The Bank of Nova Scotia, parent company of Scotiabank de Puerto Rico, has sued the government’s Metropolitan Bus Authority for defaulting on some $32 million in a revolving credit and term loan agreement.
Furthermore, the bank has asked the San Juan Superior Court to issue an order for a “provisional embargo and prohibition of alienation and disposal of assets on all assets, bank accounts and/or personal property of the MBA in sums sufficient to cover the consolidated debt.” That includes the fleet of buses for public transportation.
In the lawsuit, the bank stated that in February 2007, it loaned $43 million to the government agency and approved a $3 million credit line. In March 2012, the parties renegotiated the terms and conditions of the loan and refinanced the amount down to $37.5 million, to be paid monthly in three years. The refinancing was approved by the Department of Transportation and Public Works at the time.
The loan was backed by the revenue the MBA generated from taxes charged on the sale of diesel. As part of the transaction, the MBA agreed to keep a bank account at Scotiabank de Puerto Rico, in which the Puerto Rico Treasury Department would deposit the revenue generated from the tax, according to the lawsuit.
In September 2013, the bank and the MBA signed an amendment to refinance the loan facility through which they agreed to substitute the collateral of the loan for revenue that the government agency would receive from cigarette taxes. That pool was set at $10 million in June 2013, when the Commonwealth’s tax code was revised.
“On September 18, 2013, the MBA notified the Treasury Department that, in accordance with the amendment, it should deposit the revenue into the bank account at Scotiabank de Puerto Rico,” the lawsuit states, adding that the MBA did not comply with its payment obligation.
In March 2015, the parties again sat down to refinance the loan, extending the final payment date to April 30, 2015, which the MBA also defaulted on, according to the lawsuit filed last week.
Given the circumstance, the Bank of Nova Scotia agreed to extend the loan for a seventh time through March 2016. But the government agency defaulted, prompting the bank to notify the MBA
and the now-defunct Government Development Bank that it has declared the amount owed “liquid, due and payable under the terms of the loan and reaffirmed its willingness to try to reach a consensual agreement between the parties,” according to the lawsuit.
The MBA reportedly did not respond to the notification.
Matters became complicated when Gov. Ricardo Rosselló signed an executive order in June 2016 suspending the repayment of loans by certain public corporations, including the MBA, redirecting government revenues to cover other expenses and obligations.
The cigarette tax revenue was one of those sources that were diverted, according to the lawsuit.
The executive order remains in effect, so the bank’s collateral “remains at risk of misappropriation, reduction and diversion as long as the moratoriums and executive orders remain in place,” the lawsuit claims.
As of this month, the MBA owes the bank $32.5 million, broken down into $28.2 million in principal and $4.3 million in accrued interest.