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Puerto Rico ERS bondholders sue to be made trustees

A group of secured creditors of the Employees Retirement System of the Government of the Commonwealth of Puerto Rico asked a federal bankruptcy court Wednesday to appoint them as trustees to protect the bankrupt pension fund's claims against the commonwealth.

"Such relief is necessary because the Financial Oversight and Management Board has refused to litigate those claims" in the commonwealth's ongoing Title 3 bankruptcy proceedings, according to the motion, which also offered the option of an independent fiduciary with the bondholders' approval.

"Despite the fact that ERS was a debtor in its own Title III case and was an independent entity to which the commonwealth owed statutory financial obligations, neither the board's fiduciary duty to ERS nor ERS's fiduciary duty to its creditors appears to have been recognized or to have played any role in the board's decision making," the motion said.

The group of bondholders argue that the oversight board "has recognized the impossibility of simultaneously representing the commonwealth and other entities" in other cases brought by other bondholders, including those holding debt issued by the Puerto Rico Sales Tax Financing Corp., known as COFINA.

"But here the board has steadfastly refused to chart a similar course, even though the conflict in COFINA's case was in many respects less severe than the board's total plundering and destruction of ERS at the hands of the commonwealth," the lawsuit claims.

The pension system won an automatic stay to protect its assets, but in June 2017, the Puerto Rico Legislative Assembly passed a resolution, approved by the oversight board, that required ERS to sell its assets and transfer all funds into the commonwealth's general fund, and for employers to make contributions directly to the general fund.

The ERS bondholders group include Andalusian Global Designated Activity Co., Crown Managed Accounts for and on behalf of Crown/PW SP, Glendon Opportunities Fund, LMA SPC for and on behalf of Map 98 Segregated Portfolio, Mason Capital Master Fund, Oaktree-Forrest Multi-Strategy (Series B), Oaktree Opportunities Fund IX, Oaktree Opportunities Fund IX (Parallel 2), Oaktree Value Opportunities Fund, Oceana Master Fund, Ocher Rose, Pentwater Merger Arbitrage Master Fund, PWCM Master Fund and SV Credit.