Another key creditor in the Puerto Rico bankruptcy threw its support behind the Oversight Board's Plan of Adjustment on Monday, but the first day of the confirmation hearing was not without dissenting views, signaling final approval is far from decided.
The Government Bank Debt Recovery Authority said it reached a deal with the Board over the weekend.
Attorneys for the DRA-related entities AmeriNational Community Services and Cantor-Katz Collateral Monitor then spoke in favor of the plan.
Also U.S. Bank reached a tentative agreement with the board Monday morning, Ronald Silverman, attorney for U.S. Bank Trust, the trustee for Puerto Rico Public Finance Corp. bonds, told Puerto Rico bankruptcy Judge Laura Taylor Swain.
Others said they supported the plan, contingent on Act 53's viability, which would allow the island to issue new bonds.
Lawful Constitutional Debt Coalition attorney Susheel Kirpalani said his group supports the settlement, but unless Act 53, the local law enabling the enforcement of the Plan of Adjustment’s new bonds and contingent value instruments, is effective, the Plan of Adjustment cannot be confirmed. The court will have to review Act 53 to determine its validity and effectiveness.
Teachers and judiciary’s objections to the board’s freezes on their cost-of-living increases “should be carefully listened to,” said Puerto Rico Fiscal Agency and Financial Advisory Authority attorney John Rapisardi, who also spoke in favor of the plan. The board has threatened to withdraw the plan if the freeze could not be employed.
Creation of the contingent value instruments was key to getting the deal done, said Ambac attorney Dennis Dunne, and if the current plan falls apart, it is unlikely a new one could be quickly negotiated. If the plan fails, he said, dismissal of the case and a descent into legal war would be the more likely scenario.
The plan is not confirmable, said Puerto Rico bond underwriters’ attorney Howard Steel, because it undermines the underwriters’ defenses. He also objected to the plan giving legal releases to the insurers.
Four unions oppose the plan, according to attorney Peter DeChiara, since it is “far too generous to bondholders,” given Puerto Rico’s poverty.
Board attorney Martin Bienenstock and Puerto Rico bondholder and New York Attorney and Puerto Rico bondholder Peter Hein, spent much of the day arguing which creditors were getting better treatment.
Bienenstock said the Puerto Rico Oversight, Management, and Economic Stability Act is a classic case of a national law preempting a local law, in this case the Puerto Rican Constitution’s statement that the commonwealth’s guaranteed debt would get first claim on local revenues.
Hein has complained PROMESA does not meet the uniformity clause of the U.S. Constitution, which says Congress must have "uniform" laws of bankruptcy in the U.S. Bienenstock said in earlier filings against bond insurer Ambac Assurance the Board had extensively argued it does not apply in this case.
Pointing to a part of PROMESA that says the relative priorities of different types of obligations found in local laws before the bankruptcy should be observed in the bankruptcy, Hein said this was not being done with the plan since it was not imposing any cuts on active pensioners while requiring holders of guaranteed debt to take substantial cuts.
Supporters of the bond-related Plan Support Agreement were going to receive a 1.5% bonus, he said, which treats holders of the same bond differently, which the U.S. Supreme Court has ruled is prohibited.
But even if the plan is approved, Hein said, the court could reject it. The Supreme Court, he said, has previously reversed an overwhelming vote in favor of bankruptcy plan because the law had not been followed.
If Puerto Rico’s guaranteed bonds are not paid first, “we’re setting up Puerto Rico to be a serial defaulter,” Hein said.
On Tuesday, the court was hearing from Puerto Rican residents.
The hearing concerns the Plan of Adjustment for the central government’s debts and obligations, which includes bonds, loans, money owed to suppliers and employees, and pension obligations. The bonds covered are those from the Commonwealth Government itself, Public Building Authority, Puerto Rico Infrastructure Finance Authority (rum bonds), Metropolitan Bus Authority, Employees Retirement System, and Public Finance Corporation. Additionally, the plan affects bondholders for the Highways and Transportation Authority and Convention Center District Authority.
