Judge threatens to dismiss 5-year bankruptcy case
By The Star Staff
Judge Laura Taylor Swain, who is overseeing Puerto Rico’s Title III bankruptcy, threatened on Monday to consider dismissing the five-year case if she is unable to confirm a debt restructuring plan.
Swain on Monday heard the Financial Oversight and Management Board’s request to adjourn confirmation hearings slated to start Nov. 8 to approve the seventh amended plan of adjustment (POA) to restructure $33 billion in central government debt.
She ordered the parties to go into mediation with U.S. Bankruptcy Judge Barbara Houser, who has mediated in the bankruptcy process previously. Houser will have until Nov. 2 to inform the court if she believes the confirmation hearing can go forward as scheduled. If that does not happen, then the oversight board will have until Nov. 4 at 2 p.m. to inform the court about its alternatives.
Swain said the oversight board must present a motion on whether the debt adjustment plan (DAP) can be approved without legislation and how long it would take to present an alternate plan.
The idea of approving a DAP without enabling legislation was rejected by Susheel Kirpalani, an attorney with the Lawful Debt Coalition.
“We reached an agreement with the Board and it was that the POA has to include legislation,” Kirpalani said. “The fiscal board and the government have to resolve their differences; neither of them should put at risk what has been achieved so far.”
If the oversight board cannot produce in the near future a POA that is confirmable, it must inform the court if it is going to request that the Title III case be dismissed. The court would then decide whether to ask the parties to show cause on whether that request must be granted or not, Swain said.
The judge asked the oversight board not to withdraw the DAP just yet.
“I am directing the board not to short circuit that process,” she said.
She said she was going to grant the Fiscal Agency and Financial Advisory Authority until noon on Friday to present its objections to the amended POA.
The judge’s determination came after the oversight board executive director, Natalie Jaresko, as well as the board’s lawyers, said it would be a waste of time to continue talks with the Legislature and that it would rather approve a POA that does not require legislative approval.
The oversight board’s legal adviser, Martin Bienenstock, said the Legislature is slated to move forward with the approval of legislation to enable the debt adjustment plan that is unacceptable. The legislation would make a needed bond exchange void if the oversight board freezes benefits for future retirees.
Jaresko said there was no reason to believe that the Legislature will change its stance.
“We have been speaking in good faith for two months, in which the board has acceded to all the requests made by legislators, but an adequate bill has not yet been produced,” she said. “There is no reason to believe that adequate legislation for the board will be produced in the next few days.”
The proposed amendments to House Bill 1003 contain at least two issues that make the measure inappropriate, Jaresko said.
“First, the amendments include ‘a poison pill’ in the language. And it is that they establish as a condition that there is no cut in pensions,” she said. “Although we agree that there will be no modifications in pensions, we are sure that the court will not find that language acceptable. … That is why we ask that you allow a postponement of at least 72 hours that gives us space to file a new DAP. If we are not allowed that period, the board is prepared to withdraw the DAP.”
Despite the oversight board’s rejection of House Bill 1003, Senate President José Luis Dalmau Santiago said the upper chamber is slated to vote on the enabling legislation for the DAP with the amendments agreed on during a meeting over the weekend.
“There is a signed agreement between the House, Senate and governor, but talks will continue,” he said. “I do not shut the doors.”