For four and a half years, Federal District Judge Laura Taylor Swain has said and has been optimistic that the process of reorganizing Puerto Rico’s public finances through the Federal Promesa Act would be for the benefit of its people.

During a meeting that lasted nearly two hours, he listened to leaders of the Puerto Rican government and Financial Supervisory Board (JSF), Swain expressed – for the first time – what seemed unexpected before: considering, among the alternatives the court has, the possibility of examining whether to dismiss the largest municipal bankruptcy in the history of the municipality of the United States.

“I definitely don’t want to do that, but I think, at this point, it’s been four and a half years, and I’m going to have to put it on the radar.”, the federal judge confirmed.

Swain’s expression of the possibility of ending Title III cases in Puerto Rico came minutes after the chief justice for the Southern District of New York raised another concern about Puerto Rico’s future. Al Jazeera: What would happen to the territory of the United States if the automatic suspension of litigation that Congress granted to the island with Promesa ceased.

Thanks to this shield, the Puerto Rican government did not pay a penny to bondholders and other obligations and allowed it to operate virtually unchanged for five years.

“I’ll be honest, my patience is running out”Swain said, noting that she is not convinced that delaying the central government’s Plan of Adaptation (PDA) confirmation process would be in Puerto Rico’s best interest.

Swain then explained that if the court had no other alternative and dismissed Title III cases, the council would continue in office and Puerto Rico would lose the protection against litigation, the shield that Promesa had provided against creditors.

The judge warned that if that were the case, Puerto Rico would see “chaos.” Swain explained that if millions of dollars were paid to lawyers and advisors thus far, the fight with creditors would cost billions of dollars, a scenario that would not benefit much retirees and the general public.

Swain made his statements at a conference meeting that, under other circumstances, would have been among the lawyers. It was a public meeting, both virtual and by phone, due to the pandemic. An official of the Federal Court in Hato Ri informed this newspaper about 500 people connected with the phone call.

“We’ve never been close to a deal. It’s now up to (the council) to preserve the benefit of (curbing collection claims against the government). Failure to do so would be the worst,” Washington-based Commissioner Jennifer Gonzalez said after the hearing.

“No one should get to the point where the agreement is not approved because (the board) bans the scope. I call on the board to reconsider and accept the agreement reached by the elected officials of Puerto Rico,” added Gonzalez.

fixed in their positions

Despite Swain’s remarks, yesterday, the legislative leadership, the governor Pedro Pierluisi The House has remained steadfast in its positions regarding House Bill 1003. This is the legislation that will be necessary for Sweyn to be able to analyze the PDA from November 8, the oblivion in which the procedure was found was the cause and on Friday the judge will subpoena parties promptly.

Yesterday, instead of reconciliation, the two sides repeated what had happened since July. At the time, Swain authorized the PDA information release to continue the confirmation process and urged the board and the government to come to an understanding.

In short, the legislature and council are fighting over public sector retirees, and it’s just one of the many groups that will be affected by the personal assistant law. The legislature and the executive want to protect this group of unsecured creditors – such as bondholders – beyond what was agreed between the board of directors and the official retirement committee (COR).

Through negotiations, the Board agreed to grant additional funds to the University of Puerto Rico and municipalities and even exclude from the PDA a reduction of up to 8.5% in the monthly pension for retirees whose monthly income is more than $2,000. But the board did not agree that debt restructuring is conditional on no cuts in pensions and that the government can continue to provide future retirement benefits that it cannot afford.

On Sunday, after Bill 1003 did not receive Senate approval, at the request of the House, the leaders of both bodies agreed on new language that would allow the measure to be approved in both houses.

A clamor for the “democratic process”

Before ordering a change in the agenda for the PDA’s confirmation hearings, John Rapisardi, the governor’s chief attorney general, asked Swain to allow both legislatures to approve the new measure and review it by the board.

Referring to American football, Rapisardi emphasized, “We’re on one line, we can’t lose the ball.”

“By the end of tomorrow (today), we could have the legislation we need to pass the Senate and the House of Representatives. I will probably sign it,” said Pierluisi, for his part, as he signed the expressions of his attorney.

But, right after that, Executive Director of the Board of Directors, Natalie Yarsko, predicted that the new language to be adopted in Project 1003 today contained a “poisonous pill.” That’s because, according to the executive, the language to be voted on today will require debt restructuring not to make cuts to pensions.

The Speaker of the House, Rafael “Tateto” Hernandez, told Swain that he would get approval for the measure. “What the agreement does is to clarify what was approved in the House of Representatives,” he said.

But when Swain asked Senate President Jose Luis Dalmao if the agreed language this time was in line with the Senate’s expectations, the state librarian’s chief limited himself to saying the bill would get the necessary 14 votes. for approval at that time. Commission. Meanwhile, his lawyer, former representative Luis Vega Ramos, noted that the language is “very close”, not without first expressing that before leaving Project 1003 without the necessary votes, that body tried to reach an understanding with the Board, but got no to reply.

Public Finance Council appeal

Given the position of the legislative and conservative leadership, council attorney Martin Benenstock told Swain that it would be wise to postpone the confirmation hearing. “We need unambiguous legislation,” he stressed.

Beninstock added that postponing the confirmation process would allow the parties to reach agreement on the controversial measure or would give space to find another alternative to amend the PDA and complete it without legislative interference.

She indicated that the withdrawal of the personal digital assistant or its failure to confirm it before the deadline set by the bondholders will lead to the activation of the penalties stipulated in the agreement with the bondholders.

At the time, Jaresko said that if the confirmation hearing could not be postponed, “the board is ready to withdraw the PDA.”

Originally, the PDA’s co-principal bondholders – who together own $7,955 million in Puerto Rican bonds – had hoped to see the plan confirmed in June. Later, when they finally agreed with the board of directors, they agreed that the deadline for confirmation of the PDA would be on or before December 15, or on or before January 2022, if necessary.

Almost shaky, Benstock and Garsko repeatedly pleaded for a delay.

Not even a similar claim from attorney Arturo García, who represents bondholders of the State Development Bank’s Debt Recovery Authority, has any interest. García was the only one to ask with the board of directors to postpone the confirmation process, but for different reasons.

According to Garcia, whose clients are objecting to the PDA, if at this point there is no certainty about what will happen to Project 1003, how, just days before the trial begins, the parties will be able to prepare for the controversy in the confirmation process.

And supplication after supplication is futile.

Bondholders Monitoring

As the legislative leadership and the board drew the line on their positions, attorney Susil Kirpalani, who played a key role in restructuring the Cofina Foundation and now represents the Legit Debt Coalition (CDL), objected to delaying confirmation of the PDA and the board is seeking some other alternatives. “The deadlines are there because they work,” Kirpalani said, criticizing the board for seeking to delay confirmation of the PDA by hinting at “hypothetical scenarios.” That is, when referring to the penalties – about $100 million in fees – that the Puerto Rican government could pay if no deal was reached.

In a talk lasting about two minutes, Kirpalani told Swain what he and lawyers for three other groups of bondholders supporting the council’s PDA had said in a letter revealed by this newspaper.

Kirpalani said if the board decides not to proceed with the confirmation of the PDA, its clients will seek to exercise “all of their rights,” including dismissing Title III cases.

After listening to Pierluisi, Hernández, Dalmau Santiago, and the council, and allowing the legislature to vote on Bill 1003, Swain ordered a round of secret mediation, as El Nuevo Día expected, to resolve differences, if any.

Judge Barbara Hauser, leader of the Title III mediation team, agreed on the spot.

Hauser, who along with three other judges fought for countless hours with bondholders, lawyers and advisors to secure the financial terms of at least five agreements that make up the PDA, said he would find it “a shame” for the PDA to go through modeling motions at this point. from the game. “All the agreements incorporated into this (PDA) have been aggressively negotiated,” Houser said, noting that the proposal contained “significant” cuts to the payments that Puerto Rico would make, and that part of the compensation creditors would see would depend on the island’s economic conditions improving .

With Swain’s order at the front, almost hopelessly, Bienenstock replied that an option was being sought within 24 to 36 hours because he feared the legislative process would end as before. He added that the council was willing to participate in the process, but said it would be a “waste of time” if the legislature did not comply with the conditions imposed.

The problem with the lack of clear legislation, in the opinion of the board, is that when the time comes to discuss the PDA based on its merits and analyze whether Puerto Rico can honor the proposed debt amendment, the conditions in the legislation make that the plan cannot be confirmed.

He asked Swen Hauser, once seated at the table with the board and government leadership, to certify whether what had been done would allow a 10-day trial of PDA analysis.

Houser will have to file this certificate on November 2. If this is not possible, you shall indicate whether it would be beneficial to postpone the confirmation hearing as requested by the Board.

After two days, the board must report to Swain to indicate whether the PDA can be discussed on the agreed date. If not, how can it be done without legislative intervention or what alternative measures can be envisaged.

If none of this is feasible and cannot be carried out “in the near future,” as Swain ordered, the council must determine whether entering into new negotiations would do anything or “whether the court should make an order to show reason about why.” No Title III cases should be dismissed.