The U.S. First Circuit Court of Appeals yesterday ruled that bondholders’ claim on the assets of Puerto Rico’s public employee pension system ended when the system filed for bankruptcy in May 2017, Reuters reported. The First Circuit affirmed Federal Judge Laura Taylor Swain’s June decision that bondholders’ claim on employer contributions to the U.S. commonwealth’s Employees Retirement System (ERS) did not extend into bankruptcy. The ruling is a further setback for owners of nearly $3 billion of the system’s bonds after a federal appellate court determined last year they had a legally enforceable claim as of December 2015 on assets pledged by the pension fund to pay off the debt. Puerto Rico’s federally created financial oversight board commenced a form of municipal bankruptcy in 2017 to restructure about $120 billion of debt and liabilities incurred by the Caribbean island’s government and its entities. Prior to its bankruptcy filing, Puerto Rico’s pension system liquidated almost all of its cash assets and the government moved to a pay-as-you-go system in which pension benefits are paid out of the island’s general fund. The board said the appeals court decision “lifts a cloud” over the government’s pension payments.
