SAN JUAN, Aug 17 (Reuters) - A U.S. federal judge on Friday ruled against a group of bondholders that bought debt issued by Puerto Rico’s largest public pension, the Employees Retirement System (ERS), denying their ability to hold claim on property used as collateral.
With roughly $120 billion in debt and pension liabilities, Puerto Rico filed for bankruptcy protection under a court-ordered process created under the so-called PRO MESA Act.
Judge Laura Taylor Swain, who presides over Puerto Rico’s bankruptcy process, stated ERS bondholders “do not possess a perfected security interest” over property pledged by the bankrupt public entity to pay its debt.
According to Swain, “any security interest held by” this group of bondholders over ERS revenues is “invalidated and unenforceable.”
The ruling lands yet another blow to Puerto Rico bondholders who seek to minimize their losses amid the U.S. commonwealth’s record municipal bankruptcy.
ERS bondholders had argued otherwise, claiming they had a right to receive payments out of ERS’s revenue sources, particularly employer remittances into the pension system.
The Puerto Rico government, meanwhile, had acknowledged at one point that ERS bondholders had valid and enforceable claims over employer contributions, but later asserted they were not properly validated.
Puerto Rico’s pension systems have almost no cash and a nearly 100 percent funding shortfall that is thought to be the largest ever for comparably-sized U.S. public pensions. The government moved to a pay-as-you-go basis, a system in which pension benefits are paid out of the island’s general fund, to the tune of roughly $1.5 billion a year. (Reporting By Luis Valentin Ortiz Editing by Daniel Bases and Chris Reese)
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