A Puerto Rico labor union yesterday sued Governor Ricardo Rossello and the U.S. territory's financial oversight board, saying that pension cuts being proposed as part of the island's fiscal turnaround were unconstitutional, Reuters reported. The lawsuit, filed in federal court in San Juan by the Servidores Publicos Unidos, seeks a declaration the plan violates the federal Puerto Rico rescue law dubbed PROMESA, as well as an injunction blocking its implementation. Puerto Rico's current and future retirees would suffer "grievous harm" from the turnaround plan, the complaint said. The U.S. territory is trying to exit a crisis marked by $70 billion in debt, a 45 percent poverty rate, unemployment more than twice the U.S. average, and rampant emigration. Its federally appointed oversight board last month approved the turnaround plan that pushes draconian cuts to debt repayment and major austerity measures. The plan orders Rossello to cut pension spending by 10 percent a year — some $200 million — by 2020. It was unclear yesterday whether the government or the board planned to ask the court to freeze the lawsuit under PROMESA, which stays certain types of litigation over Puerto Rican debt until May 1. Read more.
In related news, a holder of sales tax-backed Puerto Rican debt, known as COFINA debt, yesterday sued Bank of New York Mellon Corp. alleging that the bank breached its duty as trustee for COFINA debt to protect senior bondholders. Whitebox Advisers sued the bank in a New York state court, saying it should have either accelerated or frozen payouts on COFINA debt after technical defaults by the Puerto Rican government, which is facing an economic crisis marked by $70 billion in debt and a 45 percent poverty rate. Whitebox alleges that several events since 2015 constitute technical defaults, including plans by the government to restructure its debt and potentially cut recoveries to senior COFINA holders. Read more.
For more news and analysis of Puerto Rico's debt crisis, be sure to visit ABI's "Puerto Rico in Distress" webpage.
