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Puerto Rico credit unions seek to undo treatment of their $1 billion of bonds

Several Puerto Rico credit unions argued for the court to undo the Puerto Rico and Government Development Bank for Puerto Rico plans of adjustment’s treatment of the credit unions’ nearly $1 billion of bonds, but the judges seemed unlikely to do so.

The credit unions presented oral arguments before a panel of three judges from the First Circuit Court of Appeals on Monday.

The Puerto Rico credit unions claim they suffered a “taking,” their attorney Guillermo Ramos Luiña said.

However, Senior Circuit Judge O. Rogeriee Thompson said while the co-ops had suffered a diminution of value, courts had ruled this cannot be considered a taking, and Ramos Luiña did not respond when the judge asked how this could be considered a taking.

When asked to show specifics about how Puerto Rico’s credit union regulator, COSSEC, had coerced the credit unions into buying the bonds, Ramos Luiña suggested paragraphs in his argument, which the judges said did not provide specifics of the coercion.

While acknowledging there is no “smoking gun,” the attorney claimed that all the facts together suggest a case for coercion.

Oversight Board Attorney John Roberts argued the defendants hadn’t identified any property that was taken, only money spent. The law, he said, does not consider it taking if government action merely leads to monetary payment “that does not affect a specific interest in property.”

One judge pointed out the credit unions claim they were coerced into buying the bonds.

Roberts also said the taking claim fails because there is no allegation they were denied just compensation, a necessary part of any such claim, since they received bonds.

Also, Roberts said, the credit unions’ evidence that they were compelled to buy the bonds, does not support their arguments.

In January Puerto Rico bankruptcy Judge Laura Taylor Swain denied the credit unions’ request to exempt their Puerto Rico bonds and notes from the cuts found in the plan of adjustment. They had argued COSSEC had used deception and coercion to get them to buy the bonds.

As one of her arguments against the credit unions, Swain had said they had not provided enough of the content of meetings with COSSEC to support their arguments.

The credit unions appealed the decision to the First Circuit last winter.

The Puerto Rico central government plan of adjustment went into effect in March.

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