Appeals Court Holds PROMESA Stay, Begins to Clarify Scope (document)
The First Circuit Court of Appeals, based in Boston, ruled that the stay provision on the PROMESA Act should not be suspended for the time being, and also began to provide guidance and signals as to how is it that creditors could, in fact, justify a lift on the stay.
The decision was issued by a panel that did not include Puerto Rican judge Juan Torruella, who has been a staunch critic of the PROMESA Act. The case before the judges included three main disputes: two requests from creditors of the Highway and Transportation Authority (HTA) and the Retirement System, and a request from the Fiscal Control Board (FCB), created under the PROMESA Law, to be allowed to intervene in creditors' lawsuits.
The judges warned impatient creditors that 'the PROMESA stay, which lasts a maximum of about 10 months, is less burdensome to creditors than a bankruptcy, which may persist for the entirety of the bankruptcy proceeding.'
Stay of itigation under PROMESA initially lasts until February 15, but may be extended until April 17 if a judge so provides, and may be extended until May 1 if the JCF does.
One of the most important determinations in the ruling, not only for this lawsuit but for all related actions, is that the debt restructuring process that Congress provided for in PROMESA cannot be automatically interpreted under the Federal Bankruptcy Code when doubt arises. The court emphasized that the PROMESA process is unique in its class and, therefore, cannot be interpreted automatically under another law.
Another provision that affects many other plaintiffs besides those in this case is that the judges found that a creditor of the Government of Puerto Rico will be able to obtain a lift on the stay if it can prove that its debt does not have adequate protection, or does not have an adequate payment guarantee.
For example, in this same case, the judges found that the HTA creditors have adequate protection because the government will continue to collect tolls and although the money to repay them might not be available today, it will be in the future, because there's a source for it.
But in the case of Retirement System's creditors, the judges determined that they have a right to an evidentiary hearing because the Retirement Systems Administration itself has stated in documents that the state contribution that is supposed to be source for the payment of bonds is in an operational account and there is no guarantee that it will exist in the future.
As for the Board, the appellate judges revoked Judge Francisco Besosa, who had denied the Board intervention for a technicality, which the appellate court said should not apply to said entity, thus allowing the Board to intervene.