Updated November 3, 2016 1:40 pm.
U.S. District Court for Puerto Rico Judge Francisco Besosa last night denied requests that the stay on “all liability-related litigation” against the territorial government and its entities be lifted in three consolidated cases brought by funds and a bond insurer. The stay was imposed by the Federal PROMESA law.
Besosa’s decision cancelled a hearing on the cases that he had scheduled for today. It also came a day after he denied the request of the Puerto Rico Financial Oversight and Management Board to intervene in the cases challenging diversions of revenue by Governor Alejandro Garcia Padilla (Popular Democratic Party/PDP) under an April debt payment moratoria law. Besosa has previously ruled against Garcia Padilla Administration positions in debt cases.
The more than 30 investment funds and the monoline insurer that filed the cases complained about the redirection of highway tolls and employer pension contributions to pay government expenses other than bond obligations of the Highways and Transportation Authority and the Government Employees Retirement System.
In two of the cases, Besosa ruled that the claimed injury would not be suffered during the stay period, which can last until May, and, in the other case, that security interests remian protected.
He decided that the “cause” for relief from the PROMESA stay is similar to that in a Federal bankruptcy case but not identical. There is the same “balance of equities . . . but any decision to vacate the stay . . . should advance the larger, overarching purposes for which PROMESA was enacted.”
The Judge warned the Garcia Padilla Administration, however, that it ‘”must not abuse or squander the “breathing room” that the Court’s decision fosters. The purpose of the PROMESA stay is to allow the Commonwealth to engage in meaningful, voluntary negotiations with its creditors without the distraction and burden of defending numerous lawsuits. The Commonwealth should take full advantage of the relief the Court offers it today to fulfill that essential objective. Indeed, it has an obligation to do so.”’ The Garcia Administration has not made all of the efforts that it could have to negotiate restructuring of debt with creditors, opting instead for Federal authority to eliminate debt obligations first.
Read the opinion here.