Judge Besosa’s Ruling on PROMESA Stay Spells Trouble for Plaintiffs in Other Cases
If U.S. District Court Judge Francisco Besosa’s recent ruling is any indication, the litigants in four consolidated cases that are seeking a lift of the Puerto Rico Oversight, Management, and Economic Stability Act’s (PROMESA) stay in legal challenges to the Puerto Rico Emergency Moratorium & Financial Rehabilitation Act may be in trouble, Caribbean Business reported today. Judge Besosa yesterday declined to lift the stay in the consolidated cases of Peaje Investments LLC; Altair Global Opportunities Fund, which includes some 30 hedge funds; and Assured Guaranty Corp., a monoline insurer. In the cases of Peaje and Altair, the judge said that they didn’t lack adequate protection, and he also ruled that Assured failed to prove injury in fact. Assured, which sued to stop the government from diverting funds from the Puerto Rico Highway and Transportation Authority (PRHTA), isn’t a bondholder and therefore isn’t directly owed money by the PRHTA, the judge said. He said facts indicate that an event of nonpayment by PRHTA won’t transpire during the pendency of PROMESA’s stay, which expires in February. Judge Besosa said that Peaje has adequate protection of its interests because provisions of both the Moratorium Act and PROMESA preserve its interest in PRHTA’s pledged revenues.
Get an in-depth look at the PROMESA Control Board and the issues it will be tackling with this ABI podcast.
In related news, Puerto Rico Secretary of the Treasury Juan Zaragoza said that the Government Development Bank for Puerto Rico, with about $3.8 billion of debt outstanding, may fail and that it’s possible that the island’s cities and public corporations won’t get all their deposits back, The Bond Buyer reported yesterday. In a response to Zaragoza earlier this week, Puerto Rico Mayors Federation executive director Reinaldo Paniagua said that the cities had more than $300 million in deposits at the GDB. The bank’s possible inability to return all deposits also jeopardizes loans for projects already underway, he said. Zaragoza sent a formal letter about the matter to municipal governments and public corporations on Oct. 18 and then followed up with a press release on Tuesday. GDB managers have “substantial doubt about the ability of the GDB to continue as a going concern,” Zaragoza said in the letter.
Do not miss the “Puerto Rico, ‘Super Chapter 9’ and the Future of Sovereign Debt” session at ABI’s Winter Leadership Conference, taking place Dec. 1-3 at Terranea Resort in Rancho Palos Verdes, Calif. Haven’t booked your hotel room? Act fast: ABI’s room block rate expires on Nov. 5!
Appeals Court Rules Texas Laws Govern Utah Foreclosures by Bank of America
The U.S. Court of Appeals for the Tenth Circuit ruled yesterday that Texas laws and not those of Utah govern home foreclosures in Utah by Bank of America, the Salt Lake Tribune reported today. The decision means that thousands of Utah homeowners who were foreclosed on by Bank of America will not be able to recover monetary damages based on the claim that those actions were illegal under Utah law. In a separate opinion, Judge Carlos Lucero warned that the decision is a serious blow to state sovereignty and that regulations from the Office of the Comptroller of the Currency on which the court's decision was based "create[] a race to the bottom in which national banks can choose to be governed by the state with the most bank-friendly rules." The decision comes in a lawsuit that stemmed from a wave of foreclosures in Utah by Bank of America's ReconTrust, which is headquartered in Texas. Many of the foreclosures stemmed from BofA's 2008 purchase of Countrywide Financial, whose shoddy loan practices were exposed during the bursting of the housing bubble. As many as 10,000 Utah homeowners have been foreclosed on since 2001 by Bank of America, according to the proposed class action lawsuit filed in 2011. Under Utah law, a foreclosure that is not filed in court can only be carried out by a Utah attorney or title company. ReconTrust is Bank of America's foreclosure arm and was the entity that foreclosed on Utah homeowners who had defaulted on their loans. The lawsuit sought awards to former homeowners as a result of the alleged violations of state law.
New Jersey Tops Illinois as State with Worst-Off Pension System
New Jersey became the state with the worst-funded public pension system in the U.S. in 2015, followed closely by Kentucky and Illinois, Bloomberg News reported yesterday. The Garden State has $135.7 billion less than it needs to cover all the benefits that have been promised, a $22.6 billion increase over the prior year, according to data compiled by Bloomberg. Illinois’s unfunded pension liabilities rose to $119.1 billion from $111.5 billion. The two were among states whose retirement systems slipped further behind as rock-bottom bond yields and lackluster stock-market gains caused investment returns to fall short of targets. The median state pension had 74.5 percent of assets needed to meet promised benefits, down from 75.6 percent the prior year. The decline followed two years of gains. The shortfall for states overall was $1.1 trillion in 2015. Pressure on governments to increase pension contributions has mounted because of investment losses during the recession that ended in 2009, benefit increases, rising retirements and flat or declining public payrolls that have cut the number of workers paying in. U.S. state and local government pensions logged median increases of 3.4 percent for the 12 months ended June 30, 2015, according to data from Wilshire Associates.
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