Francisco Domenech, Governor’s Chief of Staff and Director of the Puerto Rico Fiscal Agency and Financial Advisory Authority (AAFAF, in Spanish), stated on Thursday that his lobbying firm, Politank, had no clients among the Puerto Rico Electric Power Authority’s (PREPA) current creditors. PREPA is a public corporation that has been undergoing a debt restructuring process since 2014.
Domenech also denied that Houlihan Lokey, an investment bank recently announced by the government as its new advisor in PREPA’s bankruptcy, had current bondholders of the public corporation as clients.
The Centro de Periodismo Investigativo (CPI) fact-check found both claims to be false.
Documents reviewed by the CPI show that both Domenech and Houlihan Lokey have provided services to several investment firms that purchased Puerto Rican bonds, some of which are now PREPA creditors in the bankruptcy case under Title III of the federal PROMESA law.
During an interview on the television program “Primera Pregunta,” Domenech stated: “Current creditors holding PREPA debt were not represented by Houlihan Lokey or by me. They are entirely different creditors.”
Domenech also rejected claims that his previous ties to the investment bank and Puerto Rican bondholders constituted a conflict of interest or a violation of the Government Ethics Law, as they occurred more than two years ago.
“Of course not [a conflict]. First, the Ethics Law. If we were to go to the Ethics Law, it establishes a two-year period, but there’s no need to go to the Ethics Law,” Domenech said in response to questions from journalist Rafael Lenín López.
Regarding whether he will maintain the hiring of Houlihan Lokey despite conflict of interest allegations, Domenech replied: “Of course, the contract will stand. There is no conflict. First, current PREPA creditors are not the same ones they represented years ago. Number two, they have no relationship, nor have they had any relationship with the firm [Politank] of which I was once an owner. Number three, the Government of Puerto Rico deserves to have the best advisors, not just for the creditors and the Fiscal Control Board. The Government of Puerto Rico has never had a firm of this level, of this prestige, representing them in bankruptcy. And what the Governor wants is to finalize this bankruptcy next year because she wants the Fiscal Control Board to leave Puerto Rico.”
Last Thursday, February 13, a group of representatives from the Popular Democratic Party announced that they asked federal authorities and the federal court to investigate whether the hiring of Houlihan Lokey and Domenech’s involvement represent a conflict in the bankruptcy case under PROMESA due to services previously offered to entities that purchased Puerto Rican government bonds.
In 2015, amid the fiscal crisis that threatened the provision of essential government services and led to the approval of PROMESA, a group of bondholders from the Puerto Rico Sales Tax Financing Corporation (COFINA, in Spanish) hired Politank, a lobbying firm founded by Domenech and former Senate President Kenneth McClintock.
According to Domenech’s contract, services included lobbying on behalf of these bondholders to reach an agreement with the government that would allow them to recover as much money as possible.
In the summer of 2018, after the COFINA restructuring agreement was approved, Domenech and his firm Politank sued the COFINA bondholder group for breach of contract and libel, claiming more than $2.4 million. The lawsuit was filed by Attorney Verónica Ferraiouli, Domenech’s wife and current Secretary of State under current Governor Jenniffer González.
In 2022, after a confidential mediation process, the parties notified federal judge Jay García Gregory that they had reached an agreement that ended Politank’s lawsuit.
In the interview, Domenech said he sold his stake in Politank when he assumed his current roles under the González administration. According to the Corporate Registry, the entity’s new principal officer is former electoral comptroller Manuel Torres Nieves. The change is dated January 21, according to the certification approved by Ferraiouli. Both officials, Domenech and Ferraiuoli, took office on January 3.
According to the lawsuit, the COFINA bondholder group that hired Politank included GoldenTree Asset Management, Whitebox Advisors, Aristeia Capital, and Taconic Capital Advisors.
This COFINA bondholder group, represented by Politank when Domenech was part of the company, now holds $1.215 billion in PREPA debt, according to documents filed in federal court as part of the bankruptcy case under Title III.
A request for comment made to the Chief of Staff and AAFAF director was not addressed by the time of publication.
GoldenTree is one of PREPA’s main bondholders with over $1 billion, while Whitebox ($113.8 million) and Taconic ($60.2 million) are part of the group called “Majority Member PREPA Ad Hoc Group,” according to a document filed in federal court on January 31. In the case of Aristeia ($41.7 million), the investment fund belongs to another group called “PREPA Ad Hoc Group,” as shown in another document dated last December.
In addition to denying his relationship with current PREPA bondholders, Domenech said ” Houlihan Lokey did not represent current creditors of PREPA’s debt.”
But Houlihan Lokey acted as a financial advisor to a group of PREPA bondholders as part of a restructuring agreement with PREPA during Gov. Alejandro García Padilla’s administration, announced in September 2015. This agreement never materialized after the Fiscal Control Board rejected it for being contrary to the public corporation’s fiscal plan. In the summer of 2017, the Board filed PREPA’s bankruptcy under Title III of PROMESA in federal court.
In that negotiation with the García Padilla administration, Stephen Spencer, a director at Houlihan Lokey, represented several investment funds holding PREPA bonds as a financial advisor. In his biography, Spencer mentions PREPA creditors as examples of clients he has served in restructuring and bankruptcy processes.
Spencer and Houlihan Lokey represented the bondholder group at that time, which included mutual funds Franklin Advisers and Oppenheimer Funds, as well as hedge funds Angelo Gordon, BlueMountain Capital Management, D.E. Shaw, Knighthead Capital Management, Marathon Asset Management, and Goldman Sachs.
According to bankruptcy case documents, Franklin, Goldman Sachs, and Marathon still appear as PREPA creditors. Goldman Sachs (with $462 million in public corporation debt) belongs to the “PREPA Ad Hoc Group,” Franklin Advisers ($159.8 million) is with the “Majority Member PREPA Ad Hoc Group,” and Marathon Asset Management ($48.4 million) is with the “Ad Hoc Group of Fuel Line Lenders.”
All these firms are currently participating in closed-door negotiations as part of a mediation process ordered by federal judge Laura Taylor Swain, seeking to end PREPA’s approximately $12 billion debt restructuring.
Although Governor González’s administration informed the federal court in January that it was close to hiring investment bank Houlihan Lokey as its new advisor, the contract has not yet appeared in the Comptroller’s Office registry.
In its motion to federal judge Swain, AAFAF stated that, with Houlihan Lokey’s help, it will seek “new perspectives to resolve” the public corporation’s bankruptcy and will negotiate with parties involved in the mediation process to achieve a confirmable PREPA debt adjustment plan that “provides affordable and sustainable rates.”
Last Wednesday, February 12, the Fiscal Control Board announced a new fiscal plan for PREPA amid criticisms from Governor González’s administration that the document was not shared with the government before its approval.
While the Board claims there is only about $2.6 billion to pay PREPA bondholders, the Governor asserts that central government funds can be used to pay PREPA bondholders, which would prevent a significant rate increase.
