President Donald Trump plans to nominate the present Puerto Rico Oversight Board members to serve their terms through the end of August.
The president’s action won praise from Democrats in Congress, as it may avert an interruption of the board's work to bolster the island's economy and fiscal management. Friday's announcement came as the board prepared to launch law suits seeking to claw back payments made on and fees paid for more than $6 billion of Puerto Rico bonds.
On Feb. 15 the 1st Circuit Court of Appeals ruled in favor of bondholders that the method of appointment of the board, as found in the Puerto Rico Oversight, Management, and Economic Stability Act, had been unconstitutional. For the board to continue to operate beyond May 16, the court required the president to nominate and the Senate to confirm the board members.
Trump, in a posting to the White House website, said he intends to nominate the current seven members to serve out their terms.
According to PROMESA each term is three years, so if the Senate confirms the members their terms would end on Aug. 31.
“I’m glad he’s nominated them,” said Cumberland Advisors Portfolio Manager Shaun Burgess. Cumberland owns insured Puerto Rico debt. “It’s probably the simplest thing to do. ... It remains to be seen if it goes through the Senate.”
“I think the board is running against the clock,” Burgess said. “After May 16th everything will grind down" unless the Senate approves them. Burgess said it was a “coin flip” whether the Senate will approve the current board members by May 16.
“Mismanagement, corruption, and neglect continues to hurt the people of Puerto Rico who deserve better from their government,” according to the White House statement. “The most important component for future health and growth of Puerto Rico is financial constraint, reduced debt, and structural reforms."
“The work of the Financial Oversight and Management Board for Puerto Rico is providing the stability and oversight needed to address these chronic issues that will bring hope of a brighter future for Puerto Rico,” the statement said.
U.S. Rep. Raúl Grijalva, D-Ariz., hailed the move: “The president’s decision to nominate the members of the Financial Oversight and Management Board for Puerto Rico for Senate confirmation is welcome. Democrats supported PROMESA largely to enable Puerto Rico to restructure and reduce its debts. If the 1st Circuit’s ruling invalidating the original appointments had not been addressed, the board would have collapsed and three years of work on debt restructuring would have been wasted."
“We are close to a final restructuring agreement on the largest remaining block of Puerto Rican debt, and it’s in the interests of the Puerto Rican people to finalize that agreement without interruption,” continued Grijalva, chair of the House Natural Resources Committee, which oversees Puerto Rico.
“To essentially start over with new appointments to the Oversight Board would have injected serious uncertainty and chaos into the debt restructuring process,'' said Rep. Nydia Velázquez, D-N.Y. "While I support the reappointment of these members to the board, I will continue holding them to account to ensure they are always acting in the best interest of the people of Puerto Rico.
“Austerity measures are not the answer for Puerto Rico and I’ll continue pushing the board to put ordinary Puerto Ricans before Wall Street creditors and hedge funds,” Velázquez said.
The board released a statement also welcoming Trump’s announcement.
The board has asked the 1st Circuit Court to extend the May 16 deadline for acting as the board. It has also filed a petition for certiorari with the U.S. Supreme Court to review the appeals court’s February decision.
PROMESA allows the reappointment of board members to additional terms. Assuming the board’s members are appointed to remain on the board through the end of August, it remains to be seen if all seven members would seek to stay on the board beyond August and whether they would be approved.
At the Title III bankruptcy hearing on April 24 one of the board’s lawyers said it was planning to bring suit against 27 underwriters, nine law firms and five accounting firms connected with their involvement with the issuing of Puerto Rico bonds.
The board has until 5 p.m. on Wednesday to file suits connected with the sale of general obligation bonds. It said it will also take actions with regard to the sale of Employees Retirement System bonds and Public Building Authority bonds. It has until May 20 to launch suits connected to the ERS bonds. The deadline for the PBA bonds is unclear.
