Puerto Rico bankruptcy judge Laura Taylor Swain has dismissed legal challenges to the proposed adjustment plan and suggested she would approve it mid to late this month.
Swain set out his positions Monday night in an order filed with the United States District Court for Puerto Rico.
In his filing, Swain said the court was prepared to file its findings of fact and law “promptly” along with a confirmation order on the Puerto Rico Supervisory Board’s filing of a modified sixth plan. amended.
Swain has scheduled an omnibus bankruptcy hearing on January 19.
“The Supervisory Board welcomes this latest progress towards confirmation of the plan, which would significantly reduce the total liabilities of the government of Puerto Rico,” the board said in a statement Tuesday morning.
The Supervisory Board said it will review Swain’s order and intend to file the amended adjustment plan by Friday.
Puerto Rico’s General Bonds, 8s of 2035, traded at 90.25 to 90.00 cents on the dollar on Tuesday, compared to 89.25 on Monday.
Swain’s latest move indicates that she may not be waiting for the US Department of Justice’s decision to defend the constitutionality of Puerto Rico’s Oversight, Management, and Economic Stability Act, which governs bankruptcy, after several parties filed lawsuits against this law. The DOJ has said it will file a PROMESA defense by February 7.
Puerto Rico attorney John Mudd said he expected “something final” by Jan.31. “The end of bankruptcy is near,” he said in a tweet.
In Swain’s working conclusions and legal paper conclusions, she endorsed the board’s interpretation of the locally adopted debt and pension law associated with the adjustment plan, Law 53. The board a stated that Puerto Rico had to pay for the adjustment plan, Swain had to interpret the law so as to allow the board to freeze the accumulation of retirement benefits and eliminate cost of living adjustments. This notwithstanding the fact that Law 53 contains wording saying that there will be “no cuts in pensions”.
Swain approved of the board’s interpretation. She said the wording of Bill 53 clearly only prohibited changes in the amount of monthly benefits, which the board agreed to.
“It is likely, in my opinion, that the government of Puerto Rico will reinstate the defined benefit pension system once the [board] is dissolved, ”said Cate Long, director of Puerto Rico Clearinghouse.
Bondholders Peter Hein and Arthur Samodivitz said PROMESA violated the uniformity clause of the US Constitution which states that Congress must create bankruptcy laws that are uniform across the country. Swain denied the existence of a violation, saying the Constitution allows Congress to treat territories differently.
Hein had declared that the retroactive application of PROMESA to debts prior to promulgation violated due process and the ex post facto clause. Swain dismissed this, saying Hein cited an irrelevant case to support his argument.
Long said she expects Hein and Samodivitz to appeal Swain’s rulings on these matters, once his rulings become final.
Hein and Samodivitz “failed to provide credible evidence that retail bondholders as a whole could not vote on the plan,” Swain wrote in his findings of fact and law.
Swain generally rejected the clause in contracts and the take-up clause challenges to the plan of Hein and others. She accepted these arguments when they took the form of eminent domain condemnation / reverse condemnation claims, which she said must be honored. The board said the adjustment plan can be changed to accommodate these claims while still being affordable for Puerto Rico.
Mudd said it was interesting that Swain’s proposed order and judgment upholding the adjustment plan “included the 7.94% limit on new debt (amending the Constitution of Puerto Rico, Article VI, section 2 ) but “the Secretary of the Treasury’s certification of compliance with the debt The limit under section 74.4 of the plan must be conclusive and binding in the absence of manifest error…”.
Puerto Rico has had a constitutional limit on its debt for many decades, but local politicians have found a way around it. Mudd may be concerned that the Governor-appointed Secretary of the Treasury will certify compliance.