Puerto Rico HTA bankruptcy judge rejects stay on plan of adjustment

The request for a stay on implementation of the Puerto Rico Highways and Transportation Authority plan of adjustment was rejected by U.S. District Court for the Southern District of New York Judge Laura Taylor Swain on Tuesday.

The current and former HTA employees that sought the stay, will turn to the U.S. Court of Appeals for the First District to appeal the ruling, said John Mudd, the attorney representing the group.

Mudd and the group, called the Vazquez Velazquez Group, appealed the plan of adjustment’s treatment of its members in late October. Swain approved the plan of adjustment on Oct. 12, but it has not yet been implemented.

“The relevant considerations overwhelmingly weigh against granting the movants the extraordinary remedy of a stay of the HTA plan pending the outcome of their confirmation appeal,” Swain said.

The Vazquez Velazquez Group said sections of Puerto Rico Oversight, Management, and Economic Stability Act and HTA implementing federal safety requirements in setting the employees’ pay levels, mandate that they be paid in full.

Swain said she must weigh four factors in determining whether to order a stay: “(1) Whether the stay applicant has made a strong showing that [it] is likely to succeed on the merits; (2) whether the applicant will be irreparably injured absent a stay; (3) whether issuance of the stay will substantially injure the other parties interested in the proceeding; and (4) where the public interest lies.”

After reviewing the litigants’ arguments concerning the first three factors, she found the factors weigh against a stay. The litigants did not address the fourth factor, so it must be seen to weigh against them, she said.

Victory on appeal of the plan remains “a negligible likelihood,” Swain said.

Since any damage can be taken care of with monetary payment, the grievance does not “support a finding of irreparable harm,” she said. The Puerto Rico Oversight Board has estimated a loss would cost it no more than $50 million, which would not render the HTA plan “unfeasible,” she said.

The employee group claimed without a stay their appeal of the plan’s treatment would be found “equitably moot.”

But Swain said the employees did not explain why the appeals court would find the claim equitably moot since theirs is “a discrete claim that can be satisfied regardless of substantial plan consummation.”

Also, Swain ruled the stay would substantially injure other interested parties, which outweighs “the potential harm resulting from a delay in the effective date, which could, in the worst case, undermine the HTA plan and cause it to unravel, undoing years of extensive negotiations.”

A stay would lead to millions of dollars of administrative and professional expenses for the parties and delay the distribution of hundreds of millions of dollars to the HTA creditors, delaying their ability to invest this money, Swain said.

On the issue of the public interest, Swain said, if the HTA were implemented it would reduce HTA’s debt to about $1.6 billion from $6.4 billion and reduce annual debt service to about $90 million from $294 million. This supports the goal of PROMESA to reestablish fiscal responsibility and access to the capital markets, she added.

The Oversight Board and HTA bond insurers had separately challenged the employees’ request for a stay.