Lawyer believes Besosa may lift stay in two of four lawsuits
SAN JUAN—U.S. District Court Judge Francisco Besosa may be lifting the stay on two of four lawsuits from bondholders who, among other things, are challenging the constitutionality of the Puerto Rico Emergency Moratorium and Financial Rehabilitation Act, lawyer John Mudd said Thursday.
During a conference as part of his Muddlaw series, Mudd, who is a bankruptcy lawyer, said the plaintiffs in a lawsuit filed by Brigade Leveraged Capital Structures and another one filed by local Government Development Bank bondholders under Dionisio Trigo, may get the stay on their lawsuits lifted because they have proven “cause” under the Puerto Rico Oversight, Management and Economic Stability Act.
Besosa is slated to decide this month whether lawsuits filed by U.S. Bank Trust, Brigade Leveraged Capital Structures Fund Ltd, National Public Finance Guarantee Corp. and the Dionisio Trigo group of bondholders, which were consolidated, should be granted relief from the stay imposed by Promesa, which will expire in six months.
National Public Finance Guarantee Corp., a firm that insures about $3.8 billion of Puerto Rico’s debt, sued the government earlier this year s seeking to limit the island’s debt moratorium law. National claims the law violates the U.S. Constitution because it takes the insurer’s property without just compensation.
Brigade and certain affiliates, which hold Government Development Bank debt, sued the bank to stop it from directing funds to local agencies as the GDB restructures its debt. The firm later amended the complaint, seeking to invalidate portions of the island’s debt moratorium law.
The Dionisio Trigo group of individuals and corporation owners holding $100 million worth of GDB and Puerto Rico Public Finance Corp. bonds are challenging the constitutionality of the Puerto Rico Emergency Moratorium and Financial Rehabilitation Act while the U.S. Bank Trust sued the University of Puerto Rico to stop it from diverting funds it gets from the tuition paid by students to other uses instead of paying its debt.
Section 405 of Promesa mandates the automatic stay of liability claims but it grant parties relief from the stay and to review their claims “for cause shown” or “to prevent irreparable damage.”
“In Promesa, the stay is the exception not the rule,” he said.
Mudd said the plaintiffs in the Brigade suit may get their claim lifted because they were in negotiations with the government to restructure debt when the talks stopped. He said there was already an agreement for a 30% cut in the debt. The Trigo plaintiffs, who are seeking an injunction to stop the transfer of GDB funds that could be used to pay their debt, also showed cause. During testimony, they said they were afraid that by the time they may be able to seek a claim, there will be no money left.
Mudd said he did not see National nor U.S. Bank Trust show evidence of cause or proof that they would suffer irreparable damage.
As to whether the Moratorium Act may be declared unconstitutional, Mudd said that just because the government changed the priority of payments established by the constitution, does not mean creditors will not get paid. However, he acknowledged the law could be unconstitutional for several reasons, including because it violates contractual obligations.