The judge hearing all the debt lawsuits in Puerto Rico's federal court ruled for a continued stay in three cases, saying the delay in litigation won't hurt the investors' interests.
Judge Francisco Besosa in United States District Court for the District of Puerto Rico
late Wednesday ruled against bond insurer Assured Guaranty Corp. and two other plaintiffs who had sought to lift the stay, which was imposed under the Puerto Rico Oversight Management and Economic Stability Act.
Signed into law on June 30, the act imposed a stay until March 1 with a possibility of an extension of 60 or 75 days or to the day the Oversight Board files a petition to commence debt-adjustment proceedings following PROMESA.
However, it also allowed exceptions to the stay either "for cause shown" or "to prevent irreparable damage to the interest of an entity in property."
The plaintiffs in the cases Peaje Investments v. Alejandro García Padilla, Assured Guaranty Corp. v. Commonwealth of Puerto Rico, and Altair Global Credit Opportunities Fund v. Alejandro García Padilla argued that their cases could advance under the "for cause shown" provision.
In the Assured case, Besosa noted that the relevant bond issuer has already deposited enough funds with its agent so that payments on Assured's insured bonds will continue to be made during the stay.
Therefore, “the Assured plaintiffs do not have standing to seek relief from the PROMESA stay because they show no ‘injury in fact.’” Besosa said. Without injury in fact Assured has no constitutional standing to seek relief.
In the other two cases, Besosa found that the defendants haven't shown cause. He said the key issue was whether the plaintiff's "interests in their respective collateral are adequately protected." In both cases, Besosa said that while their pledged money has been temporarily diverted, this could be undone. For the judge this meant that the collateral was adequately protected.
"The court hastens to add that the commonwealth defendants must not abuse or squander the 'breathing room' that the court's decision fosters," Besosa wrote. "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."
Puerto Rico Gov. Alejandro García Padilla said he was pleased with the judge's decision and that the commonwealth would go forward with PROMESA's process of restructuring the debt.
Besosa hasn't yet ruled on petitions to lift the stay in four other debt-related cases.
