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IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF PUERTO RICO

In re:

The Financial Oversight and Management Board for 

Puerto Rico, 

as representative of

The Commonwealth of Puerto Rico, et al.

Debtors.1

PROMESA

Title III

No. 17 BK 3283-LTS

(Jointly Administered)

In re:

The Financial Oversight and Management Board for 

Puerto Rico, 

as representative of

Puerto Rico Sales Tax Financing Corporation 

(COFINA),

Debtor.

PROMESA

Title III

No. 17 BK 3284-LTS

THE PUERTO RICO FUNDS’ RESPONSE TO 

BANK OF NEW YORK MELLON’S OBJECTION TO THE PROPOSED 

DISCLOSURE STATEMENT FOR THE COFINA PLAN OF ADJUSTMENT

 

1 The Debtors in these 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) 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), (iii) Puerto Rico Highways and Transportation Authority (“HTA”) (Bankruptcy Case No. 17-BK3567 (LTS)) (Last Four Digits of Federal Tax ID: 3808), (iv) Puerto Rico Sales Tax Financing Corporation 

(“COFINA”) (Bankruptcy Case No. 17-BK-3284 (LTS)) (Last Four Digits of Federal Tax ID: 8474); and (v) Puerto 

Rico Electric Power Authority (“PREPA”) (Bankruptcy Case No. 17-BK-4780) (Last Four Digits of Federal Tax ID: 

3747).

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Certain Puerto-Rico based mutual funds (collectively, the “Puerto Rico Funds”)2hereby 

submit this this response (the “Response”) to the Objection of the Bank of New York Melon, as 

Trustee, to the Disclosure Statement for the Title III Plan of Adjustment of the Debts of Puerto 

Rico Sales Tax Financing Corporation [ECF No. 324] (the “Objection”),

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and respectfully state 

as follows: 

ARGUMENT

1. In its Objection, the indenture trustee for the COFINA Bonds, Bank of New York 

Mellon (“BNYM”), disguises its apparent objections to confirmation of the Plan of Adjustment 

as objections to the Disclosure Statement. The Objection is without merit and should be denied.

2. The Puerto Rico Funds are (i) holders of over $600 million of COFINA Bonds, 

(ii) parties to the PSA, (iii) Consummation Cost Parties under the proposed Plan of Adjustment, 

and (iv) parties to litigation concerning COFINA’s property rights both prior to and during this 

Title III Case. Without question, the proposed Plan of Adjustment is a monumental achievement 

in the rehabilitation of Puerto Rico and its instrumentalities. It is the product of more than a year 

of arm’s length (and at times, arm breaking) negotiations led by the mediation team of 

distinguished federal judges appointed by this Court.

 

2 The Puerto Rico Funds are the following Puerto Rico-based funds: Puerto Rico AAA Portfolio Bond Fund 

II, Inc.; Puerto Rico AAA Portfolio Bond Fund, Inc.; Puerto Rico AAA Portfolio Target Maturity Fund, Inc.; Puerto 

Rico Fixed Income Fund, Inc.; Puerto Rico Fixed Income Fund II, Inc.; Puerto Rico Fixed Income Fund III, Inc.; 

Puerto Rico Fixed Income Fund IV, Inc.; Puerto Rico Fixed Income Fund V, Inc.; Puerto Rico Fixed Income Fund 

VI, Inc.; Puerto Rico GNMA & U.S. Government Target Maturity Fund, Inc.; Puerto Rico Investors Bond Fund I; 

Puerto Rico Investors Tax-Free Fund, Inc.; Puerto Rico Investors Tax-Free Fund, Inc. II; Puerto Rico Investors TaxFree Fund III, Inc.; Puerto Rico Investors Tax-Free Fund IV, Inc.; Puerto Rico Investors Tax-Free Fund V, Inc.; 

Puerto Rico Investors Tax-Free Fund VI, Inc.; Puerto Rico Mortgage-Backed & U.S. Government Securities Fund, 

Inc.; Tax-Free Puerto Rico Fund, Inc.; Tax-Free Puerto Rico Fund II, Inc.; Tax-Free Puerto Rico Target Maturity 

Fund, Inc.; and UBS IRA Select Growth & Income Puerto Rico Fund. 

3 Capitalized terms not defined herein shall have the meanings ascribed to them in the Disclosure Statement 

for the Title III Plan of Adjustment of the Debts of Puerto Rico Sales Tax Financing Corporation [ECF No. 310] 

(the “Disclosure Statement”). 

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3. While BNYM tries to shoot holes in the proposed Disclosure Statement over 

alleged lack of adequate information concerning the Consummation Costs payable to the 

Consummation Cost Parties under the Plan of Adjustment, the fact remains that the Disclosure 

Statement contains more than adequate information. 

4. BNYM’s assertion that if the Consummation Costs are Administrative Expense 

Claims, the Disclosure Statement fails to “provide information sufficient to enable a hypothetical 

investor . . . to make an informed judgment about the Plan,” Objection, ¶ 19, is simply incorrect. 

5. Section 1125(b) of title 11 of the United States Code (the “Bankruptcy Code”), 

incorporated into in section 301 of the Puerto Rico Oversight, Management and Economic 

Stability Act, 48 U.S.C. §§ 2101-2241 (“PROMESA”), provides that acceptance or rejection of a 

plan of adjustment from holders of claims or interests may not be solicited unless a disclosure 

statement approved by the court, containing “adequate information” is transmitted to such 

holder. 11 U.S.C. § 1125(b).

6. What constitutes “adequate information” varies from case to case. In re Oxford 

Homes, 204 B.R. 264, 269 (Bankr. D. Me. 1997). A court should evaluate the information 

provided in a disclosure statement “in light of the particular circumstances of the case and the 

‘need for a quick solicitation and confirmation.’” In re El Comandante Mgmt. Co., LLC, 359 

B.R. 410, 414 (Bankr. D.P.R. 2006) (quoting Norton Bankr. L. & P. 2d § 86.22). Underpinning 

the adequate information requirement is the idea that “[c]reditors deserve to be fairly informed of 

the transaction costs entailed in the reorganization plan they are being asked to back.” Oxford 

Homes at 269. The Disclosure Statement does exactly that.

7. Here, the Disclosure Statement has gone beyond simply providing the transaction 

costs entailed in the proposed reorganization of COFINA. It contains information regarding the 

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nature, justification, treatment and tax consequences of the Consummation Costs. See

Disclosure Stmt., IV.E.4., VI.C.3. XIII.B.2.c(2), XVI.2. The Disclosure Statement also explains

that the purpose of the Consummation Costs is “to compensate Consummation Cost Parties for 

the cost of negotiation, confirmation and consummation of the Term Sheet and the Plan of 

Adjustment, and in consideration of (a) the negotiation, execution and delivery of the Amended 

PSA by each Consummation Cost Party and (b) the obligations and covenants contained in the 

Amended PSA.” Disclosure Stmt., VI.C.3. 

8. Nevertheless, in response to the Objection, the Puerto Rico Funds understand 

FOMB is providing additional disclosure. Moreover, the Response of the COFINA Senior 

Bondholders’ Coalition to the Objections of Bank of New York Mellon to the Proposed 

Disclosure Statement for the COFINA Plan of Adjustment [ECF No. 351] outlines additional 

justification and disclosure regarding the Consummation Costs.

9. As stated, the Consummation Costs are a critical part of a multi-faceted global 

resolution of the Commonwealth-COFINA Dispute, resulting in the Plan of Adjustment and the 

Disclosure Statement. The Consummation Cost Parties are entitled to the Consummation Costs 

as a key component toward obtaining the requisite support for the Plan of Adjustment required to 

implement the compromises and settlements contained therein. Furthermore, under the PSA, the 

Consummation Cost Parties have agreed to “lock up” and other trading restrictions concerning 

their COFINA Bonds during much of the process and forfeit the right to trade such bonds on the 

open market.

10. In addition to protecting COFINA and COFINA bondholders’ interest and 

facilitating a global resolution that allows COFINA to emerge from its Title III Case, the 

Consummation Cost Parties, including the Puerto Rico Funds, incurred significant expenses. 

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The Consummation Cost Parties retained legal counsel and financial advisors to advise them in 

this process. The Consummation Cost Parties and their professionals devoted countless hours 

preparing for and attending hearing and mediation sessions. 

11. Simply put, the PSA and the Plan would not be possible without the 

Consummation Cost Parties’ efforts. The Objection by BNYM is without merit and the 

Disclosure Statement should be approved.

CONCLUSION

For the foregoing reasons, the Court should approve the Disclosure Statement.

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

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

RESPECTFULLY SUBMITTED.

In San Juan, Puerto Rico, November 16, 2018.

By:

/s/ Alicia I. Lavergne-Ramirez

José C. Sánchez-Castro

USDC-PR 213312

jsanchez@sanpir.com

Alicia I. Lavergne-Ramírez

USDC-PR 215112

alavergne@sanpir.com

Maraliz Vázquez-Marrero

USDC-PR 225504

mvazquez@sanpir.com

SÁNCHEZ PIRILLO LLC

270 Muñoz Rivera Avenue, Suite 1110

San Juan, PR 00918

Tel. (787) 522-6776

Fax: (787) 522-6777

Counsel for Puerto Rico AAA Portfolio Bond

Fund, Inc., Puerto Rico AAA Portfolio Bond

Fund II, Inc., Puerto Rico AAA Portfolio Target

/s/ John K. Cunningham

John K. Cunningham (pro hac vice)

Glenn M. Kurtz (pro hac vice)

WHITE & CASE LLP

1221 Avenue of the Americas

New York, NY 10036

Tel. (212) 819-8200

Fax (212) 354-8113

jcunningham@whitecase.com

gkurtz@whitecase.com

Jason N. Zakia (pro hac vice)

Cheryl T. Sloane (pro hac vice)

WHITE & CASE LLP

200 S. Biscayne Blvd., Suite 4900

Miami, FL 33131

Tel. (305) 371-2700

Fax (305) 358-5744

jzakia@whitecase.com

csloane@whitecase.com

Counsel for Puerto Rico AAA Portfolio Bond

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Maturity Fund, Inc., Puerto Rico Fixed Income

Fund, Inc., Puerto Rico Fixed Income Fund II,

Inc., Puerto Rico Fixed Income Fund III, Inc.,

Puerto Rico Fixed Income Fund IV, Inc.,

Puerto Rico Fixed Income Fund V, Inc., Puerto

Rico GNMA & U.S. Government Target

Maturity Fund, Inc., Puerto Rico Investors

Bond Fund I, Puerto Rico Investors Tax-Free

Fund, Inc., Puerto Rico Investors Tax-Free

Fund, Inc. II, Puerto Rico Investors Tax-Free

Fund III, Inc., Puerto Rico Investors Tax-Free

Fund IV, Inc., Puerto Rico Investors Tax-Free

Fund V, Inc., Puerto Rico Investors Tax- Free

Fund VI, Inc., Puerto Rico Mortgage-Backed &

U.S. Government Securities Fund, Inc., TaxFree Puerto Rico Fund, Inc., Tax-Free Puerto

Rico Fund II, Inc., and Tax-Free Puerto Rico

Target Maturity Fund, Inc.

Fund, Inc., Puerto Rico AAA Portfolio Bond

Fund II, Inc., Puerto Rico AAA Portfolio

Target Maturity Fund, Inc., Puerto Rico Fixed

Income Fund, Inc., Puerto Rico Fixed Income

Fund II, Inc., Puerto Rico Fixed Income Fund

III, Inc., Puerto Rico Fixed Income Fund IV,

Inc., Puerto Rico Fixed Income Fund V, Inc.,

Puerto Rico GNMA & U.S. Government

Target Maturity Fund, Inc., Puerto Rico

Investors Bond Fund I, Puerto Rico Investors

Tax-Free Fund, Inc., Puerto Rico Investors

Tax-Free Fund, Inc. II, Puerto Rico Investors

Tax-Free Fund III, Inc., Puerto Rico Investors

Tax-Free Fund IV, Inc., Puerto Rico Investors

Tax-Free Fund V, Inc., Puerto Rico Investors

Tax- Free Fund VI, Inc., Puerto Rico

Mortgage-Backed & U.S. Government

Securities Fund, Inc., Tax-Free Puerto Rico

Fund, Inc., Tax-Free Puerto Rico Fund II,

Inc., and Tax-Free Puerto Rico Target

Maturity Fund, Inc.

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