Puerto Rico’s debt reorganization hearings began in U.S. District Court in San Juan Wednesday, with a decision by Judge Laura Taylor Swain to consolidate administration of two existing filings affecting about $30 billion of bonds.
Bond insurer Ambac Assurance Corp. filed a motion in both cases -- one for the commonwealth’s debts and the other for the Puerto Rico Sales Tax Finance Corp. (COFINA) -- “strenuously” objecting to earlier motions to consolidate them, as Puerto Rico attorney John Mudd described it. Swain said the cases will for now be jointly administered while they remain legally separate, according to Bloomberg News.
The cases are moving forward under of Title III of the Puerto Rico Oversight, Management, and Economic Stability Act. The Puerto Rico Oversight Board may file additional Title III cases that would expand the court's coverage up to a maximum of $74 billion of debt.
The cases also affect Puerto Rico's $49 billion in government pension obligations. The current case may not affect all of these because some are for the employees of semi-autonomous Puerto Rico entities like the Puerto Rico Electric Power Authority.
Already the court supervised restructuring far eclipses the previous largest U.S. municipal bankruptcy. Detroit's bankruptcy case affected $18 billion in debt, pension obligations, and other post-employment benefits.
Earlier in the Puerto Rico cases, certain creditors had motioned to consolidate the cases, to apply local bankruptcy rules to the cases, and apply particular treatment of Puerto Rico government bank accounts. Ambac argued in its Monday filing that Swain should deny the motions. The cases were filed on May 3 and May 5.
On Wednesday the judge also heard presentations on whether the case should include mediation. If mediation is agreed to, the judge will also have to decide which groups should be included. The court’s ruling will affect bondholders, suppliers owed money, pensioners, and government employees. All or some could be part of any mediation.
The court also was expected to hear presentations on when Puerto Rico should be required to submit lists of its creditor and on what and how a notice to creditors concerning the hearing will be distributed.
Attorney Martin Bienenstock, who is representing the Oversight Board, said that other Puerto Rico public entities, including the Highways and Transportation Authority, would soon file for Title III, according to Reuters.
As is custom and law with federal cases, the court barred the electronic broadcast of Wednesday’s hearing by any means.
Mudd, who represents an architectural firm with a claim in the case, said the judge would probably take the topics under advisement and make rulings later.
In early April a deal was announced for restructuring the debt of the Puerto Rico Electric Power Authority. On May 8 PREPA said it would be seeking the Oversight Board’s approval of the deal under PROMESA Title VI.
On Tuesday Mudd said he thought it unlikely the deal would be approved under Title VI, which oversees consensual deals. The deal involves privatizing parts of PREPA, and the board has reportedly expressed interest in adjusting workers’ pensions. Doing the former would be politically easier under Title III and doing the latter would require Title III, he said. Therefore, the board will probably send the PREPA deal to court.
If it goes there, it is unlikely the judge would significantly change the terms of debt deal, he said.