Board and bondholders challenge Puerto Rico HTA stay request

The Puerto Rico Oversight Board and the main bondholders group challenged a request for a stay of the court-approved Highways and Transportation Authority restructuring.

The two parties filed separate challenges Friday in the U.S. District Court for Puerto Rico, which is overseeing the bankruptcy.

They were responding to the filing a week ago by a group of HTA employees, the Velazquez group, who said federal law mandates their wages be paid in full.

Both the board and the bondholders said U.S. legal precedent required bankruptcy Judge Laura Taylor Swain to consider four factors in deciding whether to grant a stay on her own restructuring decision: how likely the petitioning party was to succeed on appeal, whether the party would sustain irreparable harm without a stay, how much harm a stay would lead to on other parties, and how a stay would affect the public interest.

The board and bondholders presented similar arguments.

The bondholders said that the employees’ claim does not fall into any of the exceptions to discharge found in the Puerto Rico Oversight, Management, and Economic Stability Act.

“The federal laws and regulations the Velazquez group cites do not require the payment of the Velazquez Group’s asserted wage claims … but merely require HTA to take certain actions in connection with federal highway projects, such as including certain terms in contracts,” the board’s filing argues.

The employees had argued that they would be irreparably harmed without a stay because their appeal might become “equitably moot” before being resolved, which means that circumstances would have changed so that a court could not give any effective relief. The bondholders and the board said courts have argued showing the possibility of equitable mootness is not enough to demonstrate irreparable harm, both the board and bondholders said.

The board and the bondholders said that a stay would lead to substantial harm to the bondholders and to Puerto Rico. By delaying releasing hundreds of millions of dollars of cash to the bondholders, the bondholders would lose the ability to invest and earn income from the money, the board and bondholders said. A stay could put the entire restructuring at risk, the board said.

Finally, the board said the public interest is opposed to a stay. “The HTA plan will allow for safe, well-maintained roads and an efficient and accessible transportation system for Puerto Rico’s residents.”

If the restructuring goes forward the HTA “will be well-positioned to complete privatization efforts and maximize the return from any private concessions,” the bondholders said.

The board said if the court were to grant a stay, it should be conditioned on a $12.94 million bond. This would cover about six-months of costs to the creditors in unrealized interest and $8.4 million in additional professional fees expected to be incurred by Puerto Rico’s government.

According to the terms of the HTA plan of adjustment, holders of $4.3 billion of HTA bonds would receive $1.2 billion of new bonds with 5% coupons and $389 million of cash. The generosity of the deal depends on the type of HTA bond held.

Holders of HTA bonds might also receive recoveries through clawback contingent vehicle instruments.