On November 2, 2016, Judge Besosa denied the lifting of the stay in the Peaje cases. We are still waiting for the decision in the Brigade cases but what many have not noticed is that Judge Besosa is establishing some clear views of the parties’ claims.


In Assured Guarantee, Corp. v. García Padilla, 16-1037, 16-1095- Judge Besosa issued an opinion deciding that the Moratorium law is not preempted by section 903 of the Bankruptcy Code, but it could be unconstitutional. What most reporters have missed in this opinion is that Judge Besosa quickly made clear at page 4 that [i]n cases of an unbalanced budget, the Commonwealth Constitution establishes a priority system detailing in what order appropriations will be paid. P.R. Const Art. VI § 8. First priority is assigned to ‘interest on the public debt and amortization thereof.’” The PR Government has maintained that due to its “police power”, the first priority of payment is essential services and not the debt. Clearly, this view is contrary to what Judge Besosa said.


On the most recent opinion, the Judge discussed Peaje bond claims and said:


Because of these provisions, and because PRHTA’S pledged revenues are constantly replenished by an ongoing stream of toll payments, Peaje Investments continues to hold a security interest in a stable, recurring source of income that will eventually provide funds for the repayment of the PRHTA bonds. Though it will not receive the pledged revenues during the stay period, this enduring security interest means that it faces only a delay in recouping such funds, not a permanent loss of them.

The Court believes that the existence of this continuing lien on a perpetual source of revenue satisfies the “flexible” standard applicable to determinations of adequate protection. (page 16 of the Opinion, underlining ours)


The Judge opined on the Altair bonds as follows:


Those plaintiffs, pursuant to the terms of the applicable bond resolution, hold a security interest and lien in certain pledged property, including all future employer contributions. This lien continues indefinitely until ERS’s outstanding debt obligations have been satisfied in full. As discussed above, nothing in the language of PROMESA or the Moratorium Act diminishes or destroys this lien against the ERS employer contributions, which, like the PRHTA toll revenues, are a perpetual revenue stream whose value is not decreased by the Commonwealth’s acts of temporary suspension. (page 17 of the Opinion, underlining ours)


Hence, Peajes and Altair bondholders in these cases have a pledge and lien on these streams of income and pursuant to Title III of PROMESA, are secured creditors, entitled to be paid in full. Moreover, pursuant to Section 201(b)(1)(N) of PROMESA, the Fiscal Plan must “respect the relative lawful priorities or lawful liens, as may be applicable, in the constitution, other laws, or agreements of a covered territory or covered territorial instrumentality in effect prior to the date of enactment of this Act.” Also, Section 314(b)(7) of PROMESA requires that the Bankruptcy be consistent with the Fiscal Plan. Finally, the House Natural Resources Committee Report on PROMESA, at page 50, in discussing section 314, stated that “[b]y incorporating consistency with the Fiscal Plan into the requirements of confirmation of a plan of adjustment, the Committee has ensured lawful priorities and liens, as provided for by the territory’s constitution, laws, and agreements, will be respected in any debt restructuring that occurs.’’


On November 3 the Board filed a motion for reconsideration of the Judge’s order on not to grant the intervention on the grounds that his legal reasoning is mistaken. I am not a fan of motions for reconsideration since Judges rarely reconsider. In my view, it is better to just do what they want instead of telling them they are wrong, but the issue is under the consideration of the Judge. As I expected, today Judge Besosa denied the Board’s motion for reconsideration. Now the Board will have to comply with the Judge’s order to present its position on the merits or appeal the decision. The Board has 30-days to file a notice of appeal.


In addition, today the Court denied PR’s motion for reconsideration on his decision in the Lex Claims case where he decided that the stay in PROMESA did not apply to the claims. In addition, Judge Besosa granted Lex Claims request to amend the complaint to question COFINA. The Judge cautioned, with reason, that the merits of the claims would be decided later. Lex Claims filed the Second Amended Complaint today. Let’s see what happens.



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