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Wall Street firms are turning to new and aggressive tactics to extract maximum profits from Puerto Rico’s bankruptcy process.


Image: Jorge Quinteros, Flickr

Spanish version here

Wall Street firms are turning to new and aggressive tactics in their attempts to extract maximum profits from Puerto Rico’s bankruptcy process. These predatory moves may pave the way for vulture funds to extract higher repayments as part of the plan of adjustment, while potentially threatening Puerto Rico’s natural resources and agricultural lands.

Ambac, a municipal bond insurer, recently filed a motion in federal court requesting legal authority to require six government agencies to provide the documents necessary to identify their real estate properties. According to its request, creditors cannot assess the financial status of Puerto Rico’s central government without taking into consideration the properties of government agencies. Ambac also requests the power to ask those six agencies to designate a representative to stand for questioning regarding the properties. 

Ambac’s requests is one example of the aggressive tactics used by some of the creditors involved in the bankruptcy process. 

The motion is related to the negotiations that are carried out between the oversight board and the creditors, particularly the vulture funds, to reach an agreement that will serve as the basis for the plan of adjustment, the last step to get out of bankruptcy. In fact, the oversight board announced that it reached an agreement with a group of bondholders on February 9th, but that it is still in negotiations with other parties, including bond insurers, to integrate them into the new plan of adjustment. 

Ambac is not yet a party of the agreement. In that sense, the request to investigate the government’s real estate properties can be seen as a measure both to pressure the oversight board to negotiate and to increase the resources available to pay creditors. Ambac has been one of the most litigating parties in the bankruptcy process. In May 2020, for example, it sued the oversight board arguing that PROMESA violates the bankruptcy clause of the United States constitution, which states that Congress has the power to pass bankruptcy laws that are “uniform” for all territories. According to Ambac, PROMESA violates this uniformity.

The request to investigate the government’s properties

Ambac’s legal offensive regarding government real estate property began in October 2019 when it filed  its motion in federal court to request that the oversight board and the Financial Advisory Authority and Fiscal Agency (AAFAF, for its Spanish acronym) release the documents necessary to identify the properties of the government. 

After multiple deliveries of documents and meetings with AAFAF officials, Ambac concluded that there are six government agencies of high interest and whose documents AAFAF either did not provide or that Ambac needed more clarification on. These are: 

  1. Puerto Rico Land Administration 
  2. Puerto Rico Highway and Transportation Authority 
  3. Puerto Rico Public Buildings Authority 
  4. Puerto Rico Land Authority 
  5. Puerto Rico Industrial Development Company 
  6. Puerto Rico Department of Transportation and Public Works

To do an analysis of the value of some of the government properties, Ambac hired Christiansen Commercial Real Estate, a real estate brokerage firm. According to the founder and president of this firm, Ryan G. Christiansen, the market value of some 81 properties evaluated is over $1.3 billion.

This is not the first time Christiansen has worked for creditors who have legal disputes against the government in the bankruptcy process. Christiansen serves as the chief executive officer of Puerto Rico Industrial Solutions Management (PRISM), a joint venture founded in 2019 by Taconic Capital Advisors and Monarch Alternative Capital, two vulture funds that have been very active investing in Puerto Rico bonds and acquiring industrial properties for rent. According to their September 2020 financial report, Taconic and Monarch owned about $402 million and $579 million in bonds, respectively. Monarch is also one of the owners of the Hyatt Regency Grand Reserve Puerto Rico, a luxurious hotel in Río Grande located in Punta Miquillo, a land that was part of the Río Espíritu Santo Natural Reserve.

It is striking that the Land Authority is one of the agencies in which Ambac has an interest. The Land Authority is the custodian of a large part of the country’s agricultural land that is in government hands. According to the data that the Department of Agriculture supplied to the Center for Investigative Journalism, the Land Authority owns 85,798 acres of land. Many of these lands are already leased for agricultural use, while others are leased to renewable energy projects and municipal landfills.

On the other hand, the Public Buildings Authority and the Department of Transportation and Public Works own the country’s public schools. Thanks to the ruthless attacks on public education in recent years, many of these schools are in disuse. Some of these facilities have been sold to investors.

Ambac requests authorization from the court to seek two things directly from the six agencies (without AAFAF’s mediation): the delivery of documents that prove their real estate properties and the testimony of a representative of the agency.

Ambac and AAFAF agreed for a schedule to discuss Ambac’s motion in March.

Who is Ambac?

Ambac Financial Group is a financial services company whose subsidiaries sell insurance for municipal bonds. When a government entity conducts a bond issuance to borrow, it can contract with an insurer to insure some of the bonds, increasing their market value and attractiveness to investors. In the event that said government entity cannot pay the bondholders, the insurer then assumes responsibility. In the case of Puerto Rico’s government, one of Ambac’s subsidiaries, Ambac Assurance, has a part of the debt insured, which has generated losses.

According to a report on its exposure to Puerto Rico’s debt, in the first quarter of 2017, just before the oversight board filed for government bankruptcy, Ambac had an exposure of over $2 billion, not including interests. However, in its report for the third quarter of 2020, that amount had been reduced to one billion dollars.

This reduction was largely due to the restructuring of COFINA, where Ambac was one of the parties that supported the plan of adjustment.

Ambac’s petition is one example of the aggressive tactics used by some of the creditors involved in the bankruptcy process. If successful, many of the government’s real estate properties, including agricultural lands, could be included in the plan of adjustment to be sold for the purpose of paying bondholders. This type of petition not only enables the vulture funds to demand higher repayments, but also opens the door to the displacement of natural resources, such as our agricultural lands, with disastrous consequences for the people of Puerto Rico.