A group of Puerto Rico creditors, grouped under UBS and other mutual funds, asked Judge Laura Taylor Swain--who is in charge of Puerto Rico's bankruptcy case--to refer the dispute of whether the government may use the money meant to pay the bonds of the Puerto Rico Sales Tax Financing Corporation (COFINA, by its Spanish acronym) to the Supreme Court of Puerto Rico. If this referral were to happen, it could set the island's bankruptcy on an express lane to negotiate with the creditors.

This motion was submitted last Wednesday, and it was reported by specialized media in the US.

According to the copy in hands of NotiCel, they are pushing for Swain to pass the dispute to the local supreme court, because it meets the criteria that it touches exclusively on matters of the Puerto Rican law and Constitution: the law that established COFINA, and the Puerto Rico Sales and Use Tax (IVU, by its Spanish acronym) that feeds it. Besides, this would be the fastest way, because any of the parties could continue asking the higher federal courts to make this referral.

This dispute is of utmost importance, because the Puerto Rican government's Fiscal Plan, as certified by the Fiscal Control Board (FCB), as well as the budget they certified conditionally, assumes the use of COFINA's funds for purposes other than to repay those bonds. If a court decided that this money is not available to the government, the Plan and the budget would have to be redrafted.

'Immediate certification of this question to the Supreme Court of Puerto Rico will allow for an answer from the one judicial body able to give a final and definitive answer to this question of Puerto Rico constitutional law,' the motion reads.

There are at least three cases that have already raised claims over the legality of the IVU collections as a separate source of revenue (aside from the General Fund) that should not be available to pay other expenses or bondholders.

However, these disputes have been stayed, so the proponents of the certification argue that lifting the stay on these cases to resolve this controversy may speed up the bankruptcy process. Once it becomes clear what can and cannot be done with that money, the various creditors will be better motivated to seek negotiations with the government and the FCB, instead of remaining under the bankruptcy process provided by Title III of PROMESA.

'Confirming the validity of the COFINA structure will also facilitate resolution of the other Title III cases. For example, the GO Bondholders will finally understand that, while their constitutional priority puts them at the top of the waterfall for Puerto Rico revenues, those revenues do not include funds such as the Dedicated Sales Tax (the IVU). In doing so, GO bondholders will better understand the value of their claims against Puerto Rico. The Government, Oversight Board, and GO bondholders will be better prepared to reach a consensual Title III restructuring under a post-‘available resources' paradigm, which may lead to global settlements,' the proponents assert.

'This matter should be certified to the Puerto Rico Supreme Court to resolve this lynchpin issue once and for all,' they insist.

The UBS funds undersigning this motion are owed unsecured payments by the amount of $613.3 million from COFINA bonds, and they assure that their ranks include bondholders who reside in Puerto Rico.

Meanwhile the Oppenheimer Funds, Inc., Franklin Advisers, Inc., and First Puerto Rico Family of Funds are jointly holding a COFINA debt of $3.5 billion, plus an additional $2.9 billion issued by other agencies, including $1.8 billion in general obligation bonds, whose repayment is in direct dispute with the repayment of the COFINA bonds.