Title III Court allows constitutional challenge to PROMESA
By The Star Staff
The Title III Court is allowing, with conditions, a constitutional challenge filed by Finca Matilde Inc. against the Puerto Rico Oversight, Management and Economic Stability Act (PROMESA), arguing it allows the taking of a private property without just compensation in violation of the U.S. Constitution.
Finca Matilde won a suit to get $11 million compensation from the government in the local courts. However, under the debt deal, the payment is considered an unsecured credit.
Finca Matilde questioned the validity of PROMESA as part of an objection to the Seventh Amended Title III Joint Plan of Adjustment of the Commonwealth of Puerto Rico, that included, but was not limited to, challenges to the Bankruptcy Code alleging that they violate the bankruptcy clause, the prohibition on ex post facto laws, the contracts clause, the privileges and immunities clauses, due process clauses, the takings clause, and the equal protection clause of the U.S. Constitution.
Judge Laura Taylor Swain ordered that Finca Matilde’s challenge to the constitutionality of PROMESA, among other challenges to the constitutionality of PROMESA and/or the Bankruptcy Code that have been filed in objection to the debt adjustment plan, be certified by the attorney general of the United States.
She also ordered the Clerk of the Court to forward a copy of her order, the Plan and Finca Matilde’s Objection to the U.S. attorney general.
The challenge came as the conference committee report on the legislation enabling the debt adjustment plan was pending approval in the Senate at press time. The House approved the single version of the bill earlier this week.
The Financial Oversight and Management Board for Puerto Rico filed an amended Plan of Adjustment to restructure some $35 billion of debt and other claims against the Commonwealth of Puerto Rico, the Public Buildings Authority (PBA) and the Employee Retirement System, and more than $50 billion of pension liabilities.
The amended plan substantially reduces Puerto Rico’s debt and debt service payments and reflects the impact of natural disasters. The plan includes three support agreements: the agreement with general obligation (GO) and PBA bondholders, the agreement with the Official Committee of Retirees and the agreement with the Public Servants United of Puerto Rico/American Federation of State, Country and Municipal Employees Council 95 to protect pensions for the long term and secure collective bargaining agreements.
The plan reduces the outstanding commonwealth debt and other claims by almost 80%, from $35 billion to $7.4 billion in new GO debt. The plan ensures sustainable and affordable annual debt service of less than 8% of fiscal year 2020 own-source revenues by reducing the maximum annual debt service from as much as $4.2 billion to $1.15 billion, making as much as $3 billion per year available for the services. Confirmation hearings for the plan are slated for next month.