Puerto Rico bankruptcy Judge Laura Taylor Swain was poised Wednesday to put a stay on court filings regarding almost $25 billion of defaulted bonds and divert the treatment of the debt into mediation until December.
Swain presented her approach to commonwealth general obligation, Employees Retirement System, Highways and Transportation Authority, and Public Building Authority bonds in an omnibus hearing under Title III, a bankruptcy provision of the Puerto Rico Oversight, Management and Economic Stability Act. Altogether there were $24.7 billion of these bonds outstanding as of February 2017.
There was also talk of including Puerto Rico Infrastructure Financing Authority bonds in the mediation process, but as of Wednesday morning Swain hadn’t indicated her position on this topic.
The hearing took place in the U.S. District Court for Puerto Rico against a backdrop of political uncertainty in the territory. The news sites El Nuevo Día and El Vocero reported that Gov. Ricardo Rosselló had decided to resign in the face of widespread protests and that he would make the decision public on Wednesday. A spokesman for the governor denied any decision had been made. As of mid-afternoon the governor hadn’t publicly resigned.
Swain said that parties had brought up several complicated issues concerning the bonds. The Oversight Board has proposed to postpone consideration of the issues until after the plans of adjustments are confirmed. She said that she believed that to be unwise.
On the other hand, she said she thought the current process whereby various groups are pursuing separate challenges to the board’s treatments of the bonds to amount to “chaos.”
To remedy the situation she called for a stay on filings in the cases and the handling of the issues by a committee overseen by chief mediator Barbara Houser.
Among the topics to be handled are the bonds’ validity and secured status; the possibility of consolidating challenges to bonds into a single case, the treatment of bonds under the U.S. constitution, and whether the elected government’s assent to any agreement is required.
Swain said that the committee could come up with a proposed schedule for handling the issues. Alternately, the committee could file a report on areas of agreement.
Houser said that she expected to present a set of procedures for handling the topics. Alternately, she said she might be able to present solutions for the topics.
After Swain presented her idea, the lawyers representing the key parties in the case expressed their support of the idea.
Swain said would issue a written order for the stay and mediation, which expire on Nov. 30.
