Puerto Rico Government Development Bank bondholders filed a motion to ensure that they may continue to pursue their constitutional challenges to the Puerto Rico Emergency Moratorium and Financial Rehabilitation Act, Law 21 of 2016, known as the “Moratorium Act.”
The action came just after President Obama signed the Puerto Rico Oversight, Management, and Economic Stability Act, or “PROMESA” into law last week. While the bondholders said they welcomed PROMESA’s enactment, they claim they “continue to be harmed by the unconstitutional provisions of the Moratorium Act, which impair plaintiffs’ bargained-for contractual rights and take plaintiffs’ property without just compensation in violation of the Contract Clauses and Takings Clauses of the Constitutions of the United States and of Puerto Rico, and provide for preferential treatment of certain GDB creditors in a facially discriminatory manner.”
In the time since the plaintiffs filed an amended complaint on May 20, 2016, the Supreme Court confirmed, in Puerto Rico v. Franklin California Tax-Free Trust, that the Bankruptcy Code preempts Commonwealth laws that attempt to impose a debt restructuring on creditors without their consent.
“Notwithstanding the Commonwealth’s unconstitutional actions, the members of an Ad Hoc Group of GDB bondholders, including the plaintiffs, have continued to work, as they have for over a year, to achieve a fair, equitable, and mutually beneficial restructuring,” the group said in a statement
The plaintiffs are funds managed or advised by Brigade Capital Management, LP, Claren Road Asset Management, LLC, Fir Tree Partners LP, Fore Research & Management, LP and Solus Alternative Asset Management LP. All of the plaintiffs except Fir Tree Partners LP are represented by Davis Polk & Wardwell LLP and Vicente & Cuebas, as legal counsel, and by Ducera Partners, as financial advisor; Fir Tree Partners LP is represented by Robinson McDonald & Canna LLP and Vicente & Cuebas, as legal counsel, and by Ducera Partners, as financial advisor.
“The members of the Ad Hoc Group welcome the opportunity to continue these negotiations before the control board to be constituted under PROMESA. Plaintiffs’ motion is intended to ensure that these crucial negotiations will not be undermined by the unconstitutional provisions of the Moratorium Act or by any other unconstitutional attempt to retroactively alter creditor rights by Commonwealth legislation or executive action,” the group said in a statement.