Fiscal board asks high court to deny COFINA bondholders’ debt deal invalidation request

By The Star Staff

The federal Financial Oversight and Management Board has asked the U.S. Supreme Court to deny a petition from certain holders of Puerto Rico Sales Tax Financing Corp. (COFINA by its Spanish acronym) bonds that want to invalidate the 2019 COFINA’s debt deal because it is moot.

In another case, the administration of President Joe Biden, through the U.S. Department of Justice, told the U.S. Supreme Court earlier this week that it is up to Congress, not the courts, to decide whether Supplemental Security Income (SSI) benefits should be extended to Puerto Rico.

The remarks related to the SSI benefits dispute were made by the Justice Department in the case United States v. Jose Luis Vaello-Madero. In this litigation, the U.S. government sought to get back $28,081 in SSI payments that José Vaello Madero had received from the program over a three-year period after he moved back to Puerto Rico from New York in 2013.

The case was brought before the Supreme Court last year by the federal Justice Department after the U.S. First Circuit Court of Appeals panel ruled that exclusion of otherwise eligible Americans from SSI based on their residence in Puerto Rico violates the equal protection clause.

Before the Justice Department challenged the extension of SSI benefits to Puerto Rico this week, Biden had issued a statement announcing that his administration supported extending SSI benefits to Puerto Rico.

The Justice Department said Congress has a legitimate interest in maintaining a balanced fiscal relationship with the territories. The Constitution does not require Congress to grant full fiscal benefits to the territories. The cost of including Puerto Rico in the SSI program could reach $2.5 billion per year over the next 10 years.

Regarding the COFINA case, the First Circuit Court of Appeals in February had dismissed several challenges to the COFINA debt restructuring agreement that went into effect in February 2019 citing that they were moot. The debt deal restructured some $18 billion in COFINA debt.

Several bondholders, nonetheless, challenged the debt deal.

The federal oversight board said the Supreme Court must decide whether to vacate the lower court ruling even though such an order does not undo tens of thousands of security transactions by innocent strangers, releases of billions of dollars of litigation, and transfers of a billion dollars of revenues whose ownership was resolved by the plan.

It would be impractical to restore the pre-confirmation status quo, the oversight board said.

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