Hearing set for Puerto Rico’s Employees Retirement System case
SAN JUAN— U.S. bankruptcy Judge Laura Taylor Swain scheduled a June 28 hearing in the action filed by a group of creditors that hold Puerto Rico’s Employees Retirement System (ERS) bonds and are requesting “adequate protection” and a lift of Promesa’s stay under its Title III bankruptcy proceeding.
Judge Swain also ordered that motions opposing the request for stay relief and adequate protection should be filed seven days prior to the hearing. The group of ERS bondholders —which own roughly $2 billion in bonds and include Altair, Oaktree, Nokota, Glendon and funds managed by UBS, among others—own bonds backed by the government’s employer contributions.
Also, on Friday, the U.S. Trustee will hold the formation hearing for the Promesa Official Committee of Retired Employees, which will represent retirees in the Title III bankruptcy process filed for the ERS. The hearing will be held in the U.S. Bankruptcy District Courtroom in Old San Juan.
As for the Altair case, movants are asking Judge Swain to lift the stay and grant adequate protection because of the commonwealth’s latest actions over its employer contributions to the retirement systems and that secure their ERS bonds. They allege that the government ceased to transfer money pay interest and will continue to do so as it would withhold its contributions for its public employees’ retirement, thus wiping out its collateral.
The group of creditors had presented an urgent motion for a hearing on June 1, which Judge Swain granted this week.
In January, U.S. District Court Judge Francisco Besosa held a hearing over a previous lawsuit filed by the investment funds that hold ERS bonds in September 2016, which the judge dismissed following a settlement deal between these creditors and the government in which the latter agreed to set-aside the money that would have gone to cover ERS debt-service.
The hearing in January had been ordered by the U.S. Court of Appeals for the First Circuit, which found that Altair plaintiffs should have been given the opportunity to present evidence that their funds were at risk of being depleted and needed the court’s protection.
In April, another settlement was reached in which the commonwealth agreed that set-aside money be used to cover upcoming interest payments on ERS debt.
But after the filing by the island’s financial control board for Title III bankruptcy protection for the ERS, the Puerto Rico government delivered “a notice (which was later rescinded) to the Fiscal Agent seeking to block the Fiscal Agent’s payment of the June 1 interest payment in contravention of the April stipulation,” reads the creditors’ action.
Under Gov. Ricardo Rosselló’s budget proposal for fiscal 2018, the general fund would completely fund annual pension benefits as the government moves into a “pay-as-you-go” system, as retirement systems are expected to run out of money. According to government estimates, it means a $2.5 billion charge to the general fund budget, which would amount to $9.56 billion.
Public Finance Editor Luis J. Valentín Ortiz contributed to this story.