Court decisions coming soon in key Puerto Rico bond restructuring cases

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Three challengers to Puerto Rico’s bond restructuring will advance their cases in the legal system in the next few weeks and months, an attorney said.

U.S. Court of Federal Claims Chief Judge Susan Braden in mid-July issued an opinion that suggested that the federal government was responsible for any Puerto Rico Oversight Board-mandated cuts to bond value. She found “it is likely … that the [plaintiff’s] injury will be redressed by a favorable decision.”

Braden chose to reserve a ruling until Title III Puerto Rico bankruptcy Judge Laura Taylor Swain issued her rulings on hedge fund Aurelius and Puerto Rico Electric Power Authority union UTIER’s adversary proceedings. Swain released the ruling against Aurelius in mid-July and against UTIER on Wednesday.

Puerto Rico Attorney John Mudd said Braden’s case will probably now go forward. He said he expected one of its attorneys will notify Braden of the UTIER decision and then Braden will seek motions for summary judgment. These would then be followed by oral arguments.

Braden is likely to rule in favor of the plaintiff, Altair Global Credit Opportunities, and against the defendant, the United States of America, Mudd said. But this ruling may not happen until January or February. Altair is seeking to be compensated for losses it has incurred on Puerto Rico Employees Retirement System bonds.

Regarding Braden’s opinion, Municipal Market Analytics Partner Matt Fabian said, “We may still be years away from any dollars changing hands. Plus, because it’s the U.S. government that’s being sued, plaintiff victories don’t necessarily undermine Puerto Rico’s budget balance or ability to live out its fiscal plan. I think [Braden’s July opinion] is interesting but it’s too early for non-Altair bondholders to get excited.”

The Aurelius and UTIER challenges are continuing in the form of appeals to the U.S. Court of Appeals for the First Circuit in Boston. Both the union and the investment fund are arguing that the means by which Oversight Board members had been appointed had violated the Appointments Clause of the U.S. Constitution.

UTIER filed a notice Thursday of its intention to appeal Swain’s ruling. The Aurelius appeal is scheduled for oral arguments on Sept. 10. UTIER will have to “hustle” if it is to present an oral argument along with Aurelius at the Sept. 10 hearing, Mudd said.

The First Circuit Court may rule on the appeals by November, Mudd said. There would likely be petitions for certification in the Supreme Court in December.

Supreme Court Chief Justice John Roberts and his fellow justices could decide on whether to accept the cases in January. If the Supreme Court accepted one or both cases, the court’s justices probably would rule in June and they would certainly rule no later than June 28.

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PROMESA Puerto Rico Employees Retirement System Commonwealth of Puerto Rico Puerto Rico Electric Power Authority Puerto Rico Infrastructure Financial Authority Puerto Rico Sales Tax Financing Corp (COFINA) Puerto Rico