Puerto Rico Employee Retirement System creditors defended their legal claim on revenues at a court hearing over the system's $3.15 billion of debt.

Altair Global Credit Opportunities Fund (A), LLC is leading more than 30 investment funds in the Title III ERS bankruptcy case. Altair and the funds argued that their bonds have a continuing lien on Puerto Rico government employer contributions to the pension system.

Puerto Rico Title III bankruptcy Judge Laura Swain introduced Chief Mediator Barbara Houser on Wednesday.
Title III Judge Laura Taylor Swain asked tough questions of both sides Wednesday. U.S. Courts

In technical arguments, lawyers for the Employees Retirement System and the Puerto Rico Oversight Board, representing the system, said the bondholders didn’t have this claim.

Over the course of the hearing Judge Laura Taylor Swain questioned both sides without signaling which one she may favor.

Oversight Board attorney Jeffrey Levitan said the 2008 Financing Statements governing the bonds didn’t give the bondholders any collateral. He said the bondholders’ written argument quoted from legal rulings about “security agreements” and that what is allowed in these agreements are not allowed in Financing Statements.

Levitan said the system’s legal name changed in the last several years and the bondholders failed to properly follow-up on this development and that this was an additional reason the system didn’t owe money on the bonds. Levitan is a partner with Proskauer Rose LLP, which is representing the board.

Altair et al. attorney Bruce Bennett argued that the bondholders had a lien on employer contributions based on multiple commitments. The Jones Day partner said the 2008 Financing Statements gave the bondholders the lien. He said errors in the document weren't serious enough to undercut the bondholders’ claim.

Bennett said the Spanish name of the system hadn’t changed and that the change in the English name was just a translation change and without legal significance. Any name change would only affect property acquired after it took place and that was not being argued about.

Along with the Financing Statements, a parallel “security agreement” was created in 2008 and this perfected the lien, Bennett said. Bennett argued that 2015 and 2016 Financing Statements also assured the bondholders’ lien on the employer contributions.

Swain said that she would issue a written decision on the matter.

Wednesday's hearing was legally in the U.S. District Court for the District of Puerto Rico but took place in the New York City courtroom of Judge Swain because of hurricane damage on the island.

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Corrected December 14, 2017 at 12:54PM: An earlier version misidentified the Proskauer Rose attorney who spoke on behalf of the Oversight Board.