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A federal judge has refused to absolve the U.S. government of liability for investors’ losses on Puerto Rico bonds, a potential blow to efforts to write down the U.S. territory’s $73 billion debt load, WSJ Pro Bankruptcy reported. The ruling issued on Friday by Judge Susan G. Braden of the U.S. Court of Federal Claims is an incremental victory for hedge funds fighting to get repaid on the $3 billion in Puerto Rico pension bonds. These creditors have targeted the U.S. directly, saying the federal government should make them whole for enacting a 2016 law that set them up for losses. The lawsuit strikes at the heart of the rescue law, known as PROMESA, designed to tackle the U.S. territory’s fiscal crisis.

A federal judge on Friday rejected an attempt by a major Puerto Rico bondholder to throw out the U.S. territory’s historic municipal bankruptcy case, Reuters reported. U.S. District Judge Laura Taylor Swain ruled that the creation by the U.S. Congress of a financial oversight board for Puerto Rico under a law known as PROMESA and the appointment of the board’s members did not violate the U.S. Constitution. “The oversight board’s statutory objectives and scope of authority thus mark its character as territorial rather than federal,” Judge Swain’s ruling said. Aurelius Capital Management, an investment firm with a specialty in distressed debt, filed a motion last year arguing that the board’s creation violated the U.S. Constitution’s Appointments Clause. The hedge fund sought to dismiss the board’s May 2017 federal court case to restructure the territory’s roughly $120 billion in debt and pension liabilities.

The foreclosure machine that ground to a halt in Puerto Rico after the devastation caused by Hurricane Maria in September is slowly cranking up again, the New York Times reported. Island residents who fell behind on their payments are facing creditors ranging from Wall Street to the federal government. Over the last four months, nearly 300 new foreclosure actions were filed in federal court in San Juan and in local courts across the island. Among the firms filing cases are an investment firm controlled by Credit Suisse, one in which the private equity firm TPG Capital is an investor and banks like Citigroup and Santander. Even the United States Department of Agriculture, which has underwritten more than 3,000 mortgages in mainly rural areas of Puerto Rico, has begun to foreclose on delinquent borrowers. The filings are some of the first in Puerto Rico since several federal agencies — including the U.S.D.A. — imposed moratoriums on new foreclosures and legal actions in existing cases after the hurricane devastated the island’s electrical grid. But the moratoriums have begun to expire, setting the stage for what housing advocates have feared could be a wave of home foreclosures in the United States territory of 3.4 million people.

The chief executive of Puerto Rico’s bankrupt electric monopoly has resigned after less than four months on the job, a disruption to the utility’s leadership as it struggles to rebuild a shaky power grid and tackle a $9 billion debt load, WSJ Pro Bankruptcy reported. Industry veteran Walter Higgins, who was appointed in March to lead the Puerto Rico Electric Power Authority (PREPA) resigned his position effective July 14, citing personal reasons and pushback from Puerto Rico politicians about his compensation. His resignation creates more uncertainty around PREPA’s strategy for overhauling the U.S. territory’s indebted, hurricane-damaged power system. Gov. Ricardo Rosselló and Puerto Rico’s federal financial supervisors have said that they want parts of the utility privatized to end its current monopoly structure and to lower costs for consumers. Read more. 

In related news, former General Electric executive Rafael Diaz-Granados will replace Walter Higgins as chief executive officer of the Puerto Rico Electric Power Authority, Bloomberg News reported. His $750,000 salary is up from the controversial $450,000 base pay that Higgins garnered during his short tenure. Amid the furor over Higgins’ salary, Puerto Rico’s legislature passed a measure to prevent him from receiving bonus compensation, and his successor’s higher base salary appeared to be a work-around. In its press release, the utility said that $750,000 a year was consistent with industry standards for similarly large and complex companies. Read more.

Puerto Rico Gov. Ricardo Rosselló went to court on Thursday to challenge the budget imposed by the Oversight Board for the fiscal year that started this week, saying that the panel had overstepped its authority, The Bond Buyer reported. Rosselló filed an adversary complaint in the U.S. District Court in Puerto that's handling the Title III bankruptcy cases to defend the budget approved by the local legislature. The board defended its authority, citing the 2016 legislation intended to help the island manage its economy and restructure its debt. “The Financial Oversight and Management Board for Puerto Rico approved and certified a commonwealth budget for fiscal year 2019 in compliance with the certified fiscal plan and in accordance with [the Puerto Rico Oversight, Management, and Economic Stability Act] to put Puerto Rico on the road to recovery. The Oversight Board will vigorously defend against any suit attempting to thwart the carrying out of the budget and fiscal plan.” On June 30 the board approved its own version of the budget by unanimous written consent and declared it to be the valid budget for Puerto Rico. The budget allocated $8.758 billion for the General Fund and $20.664 billion for Puerto Rico’s consolidated budget. The budget was supposed to go into effect on Sunday, July 1.

Puerto Rico will have significantly less money available for debt service because of the government’s failure to enact labor reform, the federally appointed financial oversight board charged with overseeing the island’s finances said on Friday, Reuters reported. The Financial Oversight and Management Board for Puerto Rico certified a new version of the island’s fiscal plan that includes the elimination of Christmas bonuses to public employees, as well as budgetary cuts to public agencies, the Legislature and the Judiciary, among other measures. “The Legislature failed to pass the most important component of the Labor Reform Package — the repeal of Law 80 and turning Puerto Rico into an at-will employment jurisdiction — as required by the New Fiscal Plan,” the board said in a letter to Governor Ricardo Rosselló. Natalie Jaresko, the board’s executive director, highlighted during a press conference in San Juan that the certified plan leaves out public sector layoffs or a furlough program. Under the new plan, money that is available to the government over the next 30 years, including for debt service, is cut to roughly $14 billion from almost $40 billion under the previous version of the fiscal plan. That is a direct result, Jaresko said, of the failure to enact labor reforms.

Lawmakers yesterday introduced new bipartisan legislation to make Puerto Rico the nation's 51st state by 2021, NBCNews.com reported. The bill, known as the Puerto Rico Admission Act of 2018 was presented by Puerto Rico’s resident commissioner, Jenniffer González-Colón, a Republican who authored the bill and is a nonvoting member of Congress. The bipartisan effort is co-sponsored by 36 members of Congress, 22 Republicans and 14 Democrats. González said that the bill calls for the creation of a task force composed of nine members of Congress which would look into what changes are needed in order to incorporate Puerto Rico as a state. While lawmakers go back and forth with recommendations and amendments, Puerto Rico would become an incorporated territory.