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Court of Appeals validates Puerto Rico retirement system bondholders’ liens

By on February 1, 2019

SAN JUAN – The Official Committee of Retired Employees of the Government of Puerto Rico (COR by its Spanish initials) expressed its dissatisfaction Friday with the U.S. Court of Appeals for the First Circuit’s ruling that validated retirement system bondholders’ lien on pension bonds.

Regarding the decision, COR lawyers said they will be analyzing alternatives according to the law.

“There are many other issues presented by the COR and the Retirement System before the District Court that have to be resolved by Judge Laura Taylor Swain,” COR President Miguel J. Fabre Ramírez said in a statement. “If the other matters presented are resolved favorably, the bondholders can be prevented from exercising their liens on the assets of the Retirement System or the Pay Go system.”

The U.S. First Circuit Court of Appeals in Boston reversed a lower court ruling that invalidated a lien that certain hedge funds held over Puerto Rico Employees Retirement System bonds.

The decision means the bondholders, a group of about 30 investment funds, headed by Altair Global Credit Opportunities, have collateral on their bonds and should be able to get paid on their investment.

At issue in the lawsuit was whether a lien on the bonds had been “perfected.” The value of the securities was $2.9 billion, according to the document.

The Appeals Court held that while the 2008 Financing Statements did not perfect the bondholders’ security interest in the “Pledged Property,” the bondholders met the requirements for perfection beginning Dec. 17, 2015, and so reversed the district court’s ruling, the document says.

The Appeals Court said the Puerto Rico Oversight, Management and Economic Stability Act’s (Promesa) incorporation of the bankruptcy code into the statute does not allow for the avoidance of perfected liens, “and so we vacate the district court’s holding that the Bondholders’ security interest can be avoided under Promesa,” the acronym for the Puerto Rico Oversight, Management and Economic Stability Act.

The case was remanded to district court for further proceedings.

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