Compass Lexecon Senior Advisor Dr. Jonathan Arnold Testifies Successfully
In this matter, Peaje Investments (“Plaintiff”), a distressed debt investor, sought a temporary restraining order and preliminary injunction that would have required the Puerto Rico Highways & Transportation Authority (“PRHTA”) to resume depositing approximately $100 million per year in toll revenues and fines collected from Puerto Rico’s toll roads with the fiscal agent for the collateral account supporting certain PRHTA bonds, as opposed to using these funds to pay general expenses. Alternatively, Peaje Investments sought an order requiring the PRHTA to provide Plaintiffs with adequate protection under Section 361 of the Bankruptcy Code-incorporated into Title III under Section 301 of the Puerto Rico Oversight, Management and Economic Stability Act (“PROMESA”). Compass Lexecon and its Senior Advisor Dr. Jonathan Arnold were retained by PRHTA to analyze and respond to Plaintiff’s claims.
At the preliminary injunction hearing on August 8, 2017, Plaintiff’s expert testified that the equity cushion (i.e., the value of the collateral in excess of the value of any allegedly secured claims) supporting the PRHTA bonds at issue would be eroded by the PRHTA’s use of the toll revenues to fund its general expenses.
Dr. Arnold testified in response, describing his analysis which demonstrated that based on the revenues generated by the toll roads there was an adequate equity cushion to protect the bondholders. Dr. Arnold also testified about numerous errors in Plaintiff’s expert’s analysis and testimony.
Judge Laura Taylor Swain agreed with Dr. Arnold’s analysis and his criticisms of Plaintiff’s expert and concluded that Plaintiff’s and its expert’s claims were “speculative” and failed to demonstrate that “the value of Peaje’s equity cushion [was] likely to be further depleted at all or in the near term.” As a result, Judge Swain denied Plaintiff’s request for a preliminary injunction and its alternative request for adequate protection.
The Puerto Rico Fiscal Agency and Financial Advisory Authority and the Puerto Rico Highways and Transportation Authority were represented by M. Randall Oppenheimer, Peter Friedman, Elizabeth L. McKeen, Ashley Pavel and Garo Hoplamazian of O’Melveny & Myers LLP. The Financial Oversight and Management Board for Puerto Rico, as representative of the Commonwealth of Puerto Rico pursuant to the Puerto Rico Oversight, Management and Economic Stability Act (PROMESA), was represented by Martin J. Bienenstock, Stephen L. Ratner, Timothy W. Mungovan, Bradley R. Bobroff and Laura Stafford of Proskauer Rose LLP.
The Compass Lexecon team supporting Dr. Arnold was led by Michael Kwak, with assistance from Mihir Gokhale and Nick Fasano from Compass Lexecon’s New York office.