The U.S. Supreme Court is poised to consider a challenge to the oversight board responsible for pulling Puerto Rico out of its record bankruptcy, hearing a case that could mean a new phase of uncertainty for an island still recovering from a devastating 2017 hurricane, Bloomberg News reported. The High Court will hear arguments today from bondholders who say that the seven members of the Financial Oversight and Management Board were appointed in violation of the Constitution because they weren’t confirmed by the U.S. Senate. The bondholders, led by Aurelius Investment LLC, are seeking to unravel much of the board’s work and eventually get more for their stakes than the oversight panel is offering. The argument takes place less than three weeks after the board filed its plan with a federal bankruptcy court for restructuring $35 billion in debt and other liabilities. The proposal would cut that sum, which includes $17.8 billion in commonwealth-guaranteed debt, by 65 percent to $12 billion. It would also address a pension system that owes current and future retirees $50 billion. Read more.
The Constitution’s appointments clause provides that the president nominates, but the Senate must confirm, principal “Officers of the United States,” although Congress can also give the president the power to appoint “inferior Officers.” The Supreme Court will hear oral argument today on the scope of both this clause and the ancient remedy known as the “de facto officer” doctrine, which blesses an official’s actions even when his appointment is later discovered to have been invalid, according to a SCOTUSBlog analysis. The threshold question before the justices is whether the appointment of the board’s members must comply with the appointments clause. The board, the federal government and others argue that the appointments clause only applies to “officers of the United States,” which means officers of the federal government. It does not extend to the local government of a territory like Puerto Rico, as confirmed by the fact that other words in the appointments clause (such as Congress and the president) also refer to the national government. Read the full analysis.
For more on the case, including petitions, briefs and insight from ABI Editor-at-Large Bill Rochelle, please click here.
When Puerto Rico Governor Wanda Vazquez announced late last month that she was acceding to requests from the commonwealth’s Congressionally mandated fiscal oversight board to slash some government-worker pensions by as much as 8.5 percent, the reaction was swift, Bloomberg News reported. Protesters returned to the front of the governor’s mansion in San Juan’s colonial quarter — the site of protests that eventually ousted former governor Ricardo Rosselló this past summer — and even at what they believed to be the private homes of board members. Adding her voice to the street protests, Maite Oronoz Rodríguez, the head of Puerto Rico’s Supreme Court, sent a letter to the board warning of mass resignations in the island’s judiciary because of pension concerns, stating that “after a lifetime of dedication and service to Puerto Rico, our judges do not deserve to be speculating about their future based on the limited information” she said the board had made public about its plans. Despite her televised statement that she did “not support any reduction in benefits to retirees,” Vazquez nevertheless said she wanted the board to finish its work “as soon as possible” and said that the cuts now would avoid the need for larger pension cuts of up to 25 percent in the future. While Vazquez’s administration opposes cutting pensions, it won’t obstruct the progress of the federal board’s debt adjustment plan, Eli Diaz Atienza, the governor’s non-voting board representative, said during a public meeting of the board last month. Still, the administration will seek to alleviate future pension cuts through the commonwealth’s budget, Diaz Atienza said.
The U.S. Supreme Court yesterday declined to review a lower court ruling upholding the validity of security interests by pension bondholders seeking Puerto Rican pension assets before the start of bankruptcy proceedings, Pensions & Investments reported. The validity of the claims themselves is still being litigated at the U.S. District Court level. The court declined a petition by Puerto Rico's Financial Oversight and Management Board and the Employees Retirement System of the Government of Puerto Rico that sought to reverse a January lower court decision siding with ERS bondholders holding more than $3 billion of ERS bonds. The oversight board sued to invalidate those claims and to recover principal and interest payments of nearly $400 million made to ERS bondholders. The January decision reversed a 2018 ruling by the judge overseeing Puerto Rico's complicated bankruptcy proceedings, U.S. District Judge Laura Taylor Swain in San Juan, who said the ERS bondholders' security interest was invalid in part because of incorrect names on some of the agreements. Her ruling was later reversed by the U.S. Court of Appeals for the First Circuit, which prompted the oversight board's petition to the Supreme Court, arguing that the Boston court "committed blatant errors of law that threaten the ability of creditors across the nation to engage in secured lending."
A Puerto Rico utility contractor ensnared in a federal corruption case is demanding to be paid $216 million for repair work the company did on the U.S. territory’s electrical grid, WSJ Pro Bankruptcy reported. Cobra Acquisitions LLC in court papers filed on Monday said that it deserved full payment for its grid repair work ahead of other creditors of the bankrupt Puerto Rico Electric Power Authority. Federal prosecutors have charged that some of Cobra’s business in Puerto Rico was obtained through a bribery scheme involving the company’s former president and a high-ranking U.S. official. Cobra didn’t mention those allegations in the filing, saying that the company “rendered all appropriate services” under its contracts and helped Prepa restore power service across the island. Yet, the filing acknowledged that the majority of Cobra’s invoices are being disputed by Prepa, which has raised concerns about the worker head count on some bills and the scope of work on others. The unpaid bills are roughly twice the market capitalization of Cobra’s publicly traded parent company.
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A federal control board that oversees Puerto Rico’s finances filed a long-awaited plan on Friday that it says would reduce the U.S. territory’s debt by more than 60 percent and pull the island out of bankruptcy, the Associated Press reported. The plan comes three years after U.S. Congress created the board and would reduce a total of $35 billion in liabilities to $12 billion, a move that some believe would help ease Puerto Rico’s financial crisis amid a 13-year recession. Confirmation of the plan by U.S. Judge Laura Taylor Swain, who is hearing Puerto Rico's bankruptcy cases, is expected in the first half of 2020, according to Natalie Jaresko, the board's executive director. If approved, the debt restructuring plan would impose an 8.5 percent in pension cuts for retirees that receive more than $1,200 a month, a move that Puerto Rico’s government has opposed. Puerto Rico’s public pension system currently faces more than $50 billion in unfunded pension benefits. The plan would reduce Puerto Rico’s annual debt service to under 9 percent, down from almost 30 percent prior to Congress approving a financial package that led to the creation of the board. But Puerto Rico faces "an uphill battle," according to James Spiotto, managing director of Chapman Strategic Advisors, who pointed to the proposal's relatively low support among creditors compared with plan of adjustment filings in previous high-profile municipal bankruptcies, Reuters reported.
A long-awaited plan to restructure Puerto Rico’s core government debt will finally be filed in court later this month, an attorney for the bankrupt U.S. commonwealth’s federally created financial oversight board told a federal judge yesterday, Reuters reported. <b>Martin Bienenstock</b> said that the latest delay was due to political turmoil on the island that led to last month’s resignation of Governor Ricardo Rossello, who was eventually replaced by Wanda Vazquez. He said that while the board expected to file a plan in August, it held off because “it would have jammed” the new governor, who took office on Aug. 7. The board had signaled it could file a plan of adjustment covering roughly $13 billion of bonds and almost $50 billion of unfunded pension obligations as early as April, then set subsequent but vague deadlines in the following months.
