While the country was busy dealing with a plebiscite with the lowest turnout in history, the Fiscal Control Board (FCB), through its attorneys, kept working on the Puerto Rican government's bankruptcy case, proposing an alternative method to solve the dispute with COFINA's bondholders and scheduling a hearing with Judge Laura Taylor Swain to see this and other issues on June 28.

Aside from this negotiation, the government has requested Judge Swain to issue a protective order for officials to avoid testifying or submitting evidence in cases filed over Puerto Rico's debt. However, it must be noted that this list also includes the case where Senator Rossana López requested access to the budget documents.

In the case of the COFINA negotiation, the Board states that, even with the Fiscal Plan and the budget, the government will face cash flow difficulties starting on November 1 of this year, which is why they want this dispute to be resolved before then.

The proposed method includes the Board appointing a representative for the government of Puerto Rico and a representative for COFINA's bondholders, so they can sit to negotiate and arrive at an agreement that the Board may present in court for the judge's endorsement. This would be a direct negotiation, thus abandoning the failed attempt at mediation.

This proposal also rules out the request made to the Supreme Court of Puerto Rico to issue a ruling on the local bankruptcy issues. On Friday, NotiCel published this petition, which was submitted by some bondholders to have the Supreme Court deal with the dispute of whether the Sales and Use Tax backing the COFINA bonds is part of the General Fund or not.

'For purposes of the Title III Cases, the dominant issue is whether, after considering all procedural and substantive defenses, the Pledged Sales Taxes are either property of the Commonwealth... or subject to an allowable claim of the Commonwealth having priority over all claims of COFINA. If they are, then there may be no funds available to pay COFINA debt. If they are not, then there will be $725 million less available per year to pay Commonwealth liabilities and expenses, whose annual amount increases over time,' they explained.

'Time is of the essence to resolve the Commonwealth-COFINA Dispute because, if the Commonwealth is not entitled to any of the Pledged Sales Taxes, it will, absent borrowing or further slashing expenses to a counterproductive extent, face acute cash management issues shortly after November 1, 2017. If there is no settlement or final adjudication as to the Commonwealth-COFINA Dispute by November 1, 2017, the Commonwealth will likely need to borrow funds from COFINA to fund the Commonwealth's operating budget,' the Board's motion adds.

As of July 31, 2016, there are $17.3 billion in pending payments for COFINA bonds, and approximately $2.6 billion of those bonds is secured.

COFINA and general obligation bondholders hold 55% of the Puerto Rican government's approximately $74-billion debt. COFINA's debt service is estimated at about $725 million for 2017, and it will keep increasing. On the other hand, the Fiscal Plan contemplates $787 million in repayments for the island's total debt.

'Should the COFINA structure be determined to be valid, almost the entirety of the funds available for debt service may need to continue to flow to those creditors, leaving very little recovery to creditors of the Commonwealth,' they stated.