers on behalf of AAFAF and the GDB.

I do have an update. As I mentioned on Wednesday, we were

doing what lawyers do, which was talking. We actually did

something even better than talking. We listened to each other.

We have an agreement as between the Unsecured Creditors

Committee, the Oversight Board, AAFAF and GDB that resolves the

various objections. 

It's even better than just an agreement. We actually 

have a definitive document, a stipulation entered into by the 

parties last night. What I'd request permission of the Court 

to do is actually turn it over to my colleague, Matthew Kremer, 

who I don't think has had a chance to address the Court yet, 

but he really did the work, and I think he should be the first 

one to explain what has happened. 

I do just want to thank Mr. Despins and his team, 

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case:17-03283-LTS Doc#:4049 Filed:10/15/18 Entered:10/15/18 17:00:51 Desc: Main

Document Page 3 of 14
4

 SOUTHERN DISTRICT REPORTERS, P.C.

 (212) 805-0300

IA5PPUEC 

Mr. Bienenstock, Mr. Barak from Proskauer, as well the support 

from the bond holders represented by Davis Polk, all of who 

were extremely important in getting to what we consider to be 

an excellent resolution of this issue. There are, obviously, 

matters to come. With respect to GDB, there are still some 

objectors out there, but we view this as a really significant 

step forward. With the Court's permission, I'd like to turn it 

over to Mr. Kremer. 

THE COURT: Thank you. Mr. Kremer.

MR. KREMER: Thank you, your Honor. Matthew Kremer

from O'Melveny & Myers on behalf of AAFAF and GDB.

THE COURT: Good morning.

MR. KREMER: Good morning. 

If your Honor would like, I can walk us through the 

material terms of the stipulation that was recently filed on 

the docket. 

THE COURT: I'd be grateful because I've only had a

chance to skim it.

MR. KREMER: Understood. I will start with on page 5,

skipping through the recitals and jumping straight to the first

operative provision.

THE COURT: Yes.

MR. KREMER: So the settlement here really has three

separate components. The first component, which is under Roman

Numeral I, the PET distribution. This component of the

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case:17-03283-LTS Doc#:4049 Filed:10/15/18 Entered:10/15/18 17:00:51 Desc: Main

Document Page 4 of 14
5

 SOUTHERN DISTRICT REPORTERS, P.C.

 (212) 805-0300

IA5PPUEC 

settlement was to ensure that there was a more definitive and

improved recovery for the Title III debtors that are net

creditors of GDB. These are PREPA and ERS.

So the way that we've structured this agreement, to 

provide a more definitive recovery to these two entities, is to 

provide, first, a cash payment of $20 million to the public 

entity trust. This payment will be paid on the closing date. 

Otherwise, under the previous structure, this 20 million would 

have gone to the issuer trust. 

In addition, as your Honor knows, there are several

reserves that are being held back at GDB with respect to

certain allocated expenses including, you know, vendor reserves

for open and disputed vendor claims and operating expenses. To

the extent that there is, you know, a residual in these reserve

accounts, after all of the expenses for which they were

allocated had been satisfied, that reserve, the first 10

million of any residual will now go to the public entity trust,

and then thereafter will continue to go to the issuer trust as

previously contemplated.

The cash component that I just described, in the

aggregate, potentially up to 30 million, will be structured

such that the Title III debtors, namely again PREPA and ERS,

will have priority with respect to that cash distribution. So

that's the first component.

The second component starts on page 6 of the

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case:17-03283-LTS Doc#:4049 Filed:10/15/18 Entered:10/15/18 17:00:51 Desc: Main

Document Page 5 of 14
6

 SOUTHERN DISTRICT REPORTERS, P.C.

 (212) 805-0300

IA5PPUEC 

informative motion, or really page 6 of the stipulation

attached to the informative motion. This is an agreement by

GDB to transfer certain legal claims to the Commonwealth. The

definition of such claims that will be transferred is set forth

in paragraph 8. These are, in large part, claims where GDB was

acting in its role as the fiscal agent or financial advisor or

in some other representative capacity of the Title III debtor

or another government entity.

THE COURT: Now, I notice that the stipulation refers

to transfer to the applicable Title III debtor or other

government entity. So is it your practical understanding that

it's the Commonwealth that would be the transferee?

MR. KREMER: Not necessarily the Commonwealth in every

instance. For example, your Honor, if it was -- if the claim

related to, say, PREPA's debt issuance and PREPA was the issuer

and GDB was the fiscal agent facilitating that issuance, in

that instance, that cause of action would go to PREPA and not

necessarily to the Commonwealth.

THE COURT: So the breadth of the language in the

stipulation is consistent with the intent and understanding of

the parties?

MR. KREMER: That is correct, your Honor.

So skipping now to the third component of this

settlement, and that is starts on page 8, and this is the claim

against the Commonwealth. So, as your Honor knows, previously,

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case:17-03283-LTS Doc#:4049 Filed:10/15/18 Entered:10/15/18 17:00:51 Desc: Main

Document Page 6 of 14
7

 SOUTHERN DISTRICT REPORTERS, P.C.

 (212) 805-0300

IA5PPUEC 

the only collateral at the public entity trust was the 

$890 million claim that has been asserted by GDB against the

Commonwealth in the Title III case.

Under the Commonwealth fiscal plan, the Commonwealth 

will be restoring certain federal funds, and on account of that 

restoration, we've agreed to reduce the claim at the 

Commonwealth by 312 million, the anticipated amount of federal 

funds that will be restored. So the Commonwealth is getting, 

you know, credit for that restoration. 

And the next component of that is -- well, I'll note 

that, of course, that claim that GDB had filed was not yet 

allowed in the Title III case; so subject to allowance, the 

claim will be allowed at a maximum amount of 578 million. 

And then the final component is certain proceeds of 

causes of actions that will be transferred, up to a maximum 

amount, to the public entity trust. And these are the causes 

of action that GDB owns in its own name, and under the current 

structure, the way that this is dealt with is GDB has the sole 

discretion to commence, prosecute and settle these claims. If 

it were to prosecute one of these claims and realize proceeds 

related to those claims, they would be able to retain those 

proceeds and continue to settle contingent non-liquidity 

claims. 

To the extent that, after all contingent claims were 

settled, there was remaining proceeds, previously those would 

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case:17-03283-LTS Doc#:4049 Filed:10/15/18 Entered:10/15/18 17:00:51 Desc: Main

Document Page 7 of 14
8

 SOUTHERN DISTRICT REPORTERS, P.C.

 (212) 805-0300

IA5PPUEC 

go to the issuer trust. Under this stipulation, we've agreed 

that those proceeds will go to the public entity trust up until 

there's a definitive recovery for certain entities, as set 

forth in paragraph 14 of the stipulation. 

THE COURT: And that recovery roughly parallels the

anticipated recovery of the bondholders that are participating

in the issuer trust?

MR. KREMER: That is right, your Honor, with one

caveat. The 55 cents is the 55 cents of the proceeds. In

other words, it is not accounting for the cash that was

previously distributed. So in the best-case scenario, one of

the Title III debtors could receive their component of the

cash, the 30 million, plus the up to 55 percent of the proceeds

of these causes of action.

THE COURT: Thank you for clarifying that.

MR. KREMER: In exchange for all of these, you know,

settlement terms that I've just gone over, the UCC as set

forth, in Roman Numeral V -- or IV, excuse me, your Honor, will

agree to withdraw with prejudice all of its various pleadings

before your Honor. That includes the adversary complaint, the

objection to the Title VI transaction, the derivative standing

motion, and the appeal of your Honor's stay order. 

And, your Honor, unless you have any further 

questions, I think that covers the material terms of the 

overall settlement. 

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case:17-03283-LTS Doc#:4049 Filed:10/15/18 Entered:10/15/18 17:00:51 Desc: Main

Document Page 8 of 14
9

 SOUTHERN DISTRICT REPORTERS, P.C.

 (212) 805-0300

IA5PPUEC 

THE COURT: I just have one further question. Is it

your collective assessment that the economic changes with

respect to the issuer trust and the PET won't require any

re-disclosure and re-solicitation?

MR. KREMER: That is right, your Honor. I want to be

careful and not get in front of my securities lawyers here. We

will have disclosures on this, but we do believe this is not a

material change. The net present value is, in our view,

de minimus and would not require a re-solicitation, and we've

been in communications with the various securities

professionals and underwriters with respect to this issue.

THE COURT: So this won't affect the schedule that we

had set up for consideration of the GDB restructuring?

MR. KREMER: That is right, your Honor.

THE COURT: Thank you very much for that clear and

comprehensive summary and for your work on this.

MR. KREMER: Thank you, your Honor.

THE COURT: Looks like Mr. Despins has a question.

(Pause) 

MR. KREMER: Mr. Despins has clarified for me, the 55

cents is so they can obtain from the proceeds of those causes

of action 55 cents of their net claims against the PET. So

they could receive a 55 percent recovery there, plus the cash.

So it's a slight nuance from -- it's not 55 percent of the

proceeds. In that instance, one of the debtors could obtain

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case:17-03283-LTS Doc#:4049 Filed:10/15/18 Entered:10/15/18 17:00:51 Desc: Main

Document Page 9 of 14
10

 SOUTHERN DISTRICT REPORTERS, P.C.

 (212) 805-0300

IA5PPUEC 

more recovery than in their claim; so it's just 55 percent of

their claim.

THE COURT: Of their claim. 

MR. KREMER: Exactly. 

THE COURT: Plus the proportion of the cash that's

going on the front end?

MR. KREMER: Yes. Thank you for that clarification.

THE COURT: Mr. Despins?

MR. DESPINS: Good morning, your Honor. Luc Despins

with Paul Tastings on behalf of the Committee. I don't have a

lot to say, other than, you know, this involved really complex

legal issues. I've done a lot of cases before, probably one of

the most complex cases that I've ever had to deal with, and so

the Committee is happy that this is now resolved.

We think that the Title III debtors and their 

creditors are better off for it, and so we're looking forward 

to the conclusion of the transaction when -- or settlement will 

be approved as part of the qualifying modification, if your 

Honor approves the qualifying modification. Thank you, your 

Honor. 

THE COURT: Thank you, all. Mr. Barak?

MR. BARAK: Good morning, your Honor. Ehud Barak from

Proskauer Rose, representing the Oversight Board, a

representative of the Title III debtors, and the administrative

supervisor for the Title VI. That's a long name.

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case:17-03283-LTS Doc#:4049 Filed:10/15/18 Entered:10/15/18 17:00:51 Desc: Main

Document Page 10 of 14
11

 SOUTHERN DISTRICT REPORTERS, P.C.

 (212) 805-0300

IA5PPUEC 

A few short comments. The Oversight Board is pleased 

to be able to proceed with the GDB restructuring. Timing, as 

we all know, is important in the overall Puerto Rico 

restructuring efforts, and the settlement allows the 

restructuring to move forward. 

Just one reservation of rights, and I'm sure my 

colleagues here agree. All arguments with respect to the 

standing, or lack thereof, are explicitly preserved in the 

settlement. We would just ask that once the Court has the 

chance to review the stipulation, we will ask the Court to so 

order it. Of course, if the Court has any questions for the 

parties, we'll be happy to come back and answer any questions 

you may have. Thank you. 

THE COURT: Thank you. It was my intention to take

the opportunity to have a careful read.

MR. BARAK: Of course.

THE COURT: I was very grateful for the guidebook that

you've given me here, and I was also intending to ask you to

confirm that what you're seeking is for me to so order and make

binding on the parties to the stipulation, the stipulation at

this juncture, and I see it provides for an effective date of

its operative provisions that is tied to approval of the GDB

qualifying modification.

MR. BARAK: Exactly.

THE COURT: Is that correct?

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case:17-03283-LTS Doc#:4049 Filed:10/15/18 Entered:10/15/18 17:00:51 Desc: Main

Document Page 11 of 14
12

 SOUTHERN DISTRICT REPORTERS, P.C.

 (212) 805-0300

IA5PPUEC 

MR. BARAK: Yes, thank you.

THE COURT: Thank you. So this certainly has been a

very complex set of issues among the many complex legal and

financial issues presented in these extraordinary PROMESA

matters, and I thank you for the work that you have done to

resolve them and to enable the parties in interest, the

stakeholders, to move forward toward to the core question of

whether the qualifying modification should be approved, and I

look forward to full briefing and presentations on that issue

on the schedule that has been established.

Again, I do thank you for your careful presentation of 

this settlement stipulation proposal this morning, and I will 

turn to my more careful review promptly, and should we have any 

questions, we'll reach out for clarification. 

Is there anything else that we should take up together 

this morning? Mr. Despins? 

MR. DESPINS: Your Honor, thank you. This is not GDB

related. It will save us filing an informative motion. Just

to say the board filed, in COFINA, a motion to set various

hearing dates.

THE COURT: Yes.

MR. DESPINS: You saw that. And it says in there that

the Committee has agreed to those dates, and that's true. I

just want to make sure that's not read as the Committee is on

board. We're still waiting for the fiscal plan. So hope

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case:17-03283-LTS Doc#:4049 Filed:10/15/18 Entered:10/15/18 17:00:51 Desc: Main

Document Page 12 of 14
13

 SOUTHERN DISTRICT REPORTERS, P.C.

 (212) 805-0300

IA5PPUEC 

springs eternal. It probably is going to come in towards the

later part of this month; so we're waiting for that. I didn't

want our consent to those dates to reflect the fact that -- or

to indicate that somehow we're now on board.

THE COURT: I had understood it as a scheduling

proposal only.

MR. DESPINS: Great. Thank you.

THE COURT: Thank you. As I read it, you provided in

the notice for an objection deadline of Monday afternoon, and

so I will wait until that deadline has passed, in case there

are any objections to the scheduling, but it is merely a

scheduling proposal. Am I correct in that understanding?

Thank you all very much. Keep well. We're adjourned. 

(Adjourned)

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Case:17-03283-LTS Doc#:4049 Filed:10/15/18 Entered:10/15/18 17:00:51 Desc: Main

Document Page 13 of 14
14

 SOUTHERN DISTRICT REPORTERS, P.C.

 (212) 805-0300

IA5PPUEC 

UNITED STATES DISTRICT COURT) 

 ) ss. 

OF PUERTO RICO ) 

REPORTER'S CERTIFICATE 

I, Rose M. Prater, do hereby certify that the above

and foregoing pages, consisting of the preceding 13 pages

constitutes a true and accurate transcript of our stenographic

notes and is a full, true, and complete transcript of the

proceedings to the best of our ability.

Dated this 5th day of October, 2018.

Rose M. Prater ________________

Rose M. Prater, RPR, CRR 

 Official Court Reporter 

 500 Pearl Street 

New York, NY 10007 

212-805-0320 

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

S/ ROSE M. PRATER

Case:17-03283-LTS Doc#:4049 Filed:10/15/18 Entered:10/15/18 17:00:51 Desc: Main

Document Page 14 of 14