Monday, August 19, 2019

Judge to consider Puerto Rico bond annulments, court pensions Wednesday

By on June 11, 2019

The U.S. District Court for the District of Puerto Rico (CB file photo)

Power utility agreement, gov’t vendor claims to also be addressed at omnibus hearing

SAN JUAN — The agreement that would restructure the $8.3 billion debt of the Puerto Rico Electric Power Authority (Prepa), efforts to invalidate some $6 billion in commonwealth bonds, and the threat to the courts’ independence will be among the matters discussed in an omnibus hearing Wednesday.

The lead attorney for Puerto Rico’s Financial Oversight and Management Board, Martin Bienenstock, is expected to discuss the status on matters relating to the settlement of Prepa’s debt and to the tolling, or delay, of certain limitation periods. Board attorneys Gregg Mashberg, Brian Rosen and Paul Possinger will also delve into the proposed settlement.

Last month, the fiscal board asked the court to approve a settlement pursuant to the utility’s restructuring support agreement (RSA) with a group of uninsured Prepa bondholders and a major monoline bond insurer. The proposed settlements represent a milestone in Prepa’s bankruptcy-like case and the restructuring of the island’s public debt.

These creditors, absent future defaults, would settle their alleged secured claims and rights, including requests for relief from the stay—on litigation established by the Puerto Rico Oversight, Management and Economic Stability Act (Promesa)—in exchange for Prepa agreeing to take their claims into account, despite being for less than their full face amounts.

The discussion does not mean Prepa’s deal is already done as there is other pending litigation involving the RSA.

Another issue at hand is a motion for relief from the stay filed by the Asociación Puertorriqueña de la Judicatura (Puerto Rican Judicial Association), which is fighting to stop proposed cuts to judges’ pensions.

The association, which filed a complaint in 2017 against the fiscal board, on Dec. 4 last year argued that the cuts are a violation of the 2014 local Supreme Court ruling in Brau Linares v. E.L.A., as well as of both the U.S. and Puerto Rico constitutions, because they threatened judicial independence. The association said the concept of judicial independence includes the “non-reduction clauses” to judicial pensions. Bienenstock will be presenting the board’s view regarding cuts.

The court is also planning to hear discussion on a request filed by the Teachers Association, which is seeking relief from the stay to obtain payments for teachers on the liquidation of vacation and sick leave. Possinger is expected to lay out the board’s arguments.

Meanwhile, Luc A. Despins, Nicholas A. Bassett and G. Alexander Bongartz of the law firm Paul Hastings LLP will appear in person on behalf of the Unsecured Creditors Committee (UCC) to discuss their request to invalidate $6 billion in general obligation bonds and about $3 billion in Employee Retirement System bonds.

The UCC, as well as the board and its Special Claims Committee, want more time to service summonses and complaints and to stay adversary proceedings relating to the challenged GO bonds. On May 2, they filed more than 15 adversary proceedings against over 1,200 defendants seeking to claw back or avoid alleged liens on GOs. Because it would be difficult to summon all defendants in the 90 days required by Federal Rule of Civil Procedure to summon defendants, they are seeking an additional 90 days.

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