During the June 12, 2019 Omnibus Hearing, Martin Bienestock informed Judge Swain that the Board would file the Commonwealth Plan of Adjustment. Since the Plan of Adjustment must be consistent with the Fiscal Plan, and the latter requires cuts to pensions, it is likely Governor Rosselló will oppose it. To this we must add that the Board filed an adversary proceeding against the Commonwealth to invalidate law 29-2019, which exempts municipalities from contributing to the pension funds and medical plans. The adversary proceeding also wants the Commonwealth to comply with the reporting requirements throughout PROMESA. The Governor has promised a vigorous defense.

Although PROMESA is silent on this issue, an opposition by the Commonwealth to its Plan of Adjustment does not abide well for it. In addition, GO bondholders will oppose since it severely cuts its “secured” credits. Moreover, although the Board sued to invalidate certain PBA and GO bonds, it now wants a stay on that litigation in order to process the Plan of Adjustment. Although this stay only benefits the Board, it is likely Judge Swain will grant it. Moreover,  from the glimpse we got from the Board when it announced its settlement with certain GO and PBA creditors, it seems unsecured creditors of the Commonwealth will receive ~ 9% of their claims. Since the Commonwealth is sitting in over $10 billions in deposits which no one has explained, it is a certainty that there will be myriad of complicated and arcane objections to the Plan of Adjustment even before it is voted upon.

We must also consider that the Rosselló Administration is facing close to a dozen investigations by the FBI and the Inspector General. If any of these investigations results in arrests of the administrations close collaborators or key politicians, will this affect the weight of its objections to the Plan of Adjustment? In any event, it seems plausible that the Rosselló administration wishes to postpone any approval of any Plan of Adjustment until after the elections of 2020 so not to receive any negative impact of said plan, including to start paying debt.

Moreover, on July 24, 2019, the First Circuit will hear oral arguments on the issue of Board recommendations being put in the Plan of Adjustment as an order and its implications for the budgets. Judge Swain sided with the Board and although I believe she will be upheld, you never know. If she is reversed, this would create havoc for the Plan of Adjustment. Also, on October 15, 2019, the Supreme Court of the United States will hear arguments on the constitutionality of the Board’s appointments. Normally the granting of the Board’s certiorari would weigh heavily on a reversal but the SCOTUS granted cert on ALL petitions. This means that the SCOTUS could determine that the Board was constitutionally appointed, could affirm the First Circuit decision or could decide the Board was unconstitutionally appointed and all of its actions were null and void. That would mean back to square one.

What does this all mean? That even if the Plan of Adjustment for the Commonwealth is filed this month, its approval would likely not be soon. There are too many imponderables at the present time.