Puerto Rico bankruptcy judge says no to insurers of revenue bonds

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Puerto Rico bankruptcy Judge Laura Taylor Swain on Wednesday rejected bond insurers’ continued efforts to lift a stay on the claims for nearly $7 billion in revenue bond debt.

Swain rejected other arguments to lift the stay or to appoint the insurers as trustee in early July.

U.S. District Court Judge Laura Taylor Swain.
Puerto Rico bankruptcy Judge Swain said she will decide some of the bond insurers' arguments when she resolves continuing adversary proceedings.

At that point she said that holders of Puerto Rico Highways and Transportation Authority, Infrastructure and Finance Authority, and Convention Center District Authority bonds didn’t have liens or security interests on money that hadn’t been deposited in the bond payment accounts when the authorities were placed in bankruptcy.

In the July 2 decision she left it to the parties to decide how to handle remaining lines of argument. The sides didn’t reach a consensus so Swain directed the plaintiffs to submit supplemental briefings in July.

On Aug. 11 Swain issued an order rejecting the motions of Assured Guaranty, Ambac Assurance Corp., Financial Guarantee Insurance Company, and National Public Finance Guarantee Corp. to made trustees of the HTA.

Since then, according to one attorney, Assured Guaranty submitted an appeal of this decision to the First Circuit Court of Appeals. National, Ambac, and FGIC are co-litigants. It was not yet docketed Wednesday.

One bond insurer lawyer said he expects the insurers to appeal the July 2 decision as well.

Swain issued two decisions Wednesday morning.

In one she denied the insurers’ stay relief motions on HTA and PRIFA revenue bonds. She also explained her reasoning for rejecting some of the plaintiffs’ arguments for a lifting of the stay on the CCDA bonds.

In the second decision she denies the motion for a CCDA lift stay for reasons particular to the CCDA bonds.

The litigants had pointed to Section 305 of the Puerto Rico Oversight, Management, and Economic Stability Act, which said that the court (that is, Swain) shouldn’t exercise powers on the debtor unless the Oversight Board or fiscal plan says it should.

In response, Swain referred to ongoing revenue bond adversary proceedings on these bonds in the Puerto Rico bankruptcy.

“It would … be premature for the court to conclude that the mere potential that the Oversight Board will invoke section 305 in response to defenses or counterclaims that have not yet been formally pleaded in the Revenue Bond Adversary Proceedings entitles Movants [bond insurers] to immediate stay relief,” she wrote.

Swain also wrote, “because the circumstances upon which Movants’ due process-related concerns are based — namely, the deprivation of a forum in which to assert colorable claims — do not currently exist and may never materialize, section 305 and [an earlier appeals court decision] do not provide a mandatory, standalone basis for the court to lift the automatic stay at this juncture.”

Swain noted that she had already found the insurers didn’t hold liens on the revenue streams and quoted another judge that those who didn’t have these liens should generally not be given relief from automatic stays. She said it was “unreasonable” for her to give the insurers relief from the stays for their constitutional arguments, because any property holders in the bankruptcy could use similar arguments to ask for relief.

Swain said it was important to keep the orderly administration of the cases and that granting the insurers’ motion would harm this goal.

In her decision on the CCDA bonds, Swain said there were inadequate confirmed facts to decide on whether the insurers were entitled to stay relief and what financial accounts were at issue. The movants have the burden of proof when trying to make a certain argument for stay relief, she said.

She said it would be better to deal with the factual issues along with other legal issues in the remaining adversary proceedings concerning the CCDA bonds.

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Puerto Rico Puerto Rico Highway & Transportation Authority Puerto Rico Infrastructure Financial Authority Commonwealth of Puerto Rico PROMESA Lawsuits Bankruptcy