The 1st U.S. Circuit Court of Appeals in Boston ruled Thursday against a group of Puerto Rico pension bondholders seeking pension assets and a share of future revenue.
The three-judge panel upheld a June decision from the federal judge overseeing Puerto Rico's complex bankruptcy case. U.S. District Judge Laura Taylor Swain in San Juan ruled in favor of the Employees Retirement System of the Government of Puerto Rico and the federal oversight board, dismissing arguments by ERS bondholders that they were entitled to some assets that existed when they bought the bonds as well as future pension contributions, which are now coming from general revenues.
Ms. Swain said in her ruling that Congress expressly incorporated bankruptcy tools, including the ability to limit liens, in the Puerto Rico Oversight, Management and Economic Stability Act, and the court "cannot subvert the clear intent of Congress."
The appeals court said in its ruling that among other issues, future benefit payments "are an expectancy, not a property right," and noted that the bond documents stipulate that payments are based on Puerto Rico's future fiscal condition and subject to changes by the legislature.
The Financial Oversight and Management Board for Puerto Rico and the group representing pension plan participants reached an agreement in June to protect retiree benefits as the commonwealth goes through bankruptcy proceedings. The group, the Official Committee of Retired Employees of the Government of Puerto Rico, whose Spanish acronym is COR, was appointed by the U.S. trustee to represent more than 167,000 government retirees from the Employees Retirement System of the Government of Puerto Rico, the Teachers Retirement System and the Judiciary Retirement System.
COR counsel Robert Gordon, a partner with Jenner & Block LLP, said the group which submitted briefs and participated in oral argument before both courts, welcomed the ruling. "This ruling not only releases any claims by the bondholders to assets of ERS received post-petition, but it also should invalidate their purported claims to amounts paid by Puerto Rico's municipalities and agencies to the central government under the pay-as-you go (PayGo) system, which has been dispensing pension benefits since July 2017," Mr. Gordon said in an emailed statement.
"The ruling should provide meaningful support to Puerto Rico's restructuring efforts and to the protection of Puerto Rico's retirees and their retirement benefits," he said.