Puerto Rico board fight over pension laws continues

Judge Laura Taylor Swain will decide whether the Puerto Rico local government has the right to advocate pension positions to the bankruptcy court.

The Oversight Board’s proposed Findings of Fact and Conclusions of Law for the debt deal was challenged by Puerto Rico’s Fiscal Agency and Financial Advisory Authority. The board the claimed the FAFAA had no standing to argue its positions to the court, which the FAFAA contested on Friday.

Board attorney Martin Bienenstock has said if the pension laws are allowed to stand, the Plan of Adjustment might not be feasible, since implementation would cost about $5 billion, which the island cannot afford.

“As she has done in the past, Judge Swain will listen to FAFAA’s objections but that does not mean that she will agree with them,” said an attorney who is following the bankruptcy. “[It is] very unlikely she will agree with them, I think.”

“She will decide in favor of the board because they have better arguments, but mostly because she wants to end the controversy,” the attorney continued.

Puerto Rico Clearinghouse Principal Cate Long called the Board’s action “legal trickery.”

Previous rulings from the court, she said, established “the Puerto Rico government can contest decisions the Oversight Board makes.”

She questioned “why the board raises their far-fetched legal theory at this point.

“One possibility is that the board hopes Judge Swain orders the parties into mediation regarding [pension] Laws 80-82 because the board likely does not have sweeping authority in confirmation to preempt these laws.” While the Board thinks it has that power, Long said,
“section 4 of [the Puerto Rico Oversight, Management, and Economic Stability Act] limits their preemption right to laws that are ‘inconsistent’ with the statute.” Sections 108 and 204 give the government “the right to challenge the board’s decisions,” she added.

The Board claims it is “the sole representative of the debtors,” and the FAFAA does not represent the Puerto Rico government in the bankruptcy.

The Board specifically highlighted the FAFAA’s positions on pensions as being an attempt to control a topic that rightfully belongs to the Board.

At issue are three pension-related local laws passed in 2020: Acts 80, 81, and 82, which, for a time, the local government agreed not to institute. In November, the local Senate said Act 80 must be implemented within 60 days.

The Board then added the three acts to the measures preempted by the bankruptcy’s confirmation order, and presented it to Swain, who has not yet acted on it and probably won’t until at least February.

“To assert that FAFAA — the entity that represents the elected government of Puerto Rico — has no right to be heard on a plan that will fundamentally transform the rights and obligations of the Commonwealth is absurd,” according to a Friday filing from FAFAA. “And it is wrong: the Board’s argument (which implies that FAFAA is not even a party in interest in these Title III cases) is inconsistent with this court’s recognition of FAFAA’s standing under bankruptcy code section 1109, the Board’s conduct throughout the Title III cases, and the terms of the Plan [of Adjustment] itself.”